When you think of the costs associated with workplace injuries, the costs of workers' compensation claims is likely the first thing that springs to mind. With medical costs of the average-sized claim alone, nudging up against the $30,000 mark, that’s certainly understandable. However, these costs, eye-opening as they are, do not tell the entire story. According to OSHA, indirect expenses can cost your company up to 4.5 times as much as the direct costs of a workers' comp claim. Add to that the impact of on-the-job injuries to your workers’ comp mod rate and you can begin to see why there’s a lot more at stake than medical bills alone.
The Experience Modification Rate
As you likely understand all too well, your mod (experience modification) rate is directly affected by every workers' comp claim filed, and that mod rate, in turn, affects your annual premium. This increase can have a more significant impact on your bottom line than even the direct costs (medical expenses and wage replacement) related to the injury. Depending on your industry, mod rate can also affect your ability to acquire new contracts – too high a rate and you won’t even be allowed to bid.
An example laid out in an article by insurance brokers Cavignac & Associates provides a good breakdown of the impact of a single workers' compensation claim, as it relates to a company's mod rate and premiums:
A company with a base premium for workers' comp insurance of $160,000 with no previous claims, has a claim-free mod rate of 66 percent, a rate that lowers premiums to $105,600. Then an injury occurs, resulting in a workers' comp claim with direct costs of $50,000. That injury sparks a 15 point rise in the company's mod rate, which drives up premiums by $24,000, raising the total premium to $129,600. Since a claim affects the mod rate for three years, that one single claim will cost the company an extra $72,000 in premiums over that time.
Your Best Defense: Preventing Workplace Injuries
Preventing workplace injuries is, of course, the only way to protect against a rising mod rate and the extra money it can cost your company in higher workers' comp premiums. Maximizing workplace safety is obviously already a priority for most employers today, and most have taken the standard steps to reduce risk of on-the-job injuries – safety equipment, employee training and ergonomics, for instance. However, for many, these measures have not produced enough substantial benefits in reducing worker injuries.
If this is true in your company, you should know that there is a lesser-known but very effective tool you can use for better results in preventing workplace injuries: physical abilities testing (PAT). Using a well-designed physical abilities testing program to ensure that job candidates are capable of meeting the physical demands of the job before they are hired can dramatically reduce injuries in the workplace, affecting your mod rate for the better.
How much impact can a PAT program have on injury rates? In a study conducted in one of the most injury-prone industries – health care – only 5 injuries were reported among nursing staff that had passed a PAT, a significant improvement over the 54 injuries reported among untested staff members. A study done among workers at a food-processing plant showed similar results, lowering incidences of low back injuries, with workers who passed a pre-employment PAT having a 3 percent rate of these injuries, as compared to a 33 percent rate among untested workers.
The bottom line is that if you are not using physical abilities testing as part of your hiring process, you are missing an opportunity to substantially lower the number of on-the-job injuries sustained. That, of course, means that you're paying more than you should in workers' comp costs, both in terms of claims and premiums – and that certainly isn't good for your company's bottom line.
