Workers compensation measurement

The economic impact of a disease can be measured by the direct costs of medical care and workers compensation or disability payments, and the indirect costs associated with lost workdays and loss of productivity. In 1984, the estimated annual direct and indirect costs of occupational skin diseases exceeded 22 million.69 However, considering that the actual annual incidence may be 10 to 50 times greater than reported in the BLS data, the total annual cost of occupational skin diseases in 1984 may have ranged from 222 million to 1 billion.69... 

The results of an effective safety program not only can be measured in injuries prevented and lives saved but also may have a distinct bottom-line impact on the corporation or entity. Companies that do not have effective safety programs often pay the equivalent cost in terms of workers compensation and lost productivity. The inference can be made that a safe workplace is a productive workplace (McElroy 1964). 

Increases in any of our three main HRM practices— epdm. Employee Participation in Decision Making epfr. Employee Participation in Financial Returns and mgtcult, the level of management involvement in the safety processes of the firm—all lead to substantial reductions in workers compensation costs per employee. In Table 3.6, we measured per-employee safety gains both as a unit change in each of these indices and as a change to the Tjest practice levels. 

Later, while researching for Chapter 24, Measurement of Safety Performance, I observed that companies with superior OSHA rates also had lower workers compensation costs than did other companies. I then wanted to determine whether the quality of investigation of hazards-related incidents would also be superior. (For this second study, it must also be said that the methodology used would not stand the test of good science.)... 

Experience rating is mandatory for all employers who buy workers compensation insurance from insurance companies. For those employers, experience rating is one of the historical performance measures that can be used, cautiously, as an indicator of the quality of safety in place. Self-insured companies would not have workers compensation experience modifications. 

Still, workers compensation costs present opportunities for computation as performance measures. With the help of insurance personnel, fairly good estimates of the expected claims costs for an ensuing year can be made, provided that there are no catastrophic occurrences. With that data, interesting and useful performance indicators can be computed. Some examples follow. 

Another measurement system that could be of value is the rate, recorded over time, of workers compensation claims reported per 200,000 hours worked. 

The actuarial premises on which the workers compensation experience rating system was developed give credibility to OSHA incident recordable and lost workday case rates as measures, and predictors, of safety performance, with these qualifications The statistical base (the hours worked) on which the records are developed has to be large enough and low probability-severe outcome risks may not be encompassed within the experience base. 

Do the OSHA statistics—the recordable case rate and the lost workday case rate —for an exposure of 1,000,000 hours have a confidence level of, say, 68.27%, as measures of the quality of safety performance An entity of this size would more than likely purchase workers compensation insurance and have an experience modification as an additional measure. 

Table 2-2 summarizes the major studies exploring WC s impact on workplace safety. Studies of workers compensation insurance effects on the workplace vary tremendously in terms of samples used, risk measurements investigated, and characteristics examined. In general terms they address three questions (1) Did passage of state WC laws... 

Firms choose the combination of workers, capital, and expenditures on workplace safety that maximize their expected profits. When deciding how much to spend on safety enhancing measures employers consider the possible economic benefits of a safer workplace, such as greater output, lower pay for their workers, and lower workers compensation insurance premiums. To keep our simulations with a multiplicity of injury classes simple we again followed the assiunption of our earlier chapters in having firms choose the level of a generic device, safety equipment, that represents all safety enhancing expenditure firms make. A firm s expected profit then depends on the price of its product and its choices of safety equipment, capital, and its (effective) number of workers, tig, which is less than its total labor force, n. ... 

Using total expenditures as a measure of size the WC program is now larger than food stamps, Aid to Families with Dependent Children, and unemployment insurance. In 1987 WC covered about 88 million workers, 87 percent of the labor force, and paid about 25 billion in total benefits, approximately 1.4 percent of total payroll. Including administrative expenses the total cost of workers compensation insurance is now about two percent of total U.S. payroll expenses (Schwartz, et al. 1989). 

Our simulations and other researchers econometric results underscore workers compensation insurance provides economic incentives for employers to make their workplaces safer. The positive influence of WC on safety appears when actual injuries are measured instead of injury rates that reflect reporting bias. Public policy must cope with the fact that higher WC benefits lead some workers to file spurious claims for compensation and to spend more time away from work recovering from compensable injuries. 

Trailing indicators are the traditional metrics that measure past safety efforts (Dupont Corporation 2000). When using trailing indicators, data is collected after the fact (after a number of accidents or illnesses, after two years of workers compensation, etc.). Trailing indicators provide an organization with feedback in terms of how good performance has been over a period of time. Examples of trailing indicators include accident records, loss reports, injury and illness statistics, injury costs, and workers compensation costs. 

Common measures for a safety program s performance are insurance expenses and losses. A cost that is often tracked by safety professionals is the organization s worker compensation premiums. Workers compensation premiums can be calculated in a number of different ways. However, regardless of the method for determining premiums, they provide an excellent indicator for safety performance in the workplace. 

With these activity-based performance measures, there is also a variety of safety metrics that can be used to assess program performance. As identified by OSHA in studies ofVPP organizations, OSHA injury incidence rates, lost work day rates, and workers compensation losses are a few safety metrics that have been correlated to the performance of the VPP criteria activities. These measures can easily be expanded to include unsafe behaviors, accident trends, and near misses. 

Workers compensation insurance is not in its simplest form a preventive measure it is merely a way of distributing the costs of injury across all employers. It can be made to serve a preventive function if the insurance premiums paid by employers are stmctured to reflect the accident experience of the particular employer. If companies with high accident rates have to pay correspondingly high premiums this should, in theory, give employers a vested interest in the health and safety of their workers, assuming a carefully designed scheme. 

---