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By MICHAEL KEATING, a research editor for several national magazines

When the economy goes south, employers pay more attention to their workers' compensation budgets. That means keeping a close eye on the cost of doing business and the compensation awarded to injured workers by different states.

"Arizona's low workers' comp costs are just one primary example of the structural incentives the state offers to business," says Jan Lesher, director of the Arizona Department of Commerce. "In Arizona, we enjoy a dynamic business climate and overall low costs that not many other regions can match. The state's unemployment insurance and workers' comp rates are among the lowest in the nation."

Larry Etchechury, director of the Industrial Commission of Arizona, says that effective workers' comp is really about trying to balance the costs to employers and the benefits to injured workers.

"The cost of workers' comp is important to employers, not only in terms of the competitive nature of business but in considering the predictability of those costs," he says. "Reasonable costs and the stability of those costs become even more important when there is uncertainty in the economy."

Benefits, likewise, are important to injured workers. "From an injured worker's perspective, it is important to be able to receive prompt medical treatment from the best that medicine can provide and to receive indemnity benefits that are fair and equitable," says Etchechury. "In Arizona, we believe that there is a balance between costs and benefits in which both parties, employers and injured workers, can prevail."

Arizona was followed in the survey results by Arkansas, Indiana, Virginia, North Dakota and South Dakota as the best places for employers looking for low workers' comp costs. Among the states in the top 10, five were in the Midwest. Seven Western states finished in the top 20, while the Southern region had four states. Only one New England state, Massachusetts, finished in the top 20, the survey found.

South Dakota Department of Labor Secretary Pam Roberts says her state's workers' comp system ranked well because employers were committed to workplace safety and because employees in South Dakota try to return to work as quickly as possible.

"In addition, the government is very receptive of creative solutions to continuously improve the system," she says.

The national average workers' comp benefit payment per covered worker is $432, down from $445 the previous year, the survey also found. States with the lowest workers' comp benefits payment per covered worker were Arizona, $220; Indiana, $216; Texas, $216; Arkansas, $190; and Washington, D.C., $193. States with the highest workers' comp benefits payment per covered worker were West Virginia, $1,034; California, $730; and Washington, $691.

The average percent change in workers' comp benefits payments was down 1.4 percent, with the biggest drops in Arkansas, 8.5 percent; New York, 11.7 percent; California, 12.2 percent; and West Virginia, 12.7 percent.

In a separate study, workers' comp indemnity costs per claim and payments for lost income, which are usually linked to a state's average weekly wage, were $19,100, up from $18,700 the previous year, according to the Insurance Information Institute.

SCANNING THE VARIED LANDSCAPE

The workers' comp premium payment and comparative costs were given greater value in the survey weightings than the benefits payment per covered worker and benefits payment per capita. Cost-related factors were given the greatest weight, given the fact that the study looked at workers' comp costs and benefits from the employers' perspective.

Workers' comp costs and benefits vary widely across the country, and those findings mirror what experts see in the field.

"Sometimes a state provides high benefits and the costs are high, or the costs are low and the benefits are low, or the costs are high--it's all over the place," says Jon Coppelman, vice president of consulting firm Lynch Ryan & Associates Inc., based in Wellesley, Mass.

Employers doing business in a high-cost workers' comp state can expect "a little more money on the table in terms of what the cost of injury will be coming back to the employer in the form of premiums," he says.

"Even if you are in the lowest-cost state, you still have to pay attention to the details and prevent every injury you can," says Coppelman, who is also a contributing writer to Workers Comp Insider blog.

Deborah Talbot, president and CEO of the Woburn, Mass.-based occupational health consulting firm Health Resources Corp., agrees that employers are looking closely to save money any way they can. The economic slowdown has made employers more conscientious about where they can cut, Talbot says.

"More businesses are developing more of a safety culture and looking to reduce not just work-related lost-time injuries but work-related first-aid injuries," she says. "It's higher up on their agenda list to pay attention to enforcing good safety practices."

In 2008, the workers' comp market remains robust and competitive with a fair number of workers' comp systems and players still healthy, according to Barry Llewellyn, senior divisional executive, regulatory services, at the National Council on Compensation Insurance Inc. in Boca Raton, Fla. The drop in claims frequency has helped offset the rising costs.

"There have been relatively few states that have had their costs go up over the last few years, and there are a couple of reasons for that--the primary one is claims frequency has been dropping fairly significantly for a long period of time, and that has allowed state systems to either remain in balance or enjoy reductions in premiums, even though their costs continue to go up," says Llewellyn.

The NCCI manages the largest database of workers' comp insurance information in the United States.

Greg Krohm, executive director of the Madison, Wis.-based International Association of Industrial Accident Boards and Commissions, an association of workers' comp administrators, adds that carriers should keep rates stable as they are enjoying profitable times.

One strongly finishing state in the survey is North Dakota, which came in at the No. 5 spot.

"We knew we were in good shape on the premiums side--we've always been very low on the premiums side, but we are happy to see how strong we showed up on the benefits side of the ranking," says Bruce Furness, interim executive director-CEO for Workforce Safety & Insurance, the sole workers' comp system in the state.

Employers doing business in North Dakota can even expect some money back this year. "Our organization just returned a 62 percent dividend back to the policy owners and premium payers based on our investment and fund balance--so that was also quite encouraging," says Furness.

For state workers' comp systems that aren't so generous, policyholders can rest assured that their premiums are being put to good use.

Virginia, which finished in the No. 4 spot, is reinvesting the income into its workers' comp infrastructure to make sure the state remains an attractive place to do business for carriers.

"We continuously strive to improve the efficiency and effectiveness of our agency and its programs," says Jim Szablewicz, chief deputy commissioner for the Virginia Workers' Compensation Commission.

The worker's comp system there, for example, is upgrading its computer system and business processes to allow for the electronic filing of many items that now must be completed on paper forms. The goal is to move to an entirely paperless system, he says.

Whether in a high- or low-cost workers' comp state, businesses need to make themselves look like a winning operation to workers' comp insurance carriers, says Scott Simmonds, an insurance and risk mitigation consultant and blogger.

"When you are bidding your insurance coverage to try to get the best combination of coverage and price, your operation should be attractive to the insurance companies; safety equipment, loss control and claims management are all part of that effort," Simmonds says.

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November 1, 2008

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