Workers’ compensation benefits are a form of insurance that is required by many employers to provide to their employees. It is available to employees who suffer an on-the-job injury or illness. If a physician recommends that an employee must take time away from work to recover, then the employee will be reimbursed for lost wages and medical expenses relating to treatment and rehabilitation. The wage reimbursement is typically a percentage of the regular wages earned by the employee. 

Workers' Compensation expenses are one of the more controllable insurance coverages available. Through cost containment, many employers have been able to reduce their expenses.  The goals of a workers’ compensation cost containment plan are typically to reduce the cost of claims, increase the safety and satisfaction of individual employees and overall to maximize the efficiency and profit of the organization.

The actual cost of claims can be broken down into direct and indirect costs: Direct costs are those dollars that can be specifically attributed to a claim such as medical bills and lost wages. These are the figures we count loss runs and policy data. Indirect costs are those that are much more difficult to calculate such as the work stoppage after an incident, the time it takes a manager to investigate an injury, monitor the claim or provide a modified duty plan, the negative impact on employee morale. The impact of indirect costs can be anywhere from 3 to 10 times that direct costs of a claim. This underscores the need to manage claims and their true impact to the bottom line.

Typically the best predictor of future performance is past performance. It makes sense then when developing a plan to reduce the cost of workers’ compensation, to evaluate the historical claims data. The trends identified help prioritize areas of focus and plans of action for the best return. 

There are two primary factors; the most frequent types of claims and the most expensive. While the most severe injuries tend to receive the most attention both during the management of the claim as well as when evaluating the cost impact over time, the law of averages presumes the more incidents that occur the greater the likelihood of a severe incident happening. It is therefore important to address both frequency and severity when developing a containment plan.

Other factors considered are locations with more frequent or more severe claims, processes, or lack of processes in place that have an impact on the number or cost of claims including safety awareness, a system to report incidents and injuries, evaluation and training of hazardous tasks and environmental factors that contribute to injuries.