[This report may be copied and redistributed without charge, as long as the copyright notice and resource box are included unchanged. -- JM]
INTRODUCTION
Out of the chaos that has become the great healthcare debate, one issue that has been largely ignored is the cost of worker safety. While the politicians haggle over how deep they can stick their hands in your pockets, the medical and legal professions are getting their contribution from the Workers' Compensation system.
The administration has been blaming the insurance companies for high costs, yet in 25 states, insurers lost money on Worker's Compensation premiums between 1987 and 1990. If the insurance companies aren't getting rich, who is?
According to government statistics, 40 cents out of every dollar in benefits paid goes to health costs. The medical establishment may shift costs to make up for revenues lost from other sources, such as pro bono treatment of the poor. In 1990, a Minnesota study found that, on average, hospitals charged twice as much for workers' comp.-covered injuries as identical injuries not covered under workers' comp. If any variation of the Clinton health plan is passed, this trend is likely to accelerate.
Another player in the game of escalating costs is the legal profession. Lawyers are now involved in 40 per cent of the worker's compensation claims filed each year. In 1990, California workers collected $7 billion in compensation. $1.5 billion, that's $1,500,000,000.00, was spent litigating disagreements. When Congress passed the Americans With Disabilities Act (ADA), they were trying to increase access to the workplace for people who might not otherwise have access. It has provided thousands of billable hours for attorneys. Instead of helping disabled workers avoid discrimination in the hiring process, 54% of the Equal Employment Opportunity Commission caseload is from fired or laid off workers. As of August, 1993 the EEOC had over 14,000 complaints, and are so far behind that many complaints are being allowed to go straight to court.
COSTS
The cost of doing business is on an upward spiral. Let's take a look at some of the costs involved with workplace safety.
1. In 1980, the total Workers' Compensation premium paid by U.S. employers was $22.3 billion. This is almost ten times the total for 1960. By 1990, the total climbed to $56 billion.
2. In 1980, the average medical cost per claim was $1,748. By 1990, the average had climbed to $6,611. The average cost per injury climbed at a 14% rate compared with 8% for the medical component of the Consumer Price Index.
3. By 1990, the average wage-replacement cost per claim increased to $12,833 from $4,390 in 1980. This works out to an increase of 11% per year compared with 5% for average weekly wages over the same period.
Insurance providers use experience rating to attempt to equalize the risk/premium equation between industries and within industries. For example, a clerk in a greeting card store is far less likely to have a lost work accident than a line worker in a steel smelting plant. It isn't that the smelter is less careful or intelligent. A smelter is just exposed to hazards not found in the card store. Therefore, the premium for the card store will be much lower than the premium for the smelter. Within the same industry, experience rating rewards the companies that operate safely. A company with an experience modification factor of 1.4 will pay twice the rate of a company with a factor of 0.7. A rating of 1.0 means that company is no more or less likely to have an incident than any other company in that industry.
In the period from 1987 to 1989 the average profit per premium dollar for the insurers was -0.02%. Over this time period, it was essentially a break-even game, with some companies profiting and some going under. What does this mean? Consider the ratio between the amount of loss and a company's profit margin. If we give the insurance industry a boost and turn loss into gain, we are looking at a .02% profit margin. In 1992, the average workplace injury cost about $24,000. If you divide $24,000 by 0.02%, you get $1,200,000. Looking at it in real terms, for every average injury, an insurer must take in $1.2 million in premiums.
The following 5 step program will cut your losses to the bone. If you follow it.
THE 5 STEPS
STEP 1 -- PRE-EMPLOYMENT SCREENING Analyze each job in your operation and determine the characteristics required to perform the job. For example, an assembler may require fine motor skills and good vision. Literacy in English may be a requirement. Work with a professional to determine bona fide job qualifications and WRITE THEM DOWN. If you have standard job descriptions before you start the selection process, you are much more likely to avoid discrimination charges. Once you have the bona fides for a position, screen candidates for basic qualifications. Select candidates based first on fit to the job description and then to fit with your people. After you have selected an applicant, make them the job offer conditional to passing a physical examination and drug test. While the ADA does not allow discrimination against recovering abusers, it does allow withdrawal of an offer from active users.
A good physical screening program is greatly enhanced if you develop a relationship with a local physician or clinic. The provider gets to know your operations and requirements. When they do, they can make recommendations that may save you even more.
STEP 2 -- SAFETY TRAINING Simply complying with OSHA regulations won't significantly lower your accident rate. Since 1972, the number of lost workdays has gone up 80%. Make safety training a regular part of the working environment. Monthly safety meetings to discuss exposures and new hazards makes employees aware. Aware employees are less likely to get hurt. Cover subjects such as the proper use of protective equipment, seasonal hazards such as high temperatures and recognizing heat exhaustion, and basic safety techniques such as proper lifting. Occasionally bring in an outsider to make the presentation. This generates extra interest in whichever topic the speaker will cover.
In addition to the basics and seasonal problems, the federal regulations do mandate that you do certain training and keep records to show when it was done. Two of the common modules are Hazard Communication (labeling chemicals in the work place and how to handle them) and the new Bloodborne Pathogens training for any employees who might be exposed to blood and other body fluids.
STEP 3 -- ACCIDENT PREVENTION Accident prevention differs from safety training in that prevention is meant to eliminate as many exposures as possible, and guard against the ones that cannot be eliminated. The first part of accident prevention is identifying the hazards. Systematically go through your operation looking for dangerous situations. Do job analysis on each position. Ask your employees, especially those that have been with you for many years and those that are new to their jobs. "Older" employees have the time in the trenches to know where the landmines are. If you ask, they will tell you how they avoid the mines. New employees have the advantage of not knowing "you've always done it that way," and recognize situations that make them uncomfortable. Physical inspections to make sure guarding and barriers are properly in place help in prevention. So does making hazard recognition techniques part of an employee's orientation. Anything you can do to get your people involved with safety will help prevent accidents.
STEP 4 -- CASE MANAGEMENT Case management means making sure all incidents are reported, and that the workers involved get timely and appropriate medical care. You have to nurture the idea that you don't want people to get hurt, but if they do, you want them healthy again as soon as possible. This is another point in favor of developing an ongoing relationship with a medical provider. By setting up a managed care program, with aggressive treatment of work related injuries, you can cut down the time the worker is away form work. By treating quickly and appropriately, the severity of injuries can be reduced, which may keep a temporary setback from turning into a permanent disability.
Often you can contract with a healthcare provider to manage the care of your injured workers. Closely monitoring injuries has the side benefit of letting injured workers know that your company cares about them. If they know you care, they will be less likely to string out an injury. Aggressive case management also guards against fraud.
STEP 5 -- EARLY RETURN TO WORK One of the characteristics shared by every company that has successfully lowered their safety and health costs is they all have aggressive return-to-work programs. Getting workers back, even in a reduced capacity, cuts down the time benefits have to be paid. It also gives the worker a greater sense of security about their job. Establish your program before it's needed. Identify light duty jobs in the operation and document them. Light duty may mean reduced hours, a different assignment with fewer physical demands, or a temporary position created as light duty. For example, Joe's Car Lot has a mechanic named Mike. Mike is a bright guy, but one day he tries to lift a heavy part after spending the best part of an hour bent over a fender. Mike strains his back. Mike's case manager oversees his treatment, and after a few days clears him for early return to work. The only stipulation is that Mike is not allowed to lift anything until he finishes an exercise therapy program to strengthen his back muscles. Joe looks for a light duty job and decides on telephone marketing. Joe provides Mike with the names and phone numbers of all the people who bought cars from Joe two years ago. Mike's light duty job is to spend 30 minutes calling the old customers, asking them how they like their cars, and inviting them in to see the new models. Every 30 minutes, Mike walks around the lot to make sure his back doesn't get stiff from sitting. After a few weeks, Mike is cleared for full duty and returns to his job as a mechanic. This is one example of a potential win-win outcome. Mike got to come back to work weeks earlier than he would have, while Joe gets some valuable marketing done. The insurer had several weeks of benefits they didn't have to pay.
IMPLEMENTATION METHODS
The secrets of making this program work are:
1. The program must be in writing. Develop a safety manual for each operation detailing the safety hazards present, how to handle them and what to do if something goes wrong. Spell out company policies on training, safety rules and programs, employee rights and any other information required by regulation. Having the program in writing cements your commitment, makes it public. It also protects you when disagreements arise. If your policies are written down and applied consistently, it becomes very hard to challenge them. Remember that lawyers become involved in 40% of claims. Lawyers live by the written word and so should you.
2. Involve your workers. Nobody, not an engineer, not a consultant, not even you are closer to the day to day hazards of people doing their jobs. If you can hook your employees' imaginations into the safety effort, you will see some remarkable things start to happen. Involved workers enjoy coming to work. They don't check their intelligence at the door.
The best way to involve your employees is to convince them that you sincerely want the best from them and for them. Then ask for their help. People will do a lot when you put them in the power position of helping someone. Let them share the dream. At the same time, realize that nobody working for a paycheck will or should care as much as you do. Get away from the paystub mentality by making your employees partners. Give them a stake in company safety gains. This is one area where gainsharing can be very profitable.
Take a page out of the book of professional sales organizations. What's the first thing a sales manager does if she wants to jump start her sales force? That's right, hold a contest. Offer a prize for safety suggestions. Prizes don't have to be money. Hold a barbecue for a month with no accidents. Give a party for workers and spouses for a good year. Anything you can do to promote teamwork and commitment will put money in your pocket.
3. Document your progress. Don't hide improvements. Go beyond simply following government requirements. If you have an accident free week or month, make it a headline in the house organ. An accident free quarter might rate a news release to the local paper. An accident free year deserves at least a half page spread congratulating your employees and recognizing a job well done.
Another aspect of documenting progress is making safety a required topic for all management meetings. What gets talked about often, gets remembered. What is used to evaluate performance, gets done. For example, let's look at the supervisor of a machining department. While the supervisor's managers continually harp on safety and quality, his bonus depends on the number of pieces produced per shift. Our supervisor learns he can make his bonus easily by learning the appropriate jargon and correcting his workers safety habits when managers are present. At all other times, he sets his machines to remove the minimum amount of material to still get a part that will fall within specifications. Furthermore, our sly supervisor has figured out that if the operators remove some of the guards, they can change pieces faster. While this supervisor cashes his performance bonus every month, the company loses money from a high scrap rate and finds itself in the state risk pool because of the high number of accidents in the machining department.
BENEFITS
The major benefit of the program outlined above is money. Money your company saves on accident costs and insurance premiums is pure profit. Unlike sales, where gains must be factored by the profit margin, savings go straight to the bottom line. Surveys have shown that companies that implement and follow a sound program based on these principles get a return of $1.70 to $3.40 for every dollar spent on the program. Where else can you put your money and earn 170 to 340%?
Another benefit is higher productivity. When workers know that you care about them, they care about you. Fewer accidents mean less retraining of new people to do jobs. Safety awareness promotes teamwork. If you do a good job getting your safety program to take root, you will find workers coaching each other on safety.
Eventually this teamwork will spread into other areas of operation. When this happens, it is truly wonderful to see. Workers humming happily at their jobs, turning out more work of a higher quality than ever before. You can feel the productive buzz of confident, competent people at work.
CONCLUSION
The rewards of a total loss control program aren't linear. Studies have shown that within a given industry the worst companies have 10 times as many lost time accidents as the best. Follow up studies have shown that the best companies have a genuine concern for their employees, involve them to the fullest possible extent, and provide them with a total program to protect themselves with.
Putting together a total program is not complicated. It's very simple if you follow the guidelines given here. Simple, but not easy. The challenge is there. You are the only one with a stake in this game. Can you afford to play defense without offense? Start putting together a winning program today.
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John McCabe is the owner of McCabe & Associates. He is a consultant with the engineering background to find the root causes of the problems stealing the profits from your small business. John can offer you sound solutions to your problems in the areas of safety, quality, sales and customer service. John's process approach will put you on the road to steady, ongoing improvement in your profit picture.
John McCabe has an engineering degree from a top-five university. He has over twenty years of problem solving experience he can put to work on your concerns. John's new book "Cut Your Losses -- Higher Profits Through Loss Control" will be available in late September. Soft cover copies will sell for $39.95, while a special version in a binder with ready to use forms and form disk will sell for $59.95.
McCabe & Associates works with a select group of businesses. For more information, or to find out if you qualify, contact John McCabe at McCabe & Associates, 2212 L Road, Minden, NE, 68959.
