Blame the insurance cycle. After years of palatable increases and even some decreases, workers’ compensation costs are jumping up again. Fueled by an increase in underlying health-care costs and a higher number of claims–not to mention the impact of September 11–workers’ comp costs bumped up an average of 12 percent this year, according to Stephen Lowe, a managing principal at consultancy Tillinghast­Towers Perrin.

“In the past, inflationary pressures were offset by managed-care efforts,” says Lowe. “But that process has run its course.” Lowe says that managed care can still be effective, but employers need to refocus their efforts. “A lot of people have become complacent,” he says.

Not everyone. Companies are turning to workers’ comp health-care organizations (HCOs)–which oversee the delivery of medical care–in greater numbers. In Florida, for example, the number of employees who are covered by HCOs has doubled since last September. In California, HCO legislation allows employers to determine the course of an employee’s treatment for 90 to 180 days, up from the previous limit of 30 days. The extra time allows more claims to be settled quickly (95 to 97 percent in 180 days versus less than 20 percent in 30 days), says Donald Balzano, CEO of Long Beach, Calif.-based Medex HCO.

Mike Campbell & Associates, a City of Industry, Calif., warehouse and distribution company, cut rates by 50 percent since it started working with Medex, says general manager Kevin McHugh.

Companies will need all the help they can get. Lowe predicts the workers’ comp rates will continue to rise over the next few years. “The terrorism issue has yet to be resolved,” he says, “and insurance companies will continue to focus on the bottom line.”