In the past few months, I have performed a large number of phone consultations on Workers Compensation claims and premiums. One of the most common questions that I receive is what would be the largest shakeup in the Workers Compensation world in the next five years.

As the title of this post indicates, the federalization of Workers Comp - and it is in process as I write this - would make Workers Comp not look anything like it does today. If we examine what was once state administered and then converted to a federal administration, one can see great changes. Workers Comp would be no different.

From my viewpoint, if health care becomes nationalized, then it will be a very small leap to have 24 hour coverage. This is especially true if employers are tagged with administering the national health part of the plan. How many times have we seen states say that 24 hour coverage could grow from the health insurance as a modified carve out program? I have never seen the states say we can expand Workers Comp coverage to include health. Once again, nationalized health converted to 24 hour coverage would obliterate the Workers Comp infrastructures of each state. I am not intending to say this would be a positive or negative occurrence.

How well would the program run? I do not want to pick on the TSA, so I will point out the digital TV transition that was federalized. I will register no opinion. It is a great example of a federalized program.

The whole transition may not take place for 20 years. I am still trying to fathom what the system would look like overall. The main concern would be if the federal government becomes a Workers Comp insurer that could charge less than the competition for the same coverage, what would happen to the current Workers Comp carriers?

I am not making a political statement.

Most employers have concerns that decisions about what to pay and when to pay can actually harm their business. When Workers Compensation insurance policies are examined for employers, there is one area where large mistakes almost always occur in the policy process. The mistake is simply writing a check for a Workers Compensation bill - especially a Workers Comp audit bill - without questioning how the insurance carrier or premium auditor calculated the amount. Insurance policy billing statements must be treated the same as a bank statement. If not, then over payments for Workers Comp coverage are almost guaranteed.

One employer wrote a check for over $50,000 because the insurance carrier audited them and sent them a bill. There were miscalculations during the audit, later discovered by an independent consultant. The true bill ended up being less than $20,000. This is becoming more prevalent in recent times.

Always ask for backup documentation on how the Workers Comp policy or audit bill was calculated. Look it over carefully. There may be no errors. But, at least the assurance is there that the documentation that justifies the billing was reviewed and anything that could be done, was.

"Just Do Not Write A Check" should be one of the primary mottoes for insurance departments. At a time when every cent counts more than ever, feel 1,000% comfortable with writing the check. If not, trusting instincts and asking questions is Key. The answers to your questions may be very surprising and the results can be very lucrative and a huge boost to the bottom line.

***Due to popular demand, this is a repost of this information***

I have been contacted by quite a few insurance agents, consultants, websites, etc. about using this blog and the newsletter at will to beef up their website or open access to use the posts at will. As I have put in over 360 hours (9 weeks total) of solid work, I cannot agree to using my posts in any form at any time. Why I decided to bring this up is that there are websites that charge for access that are using quite a few of my posts. That will be stopped very soon.

As we have a few websites using the blog, we are running checks to make sure that no one plagiarizes the website or this blog. When we ran the check last year, we found five websites that just copied the blog or parts of the website (better known as plagiarism) at will.

I have no problem allowing someone to use a single post if we are given credit in the article. I cannot give out carte blanche access. I hope you and the other blog and newsletter readers understand my position. If you have any questions on this, please drop me an email at jmoore@cutcompcosts.com.

Now, let us get back to saving you Workers Compensation premiums.

I have in a roundabout way covered a few of the secrets (that are not so secret) to cutting your company's Workers Comp costs. The five are:

• Timely reporting of the injury to the insurance carrier/TPA
• Medical network in place
• Return to work plans for an injured employee
• How the employee is treated by the employer
• Understanding Your Premium Audit

If you look over the last few posts, the first three have been covered. I will cover #5 - Understanding Your Premium Audit in the next post or two.

This is one of the very critical areas in your Workers Compensation program. Communication with the medical providers in your network is one of the most effective ways to control your Workers Comp costs.

The most important medical providers in your network are not the first-level physicians such as general practitioners. The second level which includes surgeons is the best area to save on Workers Compensation costs. The second level physicians will usually be in charge of the more serious claims and will make decisions on the disability of a more seriously injured worker. The treating second level physician will also help in controlling the medical costs.

How can your company control the second level physicians that your employees are referred to for treatment? A working relationship with your first level physicians so they realize who you wish your employees referred to in case there is a referral to a second level physician.

How can a surgeon or specialist know what the job tasks are for an employee? I will cover that in one of the next few posts.

This would apply to all employers regardless of size, type of insurance program, or state. California has shown that MPN's (Medical Provider Networks) are a way to reduce premiums very quickly. Designing your own provider network is a task that will pay your company back with a large amount of savings.

Does your company have a medical network in place? If not, you are very likely spending out 400% more on your premiums. I performed a study ten and again two years ago on a set of public entity files that indicated that very fact. The 400% is a conservative figure. How do you set up a network of doctors and other medical providers for your company? The first step is to take some type of action.

• The first step is always the most difficult. Your medical bill processing company - which is sometimes your insurance carrier - has a list of doctors in their network. You can usually save about 15% on your medical bills just by using these medical providers. Find the ones in your area and direct your employees to use them.
• Find the doctors that are industrial-minded inside of the network. This is a double savings as your company gets the network discount from your carrier/TPA. Your company will also save as industrial-minded doctors and providers tend to return the injured employees to work earlier.
• If you do not like the providers that are in your carrier's/TPA's medical network, then explore your local area for industrial clinics. We have seen great results from Concentra Medical Centers. Certain state laws may prevent you from going outside of your medical network such as the MPN's in California. We have found that medical walk-in clinics are great for minor injuries.
• Once your network is in place, communicate with the medical providers. I will cover the communication to the medical providers in the next one or two posts. This relates into my last post on return to work.
• Monitor the network for changes in medical providers. Quite a few of the pharmaceutical networks have changed over the last few years. The network that you originally built may not be the same even after one year.
• Communicate the network to your employees. We have advised companies to place the medical provider list with the employees' paychecks once per year, or sending out a memo to all employees yearly on who is the required or recommend physicians and other medical providers in the network. The procedures for reporting workers comp claims that I covered in the last few posts is very important. That is where the employer has the initial control of their claims.

One of the other areas that I recommend to cut workers comp costs is how the employee is treated after the accident. The employees see the medical providers as impartial and so do the Workers Compensation Industrial Boards and Courts. Medical treatment is the make or break area for your program other than safety.

The National Council on Compensation Insurance (NCCI) had an optimistic outlook on the Workers Compensation market. However,the NCCI had recently adjusted its long-term outlook for workers' comp to cautionary. This may be the warning of a hard market.

These concerns, according to NCCI, include:

· Rising medical costs remain a significant challenge and continue to rise faster than wages. California is the best example of spiraling medical costs. The NCCI does not track CA statistics.

· Higher indemnity claim costs. Researchers found that indemnity claim costs also continue to outpace wage increases The number of claims have decreased. The higher indemnity and medical costs have offset the decrease in the number of claims.

· Lower investment yields. I am of the opinion that the insurance markets follow the stock market. The recent downturn in the economy should have hardened the market. The bailouts in the financial markets may have delayed the hard market.

· Potential political changes. I think the political changes such as a Federal Insurance office has caused great uncertainties in the market. Workers Comp benefits could be even be affected by the nationalized health insurance program. With all of these uncertainties, the market could harden very quickly.

What Is the effect of a hard market in Workers Compensation? I will post on that next time.

There is one thing that an employer can do to wreck their Workers Comp program. It is a mistake that can be remedied very quickly.

The mistake is not reporting claims timely. With so many of the states requiring the adjuster to make a compensability decision within a short time frame, the employer must report the accident quickly. Most companies do report accidents from their main office very quickly. It is when they have branch offices and/or divisions/departments that problems occur with timely reporting.

This is one of the Five Keys To Saving On Workers Comp that I have written and spoken about for many years. Letting the workers compensation adjuster know of an accident quickly allows for a more thorough investigation. The injured employee will receive their proper benefits when they need them if the investigation begins quickly.

One of the effects that employers may not realize is the adjuster that is setting the reserves on their claims will very often base some of the reserves on the "reputation" of the employer. An employer that chronically reports claims late may be seen as more of a higher risk. The adjuster may set the reserves much higher which will cost the employer a much larger amount of premiums. The worst first impression to an adjuster is an employer that reports their claims late.

Late reporting can also affect an employer at renewal time. Quite often, an adjuster will let the underwriting department know when an employer has reported a claim late. These late reports are usually compiled and provided to the underwriter at the time of renewal. We have seen employers not being renewed by their insurance carriers for reporting late.

I was attending a lunch conference on Workers Compensation Return to Work earlier this week. The presenter provided this statistic from the American Medical Association. The stat was based on the longer an injured employee is out of work, the less likely they will ever return to work.

The percentage of workers that return to work after being out of work for:

• Less than 8 weeks - 50%
• After 26 weeks - 18%

There was also a study performed in the 1980's and the 1990's that said an employee that is out of work more than six months will return to work only 50% of the time. I had performed a statistical analysis of the same type on a group of public sector files. The most startling statistic was that only a very small percentage of employees out of work more than one year. I think the number was 7%.

Return to work is becoming more of a financial defense strategy for companies. Having a return to work program is very critical to reducing Workers Compensation costs. It is one of the easier methods to reduce Workers Comp payouts.

There are a few good methods to establishing and facilitating a Return to Work program. I will cover them in the next post along with the reasons for the low % of return to work after such a short time off work.

From the last three posts I am assuming that you have online access or a claims loss run and can find the Paid, Reserves, and Total Incurred figures in your loss runs. The ones that you want to target are the ones that have an Open or Reopen status. You will likely only want to examine the Lost Time files and not the Medical Benefits only file. You would want to examine any medical only claims that have more than $2,000 in outstanding reserves.

Now that you have a list of those claims, how do you tell which ones are over-reserved or should be closed? Well, I have been able to answer hundreds of questions in this blog. This is the first time that I have no sure answer. Contrary to the belief of some people, reserving Workers Comp files is an art that is very difficult. I could write a book just on how to analyze loss runs.

You can call the adjuster to see if they will reduce the Workers Compensation reserves, but on which files would that be appropriate? You can call your agent, but I have only know a very few agents that understand the process of reserving a Workers Comp file. That is no slight to agents as they are very necessary to the Workers Comp insurance process.

I want to avoid sounding like an infomercial for our services. I will not "toot our own horns." The best thing I can say to do is have a working relationship with your adjuster. That will help somewhat.

I have posted a large number of posts on loss runs, file reserving, and contacting your Workers Comp adjuster. Feel free to look through the posts on this page and on the archived pages. The Search Box may be a good shortcut.

Next Post - A Statistic That Floored Me From The American Medical Association

Understanding how your claims affect your insurance premiums.

The Workers Compensation insurance reserve system is a delayed system. The adjusters actually have an additional six months after a policy ends to adjust the reserves to their proper level . Reviewing your claim reserves with the insurance company at the end of a policy year is an exercise in futility. Approximately 90 days after your policy expires is the best time to review the loss runs and the reserve values. These Total Incurred values will show up in your company's Workers Comp insurance policy for the next year.

Examining and understanding what the three factors of a reserve are and which ones can be analyzed.

• The three factors are the Spent amounts; Amounts in Reserve, and Total Incurred. The Spent amounts can be examined to make sure that the correct amounts were paid. The Spent amounts have little to do with the reserve figures. The Spent amount analysis is best performed in a claim review, not a reserve review.
• The Reserved amounts are the most important part of a reserve review. They are the unspent figures that the adjuster estimates will be paid out over the life of the Workers Comp claim. The Reserve amounts are the negotiable parts of the loss runs. Over-reserving can cost an employer dearly as the E-Mods/X-Mods are calculated directly from these figures. Over-reserving will cause an employer to pay premiums for funds that will never be used to pay the claim.
• The Total Incurred amounts are the Spent amounts added to the Reserve amounts. The Total Incurred amounts will appear on the Experience Modification Worksheets that are published on your company by the NCCI or State Rating Bureau.

Understanding the difference between a Workers Comp claim review, reserve review, and premium audit.

• Claims Review - analyzing how well the claims department handled the claims. This is usually accomplished with a review sheet that scores the effectiveness of the claims adjusters.
  
• Reserve Review - a financial analysis to make sure the monies forecasted for the life of the claim is as accurate as possible. Negotiating down the reserves will result in a large amount of savings in your Workers Comp premiums.
• Premium Audit - performed by the insurance company's premium auditor to make sure that all the correct classification codes and payroll figures were used during the policy period that just expired.

I have provided the background of what you need to know to do a reserve review. The rest of the Reserve Review will be covered in the next post.

This post is a continuation of the last post.   I will break down the list of six into two groups of three.     

Obtaining online access or Workers Compensation loss runs. 

This area has been covered very often by me in previous posts.  Please use the Search box in the right margin.  Searching for online access or loss runs will give you the best results.       

Understanding which claims will affect your NCCI or State Rating Bureau Experience Mod (E-Mod/X-Mod).  

Any very old claims (more than 5 years old) will not affect your E-Mod or X-Mod in most cases.  However, if you are in a hybrid insurance arrangement or a long-tail Retro policy, the old claims can still affect your insurance premiums.  

Your company's most recent claims will likely not affect your next E-Mod/X-Mod.  However, the very new claims will affect your Mod eventually, so they should be examined along with the rest of the claims on the loss run.      

Understanding which claims will be examined when an insurance company provides a quote  

This may be a little confusing as the insurance companies that do a good job of underwriting will examine the older claims that will not affect your E-Mod.  The underwriter will still look at the old claims to make sure that your company did not have a very bad claims year that may not appear in the E-Mod calculations. 

We recently consulted with a trucking company that was trying to negotiate a switch from a regular commercial policy to a large deductible program.  Their E-Mod looked great. The insurance carriers that were willing to write them did not provide a great deal as was anticipated due to their low E-Mod. The underwriting departments were concerned the company had two very serious claim years 7 & 8 years ago.  The bottom line is that for the E-Mod the newest claims should be examined.  If your company is going to shop their Workers Comp insurance in the market or going to try to switch to an alternative insurance plan, all claims on the loss runs are then highly important. 

      

That covers the three out of the list of six. We will cover 4, 5 & 6 in the next post.  There is a Definitions tab in the right margin that will take you to a list of definitions if you have questions on any of the terms. Please email us if you have any questions.