How Return-to-Work Programs Impact Workers’ Compensation Expenses

Workers’ compensation expenses are determined by a wide range of factors; however, one of the most significant cost components in any workers’ compensation system is claims history. Specifically, an increased frequency and severity of claims can exacerbate total losses and elevate premiums. With this in mind, it’s important for employers to take steps to mitigate workers’ compensation claims and keep related costs under control. That’s where return-to-work (RTW) programs can help.  

These programs are intended to help support employees as they reintegrate back into the workforce after getting sick or hurt on the job. RTW programs may entail having injured employees return to work with shortened hours, lighter workloads or different tasks (also known as transitional duties) while they recover. RTW programs offer several benefits, giving injured employees the opportunity to resume working even when they aren’t ready to take on their original job duties. In turn, these programs can allow employers to better assist their staff after occupational illnesses and injuries while reducing the overall complexity of associated workers’ compensation claims. This article provides more details on how RTW programs impact workers’ compensation expenses

Simplified Claims

Workers’ compensation insurance includes coverage for medical costs and wage replacement expenses (also called indemnity benefits). RTW programs allow employers to help injured employees safely transition back into their roles rather than force them to remain absent from work for the entirety of their recovery, thus reducing the need for indemnity benefits.

In other words, allowing injured employees to reenter the workforce faster and engage in transitional duties while they continue to heal can help employers simplify related workers’ compensation claims. In fact, industry experts reported that RTW programs can help reduce total workers’ compensation claim values by as much as 70% due to fewer indemnity benefits. In addition to limiting wage replacement expenses, RTW programs can also assist employers in simplifying the claims process by ensuring injured workers feel appreciated and stay positive amid recovery. Such attitudes can reduce the risk of employees experiencing a lack of support as they navigate their injuries, motivating them to resume work as quickly as possible and minimizing the likelihood of prolonged claims or possible litigation issues

Improved EMF Calculations

The experience modification factor (EMF) plays a major role in the cost of workers’ compensation premiums. This figure represents an employer’s workers’ compensation claims history compared to other businesses of a similar size in the same industry. It is determined based on a formula set by the National Council on Compensation Insurance or state-specific rating bureaus, depending on the employer’s jurisdiction.

The average EMF is 1.0. If a business’s EMF exceeds 1.0, that means its claims history is higher than its peers’ average. On the other hand, an EMF below 1.0 indicates the business’s claims history is below that of its peers.

Maintaining EMFs below 1.0 allows employers to benefit from reduced workers’ compensation premiums. Since RTW programs can help improve injured employees’ recovery outcomes and ease them back into the workforce in a timely manner, employers with these programs in place will be better positioned to have ideal workers’ compensation claims history and, subsequently, lower EMFs than those without such programs. This stems from the idea that employers generally cover injured employees’ salaries once they return to work rather than having insurers provide such compensation, ultimately reducing claims costs, improving EMFs and bolstering company savings.

It’s worth noting that although the EMF calculation considers both the frequency and severity of an employer’s workers’ compensation claims, frequency generally carries more weight than severity; multiple claims may indicate poor workplace safety procedures and carry a higher likelihood of additional claims moving forward. By implementing RTW programs, employers will be able to better detect potential incident and injury patterns over time, allowing adjustments to be made to workplace safety measures as needed. In doing so, employers can take necessary steps to prevent future incidents and injuries, therefore reducing overall workers’ compensation claims frequency and paving the way for lower EMFs and premiums.

Better Underwriting Outcomes

While EMFs contribute significantly to workers’ compensation premium calculations, underwriters also consider several other factors when conducting these calculations. In particular, underwriters typically review employers’ workplace safety policies, procedures and related documentation. This information can help underwriters determine whether employers make it a priority to protect their workers from potential hazards on the job and support them amid occupational illnesses and injuries.

With RTW programs in place, employers can demonstrate a clear commitment to workplace safety and showcase their dedication to helping injured employees successfully navigate the recovery process. That’s why underwriters often view these programs as a signal of reduced workers’ compensation exposures. As a result, it’s best for employers to include their written RTW programs within any workplace safety documentation they provide to underwriters. This will help underwriters better evaluate employers’ workers’ compensation risks and increase the likelihood of lower premiums.

As workforce characteristics and occupational safety hazards evolve, employers’ RTW programs should follow suit. Upon revising or otherwise updating their programs, employers can share these changes with underwriters to emphasize their ongoing commitment to workplace safety and continue benefiting from more accurate risk evaluations and reduced workers’ compensation premiums.

Conclusion

RTW programs are essential in any workers’ compensation system. By developing effective programs, employers can help limit the fallout from occupational illnesses and injuries as well as minimize overall workers’ compensation exposures, claim costs and premium expenses.

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This Work Comp Insights is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice. © 2024 Zywave, Inc. All rights reserved.