Workers’ comp insurance, like other employee benefits programs, continue to be a major expense to most employers. Decision makers are always looking for ways to better manage their cost, but sometimes the containment can be out of their influence.
For many years, employers enjoyed lower workers’ comp rates as a result of reforms signed by our previous Governor and the competitive nature of the California insurance market place. Late last year, the worker’s comp market began to change and insurance companies began to raise rates and became more selective about which employers they would keep or consider as new customers. Rising medical costs to treat injuries, increases in the insurance company costs of doing business, as well as, lower returns of investment by insurance companies also led to this market shift.
Employers, who have a series of injury claims, or even a large claim, also experienced greater increases in their workers’ comp premium, because of the way their Workers’ Comp Experience Modification Factor calculation was changed.
As a result of these premium increases, there has been a move by employers to seriously consider a PEO, Professional Employer Organization, to take the place of their workers’ comp and employee benefits programs. A PEO is an arrangement where an employer essentially transfers their employees to another organization who then “leases” them back to their organization. This may relieve employers of direct involvement in the management of employees, but they still retain responsibilities as a “co-employer.”
PEOs have historically been an alternative to employers who have had a history of claims, because the PEO companies seemed to offer lower costs. In my experience, most PEO organizations offered little or no reduction in the number and severity of work injuries, and resulted in a continued increase in the employer’s Experience Modification Factor.
To obtain up to date marketing information about how the major PEO organization view this changing insurance market place and how they are planning to respond to these changes, my firm’s specialist contacted the seven (7) PEO organizations that are utilized. The following information was obtained and it is being passed on to you, because this segment of employment and insurance providers is important for employers to know so they can make a more informed decision when considering the use of a PEO:
• Those employers who are unprofitable to a PEO are receiving rate increases in their insurance premiums and/or administrative fees to make them profitable to the PEO
• For those unprofitable employers who are not accepting the rate increases, they are being non-renewed. This action is very rare, but is a sign that the PEO market place, like the workers’ comp insurance companies, are taking actions to become more profitable.
• PEOs only seem to consider new employers that have at least 10 full time employees
• The annual employees compensation must average at least $30,000
• PEOs are dropping certain industries where the PEOs have encountered consistent non profitability
This information update causes us to conclude that employers, who are historically financial losers to the insurance industry, are also losers to the PEO organizations.
It can no longer be assumed that a PEO is always a viable alternative to employers who are not controlling their cost of work injuries.
Claims prone employers who feel they can just “shop” every year to get the lowest rate will probably have a rude awakening.
What are some of changes that employers need to make to avoid a history of frequent and costly work related injuries to keep employees from becoming “patients” of the workers’ comp medical system?
• Accept that workers’ comp is a way to finance claims
• Understand that the employer is ultimately paying for each work injury – have a claim and the employer pays it back plus more
• Take the selection of employees and safety in the work place more seriously
• Take an active role in the claims process
• Train employees in safe work practices and hold them and their supervisor accountable
• Maintain a respectful and positive relationship with employees
• Create an open working relationship with a medical clinic that practices “evidenced based medical treatment”
• If employers do not have the resources to make changes, hire the appropriate insurance advisor to help them
The decisions employers make will determine how profitable their enterprise will be and ultimately will influence the financial value of their business. This is one of those times where appropriated decisions need to be made. The organization’s financial success and the welfare of those who are employed by the enterprise are in the “hands” of the company’s leaders. Let’s hope the best decisions are made.