One item weighing down every remodeler's toolbelt is the cost of workers' compensation. Some states are admitting that their systems are broken and are trying to fix them. California, which has one of the highest rates in the nation, has recommended a 10.2% reduction in the advisory rate, which insurers usually adopt, that goes into effect this month. And, in Alaska, where rates are just below California's, the governor has introduced legislation to reform Alaska's system.

While waiting for your state to come around, there are a few things you can do to help rein in costs. James Moore of J&L Risk Management Consultants in Raleigh, N.C., suggests four ways of cutting costs in any state with a carrier or third-party administrator:

  • File first reports of injury right away. “If the insurer/third-party administrator doesn't have the first report within the first 24 hours,” says Moore, “my statistics show a 400% increase in file payments.”
  • Develop a medical treatment network. “It's imperative for an employer to know the doctor who will treat employees post-injury and, even more important, to know the specialist who the first-level physician will refer employees to for more serious injuries. Knowing your medical network will reduce pay-outs on the file by 75%.”
  • Establish a return-to-work program. “The increase on file expenditures is usually 400% more if an RTW program is not in place.”
  • Treat employees with respect. Doing this and communicating the employee's rights under the Workers' Compensation Act will make it less likely that she or he will seek legal representation. Something as simple as sending a greeting card and staying in touch with the employee during medical treatment is effective.

    • Mark Leininger, of NEK Insurance in Northern California, most of whose clients are general contractors, sees firsthand the effects of that state's system. He suggests spending more on safety programs and equipment, even if workers' compensation costs begin to decrease. “The reduction in claims activity is going to go a long way to impact or lower rates,” he says. “Many employers also have enlisted various employee incentive programs with rewarding results.” Insurance carriers also offer rewards “if you go a certain period of time without a claim or don't exceed a certain dollar amount.”

    In addition, California's Workers' Compensation Insurance Rating Board has an “experience modification” rating, which is based on data culled from previous history. The number follows employers wherever they go to buy workers' compensation and is directly applied to the premium throughout the year. Leininger says it is a big help in offsetting costs. He also points to current reforms in California that will require medical care within established networks. In other states, he says “a healthy marketplace with the ability to shop insurers” will lower costs as well.