Containing Comp Costs

Workers’ compensation is a source of worry and frustration for most building service contractors. The program, which differs by state, is considered a necessary evil — a relatively large chunk of a BSC’s bankroll is spent on it, but it prevents civil suits that result from employees hurt on the job. Workers’ comp costs can’t be averted, but they can be contained and controlled with careful planning, research, employee and claim management, and solid partnerships with carriers, third-party administrators and attorneys.

Workers’ comp coverage is required in nearly every state — even in Texas, where it’s not mandated by law, most customers will require a BSC have it. Some states offer many options while others are more limiting, but all companies want the same thing: a low price.

The right plan

Workers’ comp systems and laws are different in every state. Some states provide workers’ compensation funds; many allow employers to self-insure; and most allow companies to choose between insurance companies and third-party administrators (TPAs) in the private market.

Businesses that operate in more than one state, as many medium to large BSCs do, need to stay on top of legislative or statutory changes that affect rates and claims. Some BSCs operate within multiple workers’ comp insurance plans.

Budd Group, a large BSC based in Winston-Salem, N.C., operates throughout the southeastern U.S. In some states, the company is self-insured and in others, it uses a traditional insurance carrier, says Hal Rollins, vice president of human resources and insurance services. All of that juggling means the company pays close attention to its plans and markets.

“We pretty much have constant communication with our carriers, with our third-party administrators, with our insurance brokers and our risk manager, so it’s kind of a four-pronged approach,” Rollins says.

It’s common for BSCs to watch the insurance market continuously throughout the year.

“We have a risk manager — he’s not an employee, but he’s not an employee of any insurance company, and he helps us evaluate the market on a yearly basis, whether it’s better to stay self-insured or better to get back into the insurance market in the states we have a significant presence in,” Rollins says.

Greenville, S.C.-based IH Services operates in 23 states, and rather than creating a different insurance plan for each state, it chose one major insurance carrier to deal with. After being self-insured for many years, the company switched to a high-deductible plan with the private carrier, which allows it a bit more weight when working with the insurance company than a fully insured client may have, says Gunter Langston, human resources manager.

IH still has a lot of input on claims management, but ultimately, the carrier has the ultimate say-so on claim settlement, he says. But the positive is that the carrier has resources, information and access that IH didn’t when they were self-insured.

“Just the penetration and the preferred provider organization network of doctors — the medical billing issues of using that PPO network is a great advantage to us as opposed to being self-insured,” Langston says. “They have loss consultants, expertise on law changes and the intricate details.”

Few BSCs can afford to be self-insured, but those that are enjoy greater control over their workers’ comp costs. Merchants Building Maintenance, based in Monterey Park, Calif., operates throughout the southwest and other states, is self-insured. David Haas, president, says he always considers switching to a carrier but it doesn’t make financial sense.

“If there was a more cost-effective solution to being self-insured, we would be,” Haas says. “Its just that there doesn’t appear to be. It’s all about cost, we don’t care about how we get the coverage. We go through carriers in other states and we have varying degrees of risk that we take on. We may self-insure the first $5,000 or $10,000 on the first claim; we may be fully insured… some states are monopolistic, some states are open market, open rating. They’re all different.”

Self-insured pools are another option for BSCs. Not all states are amenable to self-insured pools due to strong private insurance lobbies, says Patricia Stasiak, administrator of the Illinois Association of Building Maintenance Contractors (IABMC), a nonprofit organization. That pool has been in existence since 1933, and its 20 members range in size from small to large janitorial and unarmed security firms.

Members each pay the same percentage of payroll — which is currently about 2.5 percent and almost always lower than market rates — and face a sizable deductible. So the safer each member’s record, the better the group’s rates. At the end of the fiscal year, members get a return.

“People really have an incentive to watch what they’re doing and make sure there’s no accidents,” says Roman Chmiel, president of Scrub Inc. in Chicago, and member of IABMC.

“It’s an exceptional benefit for us,” Chmiel says, adding that each year he does compare the self-insured pool to the private insurance market — and there’s usually no comparison. “The self-insured program we have, it’s probably the best there is.”

One key factor in determining premiums is a contractor’s experience modification rating, or “mod.” Entry into the IABMC is based partly on a company’s mod, and the application process is designed to weed out companies that would threaten the pool’s success. Mods can be controlled with safety and prevention programs. Bill Martin, vice president of operations for DSI Corp., Streator, Ill., says a BSC must strike a balance when paying premiums.

“We clean a lot of industrial manufacturers and they want to see a low mod and a lot of our customers asked to see our mods for the last three years and obviously we performed pretty well but the premium gain is a tough one,” Martin says. “The more premium you pay, the lower you can drive your mod down, but at what point is that advantageous? So you’ve got to be real careful with that, you’ve got to walk a fine line of, if you paid too little premium and you have bad experience, your mod’s going to go through the roof. If you pay exorbitant premiums you’ll have a great mod but you’re also taking from your bottom line.”

Claim management

Even though workers’ comp is considered a no-fault system, employees are not automatically entitled to compensation. To be covered, the worker must have suffered injury at or on the job, caused by circumstances of employment and resulting in impairment or lost wages. As soon as a workers’ comp claim is submitted, employers should be proactive in managing and investigating that claim to determine compensability.

A good carrier is the most important ally a BSC can have in creating effective strategies, says Martin.

“We have a single claims adjuster that we work with and he and I have gotten to know each other very well over the years,” Martin says. “We both talk the same language and it works very well in our favor. He keeps us updated on new laws and regulations and we create strategies on every claim that we have as to what we’re going to do with that claim.”

The best thing a BSC can do to reduce the risk of an escalating and expensive legal battle is conduct a thorough and accurate investigation of an accident and its injuries as soon as it happens, says St. Louis-based attorney James Gallen, who has extensive experience with workers’ comp claims and teaches informational workers’ comp seminars for employers.

Showing employees that their claim is being taken seriously helps to encourage those who really have been hurt to come forward, while discouraging those who want a free ride.

“We investigate, take pictures — when the employees see you doing that it’s kind of like a cop showing up at a crime scene, they’re like, ‘Oh my God, this is for real,’” says Rafael Perez, owner of Mexfil Hotel and Building Services Inc., Houston.

BSCs are no strangers to fraudulent claims, and know that investigations are very important to determining whether the injury is compensable.

DSI tries to negotiate most of its fraud cases in order to settle as quickly as possible for nuisance value, Martin says. As long as it’s on the books, a contractor’s paying premium on the reserve and on the claim.

A BSC is wise to stay focused on defending the accident rather than chasing fraud, Gallen says. If a claim is found to be fraudulent, that can always be followed up on.

Safety first — and always

An ounce of prevention can be worth thousands of dollars of savings for a BSC actively involved in employee training and education.

“Prevention is certainly the biggest thing you can do to impact your whole work comp situation,” Martin says. “We truly create a safety environment with DSI, and all of our employees are involved pretty deeply in our concerns regarding safety and I think it’s paid off for us over the years.”

At IH, the company is in the process of revamping its safety program to encourage supervisors and district managers to follow up on training, and to coach and encourage employees. The revised program will also be more proactive, and includes positive and comprehensive training for all employees.

“You really can’t train an employee on, ‘Don’t get hurt because it will cost the company money,’” Langston says. “It has to be proactive: ‘Don’t get hurt because you won’t be able to pick your child up when you get home.’”

Education about workers’ comp can also be necessary to prevent dishonest or fraudulent claims.

“An hourly employee may get the impression that workers’ comp is sort of a government program that’s free and just comes, appears out of thin air,” Langston says.

“One of the things about our industry is that people are pretty low-paid in general compared to the rest of the population, so sometimes they don’t have as much incentive to stay on the job and work if they can get workers’ comp that will pay them to stay at home,” adds Taylor Bruce, president of IH Services.

Most employees merely need a lesson on the basics about workers’ comp and their rights as employees. A small percentage, though, can be looking to abuse the system. Perez says he tries very hard to educate his workers, and he is on the lookout for workers who might abuse the system from the day they’re hired.

“These guys come in and they’ve already been hurt at their daytime job or they’re really messed up, and you can always tell who is out to do something bad, because as soon as they’re hired, they’re like, ‘You all got insurance? You got workman’s comp?’ It’s like, ‘Oh boy, watch out, brace yourself.’ You can always tell,” he says.

To counteract that mentality, Perez hosts biweekly paycheck parties on payday, serving up hot dogs or burgers and using the opportunity to educate his employees about safety issues. By honoring employees who have long safety records, he puts workers into competition to be accident-free.

Having quality relationships with employees is one way to avoid legal action, says Gallen.

The best companies to work with are those most involved in their cases through investigation and acquaintance with employees, he says.

“When I hear petitioners or attorneys talk about why people come to them, they say [companies] didn’t pay the medical bills, no one called them after they got hurt,” Gallen says. “People either figure the employer’s trying to cheat them or that the employer doesn’t care about them so they go to a lawyer and they end up with a bigger case.”

BSCs should do their best to stay current with statutory changes and keep communication open with employees, attorneys, carriers and third-party administrators, and re-evaluate regularly, to best keep a lid on ever-rising workers’ comp costs.

CleanLink: Additional Info CleanTips Smart Podcasts For The Commercial Cleaning Industry BSCs are taking proactive steps to reduce workers’ comp claims, including providing incentive programs for employees. In the podcast Improving Safety With Employee Incentives, Rafael Perez, owner of Mexfil Hotel & Building Services, Houston, discusses his company’s program.