As this is the first of the year, I decided to post links to our five most popular articles for 2011 judging from the traffic on the web pages and the newsletter.

Medical Only Claims-The Fuse May Be Lit

Workers Comp To Hit Big Time On The Small Screen

North Carolina Workers Comp Shocker!

The Workers Compensation Best Test For Multi-jurisdictions

Not Reporting Claims To The Carrier -You Can Pay It Now Or Pay 400% Later

We often receive questions centering on Workers Compensation audits. This term may cover many types of audits or reviews. I thought I would cover the top 5 types performed for employers on a regular basis in order by popularity. They are:

Premium Audits - this is basically an examination of the mechanics of how your Workers Compensation premiums were calculated by examining your policies, endorsements, yearly premium audits, and other pertinent materials.

E-Mod Audits - this type of audit recreates the mechanics of how your Experience Modification Factor was calculated. This can be very important to employers as the E-Mod has a major impact on premiums.

Claim Audits -a predetermined set of best practices for claims handling are established - usually using the carrier's or TPA's claims manual. The Workers Comp claims are reviewed thoroughly to insure the claims adjusting and supervision staff is performing at an acceptable level. Currently, we use 31 - 33 areas to examine the claims. Trends are analyzed and reported using our copyrighted reporting methods. This is a very critical area for self insureds.

Reserve Audits - can be done during claim audits or standalone. An analysis is performed for over/under reserving of the Workers Comp files. This is especially important for non self insureds as the E-Mods are calculated directly from the Total Incurred of each file.

Subrogation Audits - money is often left on the table when subrogation has not been addressed in all of the Workers Compensation files. As I wrote in this article, Workers Comp adjusters may not be that heavily trained in liability adjusting. That is the nature of the business. Automobile accidents are a major concern in this area.

There are two caveats to consider in these Workers Compensation audits. Picking out one or two mistakes by an adjuster and inflating their importance is a waste of time and $$$. Trends should be analyzed in most cases. The other caveat is very few companies can do all of these services in-house without having an anonymous subcontractor assist in the audits. I do not want this to be a shameless plug for J&L's services.

I was recently reading an article from WCRI concerning an increase in California on indemnity benefits. Their usually very accurate research seemed to equate the rise in indemnity costs to the recession. I think this is a very accurate statement and should not be limited to just CA.

From my experience, the reasons for longer periods of Temporary Total Disability (TTD) nationwide are:

• The job may no longer be available due to the recession. The employer may have eliminated the job while the injured employee is on TTD.
• The employer may not have a modified duty job for a light duty return to work release by the physician. It is very difficult to create modified jobs during a period of layoffs.
• Employees may be very reluctant to return to work as Workers Comp benefits are viewed as a safety net similar to unemployment benefits
• The employer may not have communicated their light duty positions to the treating physician - there is no excuse for this to happen with today's technology. Making a video of a job or modified job to provide to the treating physician is much less tedious than in the past.
• The employer may just not want the employee back due to other personnel issues. I often see the employees that are having HR-type problems be the very ones that are soon to file a claim.
• The long-term employees may decide to have a condition treated they have worked with over the years. I see this very often in a period of layoffs. One of the main conditions for the delayed treatment is carpal tunnel syndrome even though employers have been able to reduce carpal tunnel by 50%.

This list could have been longer. The indirect cost with indemnity is the increase in medical costs. The longer an employee is out of work, the longer they are required to seek treatment including pharmacy benefits.

I have seen this situation many times when reviewing employers’ Workers Compensation situation. The cost of Workers Comp is a budget item that is in the overhead cost (cost of doing business) section of their budget. I would never infer that an employer, whether self -insured or not, should just change their company’s budget to make Workers Comp a controllable variable cost.

Including Workers Comp as a variable cost will usually result in three changes/improvements:

• Workers Comp costs will be examined more by Senior Management. If Workers Comp is viewed as a fixed cost, little attention will be paid to a possible silent budget killer. If a Risk Manager or CFO presents the costs as variable, Senior Management or the owners will be much more accepting of an in-depth analysis.

• Forecasting your future Workers Comp budget will be more accurate. If your company had 500 employees, and now has 350 due to the economy, why would you pay the same amount on the upfront policy with a 30% drop in employees and payroll? The same can be said for the budgeting of a self-insured. If Workers Comp costs are seen as overhead, then forecasting is usually not even attempted overall.

• Now that Workers Comp is a variable cost, the budget responsibilities can be broken down, for instance, each department, plant, location, etc. One of the quickest ways to lower a Mod is to delegate responsibility for their portion of the Mod down to the smallest groups possible. Lag time on reporting injuries are usually cut very quickly and substantially when lag time is looked at by management or the Risk Manager.

There are many other advantages to looking at Workers Comp as a variable cost.

This is an excerpt from the manual found here that I wrote many years ago. The info is basically timeless. Claims reviews are an integral part of a premium reduction program and even more critical if you are self insured.

There are four possible methods to review your WC claim reserves:

Claims Office Review –

Advantages - reviewing the claims files in your insurer’s claims office is the most accurate way to review the claims reserves; the employers can examine everything that was involved with the file and will call attention to the insurer that your company takes the reserves on the files very seriously; the adjuster or adjusters on the files will usually meet with you face to face.

Disadvantages – the review may not be feasible if the claims office is in a remote location; cost of travel; takes up employer’s time, especially if the claims office is in another state.

Claims Review at the Employer’s Location/Agent’s/Broker's office -

Advantages – saves the employer travel time and the cost of traveling to the claims office; adjusters will sometimes adjust their reserves before the meeting, if the adjuster believes the adjustments are necessary.

Disadvantages – insurers rarely bring files with them, more of a “canned” review as the adjuster has reviewed everything and will present their reasons for the reserve levels; more of a public relations/marketing meeting; the adjuster or claims department usually controls the subject matter of these meetings; this type of meeting takes adjusters away from their files; the employer may pay extra premium to have these meetings.

Online Review - Full access to all adjuster notes, statuses, reserve levels, and reserve history are very important.

Advantages – saves the employer travel time and the cost of traveling to the claims office; immediate and accurate claims review if the employer has full access to the claims files; reviews can be done at any time and can follow the recommended timetable on the preceding page; the employer has control of the review.

Disadvantages – there are little or no disadvantages to online reviews with full access to all reserves, statutes, adjuster notes, etc.; if the employer has limited access to the files, then the employer may not know the justification of the reserve levels.

Employer Self Review –

Advantages – the employer controls the review; saves time and cost of travel, as the employer does not have to incur any travel; all parts of the claims file are available; can be combined with the Online Review or by using loss runs from the insurer.

Disadvantages – employer has to keep copies of all forms, notes, and any other pertinent file material; the employer may spend an inordinate amount of time and expense in retrieving all file material from the insurer, treating physician, and other parties; privacy rules may be an issue.

My last post covered what is included in wages for Workers Compensation policies and premium audits. One of the areas mentioned was the Davis-Bacon Act wages.

The Davis-Bacon and Related Acts, apply to contractors and subcontractors performing on federally funded or assisted contracts in excess of $2,000 for the construction, alteration, or repair (including painting and decorating) of public buildings or public works. Davis-Bacon Act and Related Act contractors and subcontractors must pay their laborers and mechanics employed under the contract no less than the locally prevailing wages and fringe benefits for corresponding work on similar projects in the area.

The Davis-Bacon Act directs the Department of Labor to determine such locally prevailing wage rates. The Davis-Bacon Act applies to contractors and subcontractors performing work on federal or District of Columbia contracts.

The Davis-Bacon Act prevailing wage provisions apply to the “Related Acts,” under which federal agencies assist construction projects through grants, loans, loan guarantees, and insurance.For prime contracts in excess of $100,000, contractors and subcontractors must also, under the provisions of the Contract Work Hours and Safety Standards Act, as amended, pay laborers and mechanics, including guards and watchmen, at least one and one-half times their regular rate of pay for all hours worked over 40 in a workweek. The overtime provisions of the Fair Labor Standards Act may also apply to DBA-covered contracts.

One of the most trying times for a CFO or business owner in the Workers Compensation process is the payroll audit. I had a question posed to me yesterday as to what funds are considered gross wages under a Workers Comp policy. That was a good question.

I decided to list the usual payroll items that are counted during a payroll audit. Each state has its own list of items to be considered payroll. The following is a default list of the most common gross payroll items. Please note there are many exceptions to the list. This is not an exhaustive list – more of an example.

• Wages
• Vacation Pay
• Sick Pay - not paid by a TPA
• Bonuses
• Holiday Pay
• Employee contributions to a 401(k) or other deferred compensation plan
• Employee contributions to a Section 125 Cafeteria Plan
• Auto Allowances
• Market value of lodging provided, i.e. free or reduced rent apartment
• Value of free meals provided by the employer
• Travel or “Show Up” pay
• State Prevailing Wage fringe Benefits paid directly to an employee
• Davis Bacon Wage fringe Benefits paid directly to an employee
• Commissions
• Payments for hand tools provided by the employee, either directly or through a third party

I know of some very strange items being counted as gross payroll. I have seen chickens and pigs being counted in certain situations. The Davis Bacon Wages come from an act established to pay workers a minimum amount on Federal and State contracts. I will cover Davis Bacon Wages in the next post.

A new report has been produced by the NCCI indicating that older workers do not account for a larger percentage of Workers Comp accidents than the overall employee population. In a way, the theme of the article seems that NCCI may have been surprised by the final numbers.

We should all give kudos to NCCI as they could have swept the stats under the rug and just not completed the study. I have seen researchers just not publish a study when the forecasted numbers are not as expected overall.

I have attended a few NCCI conferences over the last few years. One of the main sections that had always been covered was the older worker concerns in the general worker population. I kept wondering if they were trying to say that older workers cause more Workers Comp accidents. The causation issue was never directly addressed at any of the meetings.

Many studies on older workers have been performed by various research organizations along with state and federal governments. Unless I am mistaken, the studies usually agreed with the same conclusion drawn by NCCI. A German study on older workers seemed to agree in part with what NCCI had covered in their study.

One of the largest studies undertaken on the workplace on a worldwide basis seems to agree with the German study and the NCCI study.

The specific variables on age and work in the US can be found in the Sloan Center Report. If you skip down to page 21 and go from there, the results are very clear.

I thought I would throw in my two cents worth on why older workers are happier and safe workers. I came up with the following list:

• Job satisfaction results in a higher level of organizational commitment
• Older workers have a high level of job satisfaction
• The level of experience eliminates the learning curve. As we all know, the most dangerous time is when an employee uses a machine or is assigned a new job task for the first time.
• Organizational commitment also includes safety programs
• Older workers have been around long enough to see the results of when safety programs are not followed – namely accidents.

This list is not comprehensive by any means. I am sure there are more that easily can be added to the list.

6. For CFO’s – I will not consider Workers Comp premiums as an overhead expense or a cost of doing business. I will look at the premiums as a tax (of sorts) and structure our insurance program similar to our tax structure. I will consider Workers Comp as a variable cost, not a fixed cost.

7. I will read the Workers Comp policy before singing from the front to back including any amendments or riders. I will highlight any clauses that I question. I will review these highlighted areas with my agent before I sign the policy. I do realize the policy is a legal contract and should be treated as such.

8. For self-insured’s, I will look at more than just the cost of processing the Workers Comp claims as some TPA’s are better than others. I will heavily analyze if one TPA charges less, but costs more on claims. I will also factor in other fees such as bill processing fees, rehabilitation nurse fees, and other ancillary services if I am using the TPA’s other services. I will always explore all vendors for the ancillary services.

9. I will keep myself updated on any Workers Comp law changes or important cases in the claims jurisdiction where my company operates. I will subscribe to at least three Workers Comp online publications.

10. I will institute in my company (if large enough or if you have remote workers) an efficient way to report injuries so that my company is able to file a First Report of Injury with our insurance carrier or TPA within 24 hours of the occurrence of an injury.

11. Bonus - I will institute a reporting procedure to the owners of the senior management of my company that distills down our Workers Comp situation in very complete yet concise terms. I will always keep very current on our Workers Comp situation so that my reports are up to date as possible.

12. Bonus-I will find out the names of every adjuster that is working on my Workers Comp claims and start a dialogue with them by email. I will not phone the adjusters.

There are many more resolutions that can be found on the blog. I just did not call them resolutions.

The New Year is up on us. The following is a list of New Year Resolutions for Workers Compensation premium reduction strategies. This list was generated from over 16 years of data that I compiled from clients and the general Workers Compensation marketplace.

1. My company will institute or improve our safety program. The best way to avoid a premium increase is to avoid accidents. Your safety program can also save your company $$$ with Schedule Credits. Your company can also end up paying more $$ with Schedule Debits. I wrote an article on Schedule Debits Credits here.

2. My company will organize all of its paperwork with all pertinent documentation for the yearly premium audits. Excel spreadsheets can be your best ally here. If your documentation is straightforward and organized, your premium audit will be a painless process.

3. I will look over and understand my company’s Workers Compensation Experience Modification sheets. I will monitor the E-Mods/X-Mods. I will realize that the Workers Compensation premium system is a delayed system and will not expect immediate results from any premium reduction efforts.

4. I will treat my company’s loss runs as very important. I will obtain online access if possible at all costs as an aid to controlling my company’s E-Mod. If I am unable to have online access, I will retrieve the loss runs monthly and review them very carefully.

5. I will follow the Five Keys To Saving on Workers Compensation Claims. I do realize that the claims filed are the engine of the Workers Compensation premium system and will file them quickly and accurately.