This document by Monte Gale illustrates the 'Magic Bullet' for cutting Workers Comp losses prospectively by 20% to 50% for those who’ve often said, 'There’s no magic bullet'
Appropriate claims handling might easily reduce claims payouts and an entity’s losses by an average of 20% to 50% (some state fraud statutes might provide for restitution to the employer). This article provides a guide to an adjuster’s control of a loss once it’s submitted for claims handling. This area, though neglected in Risk Management reviews — adjuster’s notes generally aren’t available — is the most effective way to improve loss ratios, underwriting results, and ultimately the cost of Workers Compensation for all enterprises.
Although claims reviews generally focus on expediting the lowest possible payout and the most cost-efficient result, from my experience as an underwriter and as an insured’s representative in claim reviews, little attention is given to the effectiveness of the claims handling process. The overriding question should be: Is the claims handling performed at the highest possible level to reduce expense charges and the final payout?
There are many warning signs of inappropriate claims handling. If 20% of all claims filed are fraudulent, is this statistic reflected in the claims handling process? Does the adjusting diary reflect an inquiry, fact finding, and investigation of witnesses or the claimant? Don’t be surprised to learn that case management reviews are conducted on non-compensable claims. This protocol problem might add 15% to 20% to a claim file’s total payout.
An operational schedule that limits the maximum possible cost of a claim to a maximum probable cost should follow creation of files and production activities that are cost identifiers and at the same time, provide cost limits. A number of common sense activities are missing from adjuster’s diaries and possibly from their protocol.
This listing provides a guide to help control reserve estimates and ultimately, claims payouts (subject to state Workers Compensation Statutes, Rules and Regulations):
DON’T BUY’ A NON-COMPENSABLE CLAIM
Payments claimants that are ultimately non-compensable, fraudulent, or for injuries covered under other coverages are generally not recoverable. The First Report of Injury should trigger a thorough investigation of compensability before any payments are authorized to the claimant under the Workers Compensation policy.
Check to be sure that claims are reported to carriers as required by state law. Review accident reports and witness statements. Obtain enough facts to support a Workers Compensation claim. Claims are regularly paid that are outside the scope of employment. Avoid this and you’ll save 20%.
Determine whether the claim is compensable. Ask the carrier to make voluntary payments in a timely fashion. Make every effort to avoid filing a petition for a formal hearing by the claimant.
If the claim is non-compensable, ask the carrier to deny benefits. Review the claim to determine whether the facts of the case support an exception to coverage under the applicable Workers Compensation laws. Investigate the claim to determine if it’s fraudulent. Ask the carrier to deny benefits.
If a petition is filed despite your efforts, review it for completeness and accuracy (see applicable state law). Workers Comp laws in most states provide a statutory penalty of 15% to 25% reduction of attorney’s fees for improperly filed petitions.
One simple way to reduce claims payouts is to avoid claims that are ineligible for payment. Check each state’s Statute of Limitations as applied to:
You’d be amazed at the number of claims that might be dismissed due to the running of applicable Statutes of Limitations. You’ll have 'bought' another claim if any payments are made to the claimant.
REDUCE MEDICAL PAYMENTS
Once a claim has been established, payouts might be diminished when the claimant has reached their maximum medical improvement and further treatment would provide no benefit. A rehabilitation nurse or medical management personnel might be of great value. The Workers Comp Board might find, with the submitted evidence, that further treatment is unnecessary. They can use the same meds to determine an agreed on percentage of temporary, permanent, partial, or total disability.
Regarding medical bills, most adjusters would, if authorized, have a specialized firm review medical bills and charges. Many managed care firms will do this and determine if charges for treatment are appropriate for the injury. In addition, they’ll review the mode of treatment to determine if it’s appropriate.
BEWARE OF MANAGED CARE
On the other hand, avoid requesting case management if unwarranted. The managed care approach, as applied by some states, has ushered in an era of increased payouts based on a mandatory charge on all claims for 'Managed Care Services.' The states have authorized Approved Managed Care Organizations (MCOs). Use of an MCO by a carrier, if approved by the state, will entitle the carrier to issue premium credits. On the other side of the ledger is the new and increasingly popular charge of Allocated Loss Adjustment Expenses that include managed care charges. If unwarranted, these charges can add an average of 10% to loss costs or payout totals.
Prosecuting a claimant’s rejection of Simple Medical and Surgical Treatment is often overlooked. If a claimant refuses physical therapy, determine whether this conduct renders the claim non-compensable under state law. Many states provide for modifications to compensation awards.
Reduce a lost wages payout by returning the injured employee to a job. It might be a different job or a wage issue being equalized. But the job must fit within the medically approved capacity of the employee. If there was an outside petition, check the claimant’s current work status for concurrent employment. You might request a reexamination by the state’s Rehabilitation Commission. This is essential, because weekly compensation is diminished by any wages or earnings the claimant is receiving.
GET YOUR MONEY BACK: OBTAINING RECOVERABLE THIRD-PARTY DOLLARS
Now that we’ve reviewed the methods for reducing payouts, let’s examine the recovery of dollars already paid on a claim.
Check for Second Injury Fund Relief — a valuable source of recoverable dollars. These funds are available to claimants who are classified as permanently and generally totally disabled as the result of a subsequent permanent injury. The carrier’s lien on the proceeds might be applied against outstanding reserves and future payments due the claimant. The funds are no longer available in some states. For example, Florida abandoned the Fund in 1998.
REDUCE PAYOUTS THROUGH OFFSETS
Along the same lines, check claim offsets to determine whether you can apply Social Security or state credits, offsets to compensation benefits by Federal survivor or disability benefits, black lung benefits or disability pension benefits. Investigate other disability benefits (state or contractual).
GET SUBROGATION CREDITS
Pursue other credits proactively. Review claims for possible subrogation. Determine whether there’s third party liability. If liability is found, determine which party (employee, employer, or carrier) can file a lien under state law. Once the third party suit is settled, you must ascertain whether the carrier is reimbursed for payments.
REDUCE FUTURE PAYMENTS
Another area of controlling future payments is the calculation of future benefits that might be lump sum settled. To reduce payments, check compensation payments for a death claim. Since the payments are partially based on the length of time the recipients are eligible, determine the eligible dependents and compensation rate under state law. Generally, payments cease when a child reaches age 18, or 21-23 if enrolled as a full-time student, or if the widow remarries. Here, the status must be monitored for overpayments or subsequent over reserves.
USE STRUCTURED SETTLEMENTS
The settlement annuity is gaining favor. Defense counsel use them to lump sum settle cases, with future payments discounted to present value. The claimant (and their attorney) gets cash up front. The insured and the carrier eliminate the costs associated with reserves that are reduced or entirely removed. The claim is closed (permanently with a release).
FINALLY, GET THE FILE CLOSED
Eliminate the expense costs of a claim and the costs of maintaining an open file (and reserves) by proactively reviewing claim files. Pursue dismissals, compromised settlements, and lump sum settlements to speed the litigation process and to close the file. Efficient defense counsel might be helpful in closing the files using the three tools listed above. Fee structures and fee arrangements might be revised to obtain the most aggressive activity filing for hearings. The ultimate cost of claims is reflected in the legal departments’ commitment to settlements, and their ability to seek dismissals for lack of prosecution by the petitioner/claimant.
CALCULATE THE RESERVE ESTIMATE
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Check claimants Average Weekly Wage (AWW)
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Check scheduled percentage applied to the AWW
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Check estimated medical treatment schedule
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Check IME results (varies by state):
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Date of Maximum Medical Improvement
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Percentage rate for Temporary Partial Disability
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Percentage rate for Permanent Partial Disability
The Workers Compensation Board will establish an award and/or lost time based on a disability rating. The reserve will provide an estimated figure based on medical exams from the claimant and from the carrier’s medical examiner. The reserve will reflect any lost time, permanency award, medical exam costs, legal costs to the claimant’s attorney, and any future medical treatment.
When examining a reserve, look at the breakdown. There’s a simple mathematical logic to the calculation. If the facts in the file don’t support the assumptions made in the line items, have the reserve revised to match the fair and pragmatic ultimate cost of the claim.
TO CUT THE COSTS, WALK THE WALK
Take the proper steps and you can reduce claims payouts by almost half. Investigate for fraud and net a 15% reduction (20% less a 5% cost). Don’t 'buy' non-compensable claims and save 20%. Manage the managed care and net a 5% savings. Recover your recoverable credits and save a net 15%. The costs associated with claims auditing oversight, at an average annual cost of 6%, provide a cost-benefit bargain in a spiraling cost environment.
* For more information on this article, see National Council of Compensation Insurers www.ncci.com and the Workers Compensation Research Institute (WCRI) Reports. Research for this article includes findings derived from Workers Comp claims analysis performed on more than 9,000 claims from 1987 to the present.