New Challenges in Workers' Compensation

Health-care inflation is becoming a larger part of the workers' comp equation. And that is fundamentally changing the way companies manage and control this expense.

Over the past 10 years or so, medical cost inflation hasaltered the makeup of workers' compensation costs from about 60 percent indemnity (payments for lost wages) and 40 percent medical expenses to 45 percent indemnity and 55 percent medical costs. As a result, organizations' ability to manage medical outlays has become a major driver of their success in managing and controlling their overall workers' comp budget.

"Health-care cost inflation is even greater in workers' compensation than in general health insurance," says Joseph Paduda, principal with Health Strategy Associates, a Madison, Conn.-based consultancy. Several factors are driving the trend. Workers' comp requires no deductible; it covers the first dollar and every dollar of a claim, so it offers no incentive for workers to control costs, for example by choosing generic drugs over name-brand products. "The [insurance] industry has done a terrible job of managing medical expenses in workers' compensation," points out Paduda. "At 10.5 percent, health-care inflation in workers' compensation is two to three percentage points higher than regular health-care cost inflation.

"Insurance executives do not understand what is driving medical costs," Paduda adds. "They look at the health-care costs in workers' compensation as a monolithic 'blob,' " he says, rather than examining each component of medical care to gauge its impact on overall costs and finding ways to rein in those expenses. For example, in many cases, managing the cost of physical therapy requires a focus on controlling utilization -- not price. "The problem is the frequency and volume of service," Paduda explains.

Overutilization is a key driver of cost inflation in workers' comp. According to Paduda, research has shown that workers who are treated by physicians who are experienced at treating workers' comp cases return to work faster and generate lower claims costs overall. That's because these physicians understand that their function in a workers' comp case is to treat the work-related injury so that the patient can quickly return to functionality.

"These physicians do not focus on what the individual can't do, but on what that person can do with appropriate medical care," says Paduda. "Most physicians don't work that way and end up doing too much to treat the patient."

Some states, including California, Texas, Oklahoma and Missouri, have enacted workers' comp reforms designed to give employers broad opportunities to ensure that employees receive appropriate care. For example, California now allows employers to establish medical provider networks that consist primarily of occupational medicine specialists.

"Companies cannot change the benefit structure," says JoAnn Ralph, managing consultant and principal with Rothstein Kass Insurance and Risk Management Group, a consulting firm based in Roseland, N.J. "But they can use existing laws to manage claims, get people back to work and get some empathy into the process" by showing injured employees that they care about them and want them back on the job as soon as possible.

Originally printed in the January 2006 issue of Business Finance

10 Money-Saving Tips

1. If you have your haircut every 3 weeks, try going 4 or 5 weeks in between haircuts. If you pay $10 for a haircut, you could save $70 a year by having a cut every 5 weeks instead of 3.



2. Buy only generic basic types of cold cereal, if your family must have it. With fall and cooler weather coming, it's a good idea to introduce hot cereal. It's usually the best buy and by using the microwave oven to prepare, it is almost as quick to fix as cold cereal.



3. If you have a cell phone, don't buy the accessories at the "cell phone store". Check out prices at local discount stores first.



4. Quit smoking. Need we say more?



5. In some states, children's immunizations are offered free at local health clinics. Call the local health department to inquire.



6. Wash, wax and detail your own vehicle instead of paying someone else to do it.



7. Put a little money aside every month in order to pay your car and homeowners insurance annually. Most insurers charge a fee (sometimes hefty!) for paying monthly. You'll also avoid those mid-year increases.



8. When making instant pudding from a box, add an extra cup of milk. The pudding "sets up" the same and tastes the same, but you have one more cup. You might want to experiment with adding a little more. And of course, another money-saver is to use reconstituted dry milk.



9. Meat prices are soaring, so plan to have a meat-less meal at least twice a week. Substitute an egg or pasta dish. Or maybe canned tuna or salmon.



10. If you love magazines, try sharing with a friend. Each of you subscribe to a different magazine, when you're finished reading, swap.



"Beware of little expenses; a small leak will sink a great ship." --Benjamin Franklin



Helping you live the good life...on a budget! Cyndi Roberts is the editor of the "1 Frugal Friend 2 Another" bi-weekly e-newsletter and founder of the website of the same name. Visit http://www.cynroberts.com to find creative tips, articles, and a free e-cooking book. Subscribe to the e-newsletter and receive the free e-course "Taming the Monster Grocery Bill".

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Adaptive Planning for Profitability inAsset Management

by Eric Krell | page 1 of 6

Why today's top companies are finance-driven.

As soon as Microsoft Corp. finalized its new long-term strategy 18 months ago, all eyes in the conference room turned to John Connors. The company's senior vice president, finance and administration, and CFO would play a pivotal role in supporting the strategic shift. Connors made big changes within the finance function to closely align his team with four of the new strategy's core objectives: to better clarify Microsoft's future direction for shareholders, to improve the speed and quality of decision-making by dividing the company into seven business segments, to sharpen the allocation of resources, and to drive growth in several markets.

"One of the first decisions we made was to increase the number of senior-level finance people in those businesses," reports Connors. He appointed a divisional CFO to each of the seven new business units. "We've always had a very strong corporate finance function and strong field finance because those groups had P&Ls," he says, but the customer-facing portions of the business needed more high-level financial expertise. They received it.

The appointment of divisional CFOs has "allowed us to execute on multiple fronts very, very quickly in a way that would have been difficult to do in the past," says Connors. In addition, he says, the finance restructuring has brought deeper financial insight into the business groups and introduced more senior-level finance talent into the company. It has also led to an aggressive schedule for Sarbanes-Oxley compliance and to broad-based efficiency initiatives, which include a reported $1 billion in cost cuts companywide to be conducted over the next 11 months.

Microsoft is not alone. The split strategy of focusing shared-services "transaction factories" on becoming as efficient as possible while simultaneously honing analytics, forecasting and planning capabilities to improve decision-making in operations is becoming increasingly popular in corporate finance, according to Accenture global managing partner Michael Sutcliff, who's based in Atlanta.

Originally Website