Prices on the Rise: How Inflation Affects Work Comp Coverage

December 15, 2022 • Previsor

Most consumers are seeing an eight to ten percent increase in the cost of goods and services compared to last year. This rise in price is called inflation, and buyers aren’t the only ones affected. Businesses are also battling to maintain their bottom line. How does inflation affect work comp and claims costs?

On this episode of the WorkSAFE Podcast, we sit down with Andy Ribaudo and Lyndi Barthel. Ribaudo is Vice President and Chief Financial Officer at Missouri Employers Mutual, and Barthel the Manager of Medical Services. 

First, we’ll highlight three areas inflation tends to hit first in work comp. Then, we’ll expand on the effect of inflation specifically on medical care. Finally, we’ll share what employers should be focusing on in an uncertain economy.

Listen to this WorkSAFE Podcast interview, or read the show notes below.

3 areas inflation impacts work comp

Rising prices can be seen everywhere in our lives. From the gas pump to groceries, everything is costing just a bit more. When it comes to work comp, there are a few areas where inflation hits the hardest. 

1. Payroll 

As people search for higher-paying jobs to meet new needs, or employers hire more workers to meet increasing demand, payroll begins to grow. Business owners may even find themselves raising salaries to keep or attract new employees. As the total amount of payroll swells, premium increases with it.

2. Premium

Workplace incidents affect a company’s experience modification factor (e-mod). This calculation uses past loss experience to predict future losses. Businesses with an e-mod of 1.0 are having similar claims experiences to others in their industry. However, increased incidents, or more expensive claims, cause an emod to rise. A higher e-mod means higher premium prices. 

3. Claims costs

The costs of covering a claim rises with inflation. These increases happen in a few different ways:

  • Lost wages. If and when a claim occurs, work comp coverage extends to cover lost wages. When those wages have increase, the cost of covering lost time on the job does too. 
  • Medical care. Medical care is also affected by inflation. Long-term claims that extend over months or years may become pricier as the same treatments begin to come more. 

Contracts delay the affect of inflation

Contracts in different areas can delay the impact of inflation. For example, a contract with union workers may secure wage rates for a certain period of time. Once that time has passed, payroll costs to the employer may start to change. Medical providers may also agree to certain rates in contracts for a few years. Once a contract expires, costs are more likely to change.

Even with costs on the rise, there’s an important element to remember. “When you have claims, you want to minimize how much you spend on them,” Ribaudo explained. “We don’t want minimize care. We want to maximize the result for for what we spend.” 

Medical inflation

Inflation affects the cost of healthcare. However, unlike personal healthcare, work comp healthcare has an important focus. “Our ultimate goal is to take care of an injured worker, and help to return them to wellness and their pre-injury capabilities in their work environment,” Barthel explained. This means that every dollar spent is focused on this outcome. “It takes a lot of effort on behalf of the Claims team to balance appropriate and timely medical care while prudently spending the medical dollars.”

Contracts with medical providers can hold the cost of care steady for a time. But just like the higher prices of the goods and services we’re now seeing, the elements of medical care are also increasing over time. This can be seen in areas like:

  • Medical billing. Whether you stay overnight in the hospital, or leave the same day, medical procedures and services are more expensive than they once were.
  • Nursing. Nurses are in high demand. As a result, their salaries are higher than ever before. Some facilities need to hire traveling nurses from out of state. These health professionals earn much higher wages than the average nurse.
  • Technology. Different treatment facilities charge based on the technology and level of care they provide. An emergency room visit is going to be more expensive than an urgent care visit.

To offset costs, many are choosing to combine with other clinics and hospitals. While this benefits them, it also lowers the ability to negotiate cost savings. As inflation continues, medical providers begin to pass these costs down to consumers – and work comp providers – in order to compensate.

For employers: Managing the increasing cost of care

The simplest way to avoid rising claims costs is to avoid injuries. To do this, employers need to be proactive. Not only do they need to prevent injuries on the job, but they need to make sure employees know what to do when an injury does occur. What do these responsibilities look like in practice?

“The first thing that I would say is to maintain a culture of safety and educating their employees on how to stay safe on the job and avoid injuries,” Barthel recommended. “Of course, that’s always been the primary thing that we at MEM want to work with our policyholders on. But when injuries do happen, we encourage policyholders to have protocols in place so they’re prepared and they know what to do.” What do these protocols look like?

  • Engage the right level of care. It’s important for employees to get the right level of care. Traumatic injuries require immediate emergency care. But employers should explore their options for lesser injuries and teach employees to use them.
  • Have a drug and alcohol policy. Drugs and alcohol are a threat to safety in the workplace. Putting policies and procedures in place helps reduce this risk.
  • Create a return to work program. Modified duty helps employers retain injured workers and can help reduce costs.

“Getting injured workers to the right doctor is one of the best things that you can do to achieve the best medical outcomes related to an injury, so plan ahead,” Barthel shared.

The flexible future of work comp costs

Inflation is a new reality that is affecting everyone. However, as the economy shifts, it may not remain that way forever. While costs may fluctuate, there are a few things Ribaudo and Barthel want business owners to remember.

Safety training and equipment are still important. It may be tempting to trim them from strained budgets. But the cost of a claim – physically, financially, mentally – can be even higher. And with new hires facing the most risk on the job, employers truly can’t afford to skip out on safety efforts. Injuries do happen, and with the right planning, business owners can minimize costs and bring injured workers back to the job sooner.

“When you can keep that focus on safety, it pays for itself many times over,” Ribaudo added. “Every dollar that you put into safety and training pays for itself multiple times over, and it’s easy to forget that when the economy is in a situation like it is today. But it’s important to remember that that’s not the time to let it go. That’s the time to double down and keep that focus there.”

For free safety posters, sample policies, and safety toolkits, visit our Resource Library. Then, discover seven ways to resist rising risk – and expenses – in this WorkSAFE Podcast episode.

December 15, 2022
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