Archives for May 2011

Premium Audits And Lesser Known Standard Exception Codes

May 25, 2011 By JL Risk Management Consultants

The Lesser Known Standard Exception Codes

Last week, I posted on the Standard Exception classification codes namely 8742 and 8810. The concern of a few of the blog readers and our clients is there were new classification codes on their premium audits such as Telecommuters.

Picture Of Employees Standard Exception Telecommuter

Wikimediafoundation.org

There are some very specialized rules for Clerical Staff to be considered Telecommuters. The same rules that apply to most employees being reclassified will not fly in this case. I will not go into the rules now. If you see this classification appearing on your audits, this could be a red flag situation.

The reason for my concern is in certain states, the difference between a classification of a clerical employee and a telecommuter can cause up to a 76% increase in your Workers Compensation for those employees. There are reasons that Telecommuters are more expensive classification such as not being supervised in person and the home workspace may not be as safe as in the office.

Man On His Room Standard Exception On Computer

Wikipedia

I do realize that each state has their own rules on Standard Exception Codes and Telecommuters. I did not write this post to discourage having employees that are Telecommuters. I often, as in this case, like to comment to the blog readers what I am hearing from our clients.

There is nothing wrong with questioning your yearly premium audits or your Workers Comp policies. I would not recommend disputing the Telecommuter classification code for the only reason being that it appeared on your Workers Comp audit. If you feel that you need any help, please do consult a non-agent expert to assist your company. An audit dispute can sometimes end up costing more than the original audit or policy.

©J&L Risk Management Inc Copyright Notice

Captive Reserve Question From Our Readers – How To Calculate Mod

May 25, 2011 By JL Risk Management Consultants

Captive Reserve Question Concerning LDF’s

A good question about Captive reserve from readers. I am responding to a question from Wayne on this post. I will paraphrase the question. How do I calculate the reserves required if I have had a workers comp captive since 2005? This is a very good question.

Picture of Open Book with Question Mark Captive Reserve LDF

123RF

The easiest way to calculate the reserves required is by calculating a Loss Development Factor. The definition of an LDF is here along with my last article on LDF’s. There are two schools of thought – one that says use the triangulation method and my school of thought that says use the triangulation method and a regression model.

The LDF will analyze the reserves and especially the IBNR (Incurred But Not Reported) part of your required reserves. We often calculate hybrid LDF’s for our clients. LDF’s are usually based on the claims experience you will have for the next 10 years. It is not the most accurate statistic, but it is what you have to work with in reference to Captive Workers Compensation claims.

Graphics Of Central Processing Unit Captive Reserve With Software Icon

StockUnlimited

ONE DANGER on using software to calculate LDF’s is that data cannot just be plugged into the LDF software and then have the numbers produced in a report. The data has to be extrapolated and altered to make all of the claim data fit into the LDF formula. We do LDF’s very often. LDF’s are very often calculated by actuaries.

As with most things involving Workers Compensation, the LDF is not necessarily a 100% accurate projection. It is not the same as an E-Mod, even though some of the conclusions are the same as LDF’s.

Captives can be great risk management tools in cutting Workers Comp costs. Projecting your company’s upcoming claim payouts is beyond critical.

We will soon open up a website called Synthnods where you can calculate an E-Mod or X-Mod to simulate what your risk factor is if you had a regular voluntary workers compensation policy.

©J&L Risk Management Inc Copyright Notice

State Funds – Are They Really Worth It As Insurers Of Last Resort?

May 24, 2011 By JL Risk Management Consultants

State Funds – Are They Losing Viability?

The State Funds that cover just their headquarters state have begun to look elsewhere. I read today where SCIF (State of California Insurance Fund) has requested legislation where they can expand their coverage into non-California states for their insureds. I was wondering if this would be the first step into privatization and expanding into other states to write coverage there as Brickstreet had done in West Virginia. That would be covered best in another post.

Picture of Plant in Jar with Coins State Funds California

123RF

I actually thought it would be better to look at the forest and not the trees in this situation. Are State Funds – be they monopolistic or as insurer of last resort – actually worth having in place for Workers Compensation insurance?

State funds such as SCIF (CA) and BWC (OH) have come under heavy scrutiny for various legal problems such as investments and vendors. If one looks at what the state funds actually charge or deviate from the advisory loss costs, it can be a shocker.

In our premium reviews for employers, we have seen state funds file for up to a 211% increase over the advisory loss costs where the next highest carrier was 147% . I will not name the state as I have been threatened with enough lawsuits due to this blog.

Hands putting coin State Funds on piggy bank with dollars

Wikimedia Commons – 401(K) 2012

Some of our clients have expressed frustration over the service level they receive from state funds. The deficient level of service has often resulted in companies contacting us about our services. I wanted to add in that the level of service has improved from comments we have received lately about state funds.

One of the concerns that we have during premium and reserve reviews is finding out the proper person to talk to about an issue. We have often discovered the person handling, for example, audit disputes for a certain region has been moved to another region, been promoted, or left for another company. This means the client employer has to start from square one again.

One thing that makes me have an assurance that state funds are necessary is when the fund operates as an insurer of last resort. The aforementioned 211% factors in the “we do not turn away any company” legislative requirement of most state funds. When a carrier decides to write very risk or high E-Mod/X-Mod/Ex-Mod companies, it has to make up for the deficit somehow.

©J&L Risk Management Inc Copyright Notice

State Mandated Maximum Benefit Rates – Are They Fair?

May 23, 2011 By JL Risk Management Consultants

State Mandated Maximum Benefit Rates

The general Workers Compensation formula for weekly benefit rates = Average Weekly Wage (AWW) * .6667. The weekly benefit rates usually have a maximum. I had been told in my career that the maximum benefited the employer two-fold:

The high wage earning employee would have an incentive to return to work as they were not being paid the full 2/3 of their AWW.
The employer’s E-Mod would not be destroyed with claims from higher wage earners

Picture of hand putting coins in piggy bank Benefit Rates Draw in Board

123RF

I do agree that maximums have their place such as the maximum number of weeks of benefits. This is a typical chart of Workers Comp state maximums:

2008 — $786.00
2009 — $816.00
2010 — $834.00
2011 — $836.00

These are usually calculated from the State Average Weekly Wage. If we use the present State Maximum $836 * 3/2 * 52 = $65,208. That means that anyone making more than $65,208 will lose 2/3 of every dollar above that figure. If the injured employee is the sole breadwinner, the results might be disastrous.

Some companies will supplement the difference between what the high wage earners would have made had they not been on Workers Compensation benefits. This is not necessarily advisable as supplements alter the intentions of Workers Comp. ‘

Some of our recommendations to client companies are:

Offer short term and long term disability policies such as AFLAC
Review all job descriptions to make sure there are modified jobs the injured employee can perform on a full time or part time basis
Allow the employee to use their sick and vacation pay to supplement the shortfall

The maximum rates are in my opinion needed as to not wreck an employer’s E-Mod. The employer, however, needs to have at least a voluntary program to supplement the high-wage earner employees.

©J&L Risk Management Inc Copyright Notice

Classification Codes 8810 and 8742 Again – Standard Exception Codes

May 18, 2011 By JL Risk Management Consultants

Classification Codes 8810 and 8742

My posts on Classification Codes 8810 and 8742 seem to generate the most interest of the whole blog. I have posted on them often. They both are referred to as Standard Exception Codes. They differ greatly from your company’s Governing Class Code.

StockUnlimited

I had posted previously on the premium auditors all knowing that companies tend to try to put every employee into those classifications to save money. That is one of the first figures a premium auditor will examine is what payroll is allocated to any of the Standard Exception codes. They especially look very hard at Class Codes 8810 and 8742.

One of the trends to watch for in your premium audits and associated billing is when employees are moved from one Standard Exception Code to another Standard Exception Code that results in a higher premium owed figure. That may not seem much of a difference on paper. However, some of the alternate Standard Exception Codes can result in up to a 76% increase in premiums for certain employees.

I will cover the new Standard Exceptions codes in an upcoming post. My best advice now is to make sure that your job descriptions are very thorough. I would not leave any questions on the job duties of especially your clerical employees.

©J&L Risk Management Inc Copyright Notice

What is Workers Comp Wage Statement?

May 18, 2011 By JL Risk Management Consultants

Term Of The Day – Wage Statement

A wage statement is a necessary yet tedious part of paying a WC claim properly. The injured employee’s compensation rate is based on this integral part of processing a WC claim.

Graphic of Hand Touching Wage Statement In Tablet

123RF

It is usually filed by the employer. Each state has its own special form. They range from very complicated to complete to very easy. Most wage statements cover a period of 13, 26, or 52 weeks prior to the employee’s date of injury.

One of the most time consuming yet confusing part of a claims adjuster’s job is to value the wage statement to pay Workers Compensation benefits. North Carolina always seems to calculate a different wage than what the adjuster has deciphered as the Workers Compensation TTD rate.

The adjuster has to often use the rate from the First Report of Injury to initially pay the injured worker if they are still out of work. New Hampshire always seemed to have an easier one to use. Thankfully, there are now many software packages that will calculate the proper WC rate using the filed wage history by the employer. An adjuster will sometimes have to makeup the difference if the initial WC rate (usually TTD) is too low.

Almost all states now require a filed wage statement in place within a certain time period.

©J&L Risk Management Inc Copyright Notice

Great Premium Audit Follow Up Question From Yesterday

May 17, 2011 By JL Risk Management Consultants

A Great Premium Audit Classification Codes Changes Question – Be Careful Here

Earlier this morning, I received a great follow up question about great premium audit class codes. Yesterday I posted on how changing classification codes can backfire in certain instances. I received two questions since that asked – Why then should our company even try to review our premium audits or use your services if we are going to end up paying more $$$?

Picture of Two Hands Giving Money Federal Government Back Ground Great Premium Audit Class Codes

123RF

That is a very fair question. The point I was trying to make about yesterday’s article was that without non-agent professional help, what looks great on paper at the beginning can be a nightmare if all facets of a request for a change in Classification Codes or another factor such as reserves are not fully explored from step one.

When we do premium audits, we run many tests to make sure that at the end of the day, you are not paying more than you were originally billed for your Workers Comp. A full review of your Workers Comp situation results in us writing a report making recommendations on how to proceed with your insurance policy and audits.

Picture Of Hand Great Premium Audit Paying With Gold Credit Card

StockUnlimited

The example that I gave yesterday was actually from a live audit situation that was overnighted to us to see if we could fix the situation. I was attempting to send out a warning to our blog readers to make sure all the numbers have been calculated on every part of their Worker Compensation insurance policies.

As I have posted very often, if you have a gut feeling that your Workers Compensation situation is not quite right, then do pursue that feeling. Business owners, risk managers, safety officers, and other key company personnel usually know when something seems off in their workers compensation policies and program. However, please make sure that all angles have been explored before you contact your insurance carrier.

©J&L Risk Management Inc Copyright Notice

What Is The Minimum Compensation Rate – Why Is It Important

May 17, 2011 By JL Risk Management Consultants

Term Of The Day – Minimum Compensation Rate

Most states have a minimum threshold of Workers Comp benefits regardless of their wage rate. If the injured employee’s Workers Compensation rate falls below this figure, it is increased to the minimum.

For instance, if an employee earns $ 8 per hour and works 5 hours per week for an employer their Average Weekly Wage equals $40.00 per week. In most state the Workers Compensation weekly benefit is 2/3 of the Average Weekly Wage. Two thirds of $40 equals $26.67 which is the workers’ comp benefits rate.

In most states the minimum compensation is $30 or a similar figure, so the employee would receive $30 per week.

One of the complicating factors originates from the employee have multiple jobs. Some states figure in the other jobs wages also. Some do not under certain circumstances.

There has been an ongoing debate on whether or not volunteer employees should be paid the minimum rate.

Graphic of Two Workers Sitting on Coins Minimum Compensation Rate Workers Comp benefits

123RF

The minimum rate can vary quite a bit from state to state. Most of the states that I handled as an adjuster had a minimum of $30 per week. This does seem to be a very low number. I still agree that volunteers should be paid some type of minimum compensation rate when injured on the job.

One of the debatable areas of increasing the compensation rate to a minimum is when permanent partial disability (PPD) benefits are paid to an injured worker. One suggestion I had seen a long time ago was to have no PPD benefits when someone is injured that requires the adjustment to the minimum compensation rate.

The only time I was ever fined was due to not paying a volunteer TTD benefits.

The lowest I have ever paid was $18 a week.

©J&L Risk Management Inc Copyright Notice

Premium Audit Question From One Of Our Readers

May 16, 2011 By JL Risk Management Consultants

Premium Audit Question On Class Code Changes

We received a Premium Audit question on classification codes last week.

Picture of Woman Thinking Question Mark Premium Audit Question Class Code Changes

123RF

We had worked on our own with our agent and got our classification codes changed which we thought would save us Workers comp premiums. That was not the case. Our Ex-Mod actually increased and what we thought would be savings disappeared. Now, with a higher Mod, we cannot bid on certain projects. Where did we go wrong?

Without seeing your premium info, I would think that your E-Mod increased as you changed your classification codes to much safer ones. This can cause problems as your claims data must be recalculated with the safer class codes. Your old X-Mod was based on the higher risk classification so your expected losses would be higher.

For instance, if you are a construction firm and your classification codes were changed to a painting company, the insurance industry would expect you to be a safer company as painting companies are less risky by nature. There is a type of inverse relationship between class codes and E-Mods.

For instance, if you had $125,000 of clams as a construction company, that would be more in line than with the same amount of claims as a painting company. The very basic E-Mod Formula is Actual Losses/Expected Losses. When you switched to a safer classification code, your Expected Losses decreased

Hands Presenting Premium Audit Question Decrease Arrow With Dollar Sign

StockUnlimited

If your losses were $125,000 and your expected losses were $150,000, then your E-Mod would have been .83, which is a good E-Mod. When you changed your classification code to one with lower Expected Losses (for example $115,000) then your E-Mod would have jumped to 1.08.

Most contractors want their subs to have an X-Mod of 1.0 or below. Overall, that is why all premium audit consultants recommend having a non-agent consultant go through the numbers before applying to change your classification codes.

I am not saying your efforts were in vain. Most of the time, there can be reductions in your overall premiums by reviewing your insurance policies and premium audits. However, reviewing your whole Workers Compensation situation may cut out a few surprises.

©J&L Risk Management Inc Copyright Notice

Who Is A Public Adjuster for Workers Compensation?

May 16, 2011 By JL Risk Management Consultants

Term Of The Day – Public Adjuster

A Public Adjuster represents the insureds rather than the carrier during claims processing. In this way, insureds can be assured of their rights to insurance proceeds. These adjusters are normally paid on a percentage of the adjusted loss, or hourly, or on a per case basis.

Picture of News Paper Public Adjuster Circle With Stabilo

123RF

The workers comp public adjuster term denotes the cutting edge of this line of insurance. If one looks for this type of adjuster under a WC heading, they will find nothing.

I think of a public -type adjuster for workers comp as performing these tasks:

Reviewing all or a sample set of claims to insure the performance of a certain carrier’s claims staff
Making sure the reserves are set properly. See reserve explanation here.
Checking with the client to make sure they are satisfied with current carrier and address any problems
Request updates from adjusters (email only) on the larger files and all files within a year of opening
Monitor all large claims to enhance loss control over a certain set of claims
Reporting findings to designated employer on a monthly basis

Public adjuster guides appear all over the internet for Property and Casualty claims – think large property losses. In the future, workers comp claims staffs will hear from some type of public adjuster on open claims.

©J&L Risk Management Inc Copyright Notice

What Is A Manuscript Policy?

May 13, 2011 By JL Risk Management Consultants

Term Of The Day – Manuscript Policy

A Manuscript Policy is an individually designed policy. It is negotiated by the insurer and the insured and is specific to the insured. The drafted terms and conditions of the policy are tailored to the needs of the insured.

Graphic of Lady Justice Manuscript Policy Individually Designed

123RF

©J&L Risk Management Inc Copyright Notice

Ethics Courses – Are They Really Worth Your Time?

May 11, 2011 By JL Risk Management Consultants

Do Ethics Courses Waste Time?

The Ethics courses for adjusters or other insurance personnel may seem really worth the time and expense.

I recently received a newsletter from the AICPCU-IIA informing all new students that Ethics will be a required course on a large number of designations. The Institute’s heart is in the right place requiring an exposure to ethics in their curricula. I am wondering if one course would have much of an impact on someone. I would say that a person basically brings their level of ethical behavior to the table from the start. An unethical person is not going to change in a few weeks.

Picture of Man Looking Educational Hat and Diploma Ethics Courses Adjuster

123RF

I have also noticed ethics in almost all state CEU requirements over the last few years. I am not sure if one course every two years will really make an unethical licensee suddenly ethical. I have to take a flood course every two years to keep my adjuster’s license. The closest I ever come to a flood is watching one on the Internet or TV. In other words, I am not going to use the flood course in my profession.

Workers Compensation has so many areas where ethics do come into play. Basically, an adjuster is making decisions on someone’s livelihood if the injured employee files for weekly benefits (TTD). Quite a few adjusters handle benefit checks, reimbursement checks, and other benefits where an unethical adjuster could easily get themselves into trouble

Shopping Cart Ethics Courses With PiggyBank

123RF

I am sure that you have seen the headline “Workers Compensation Adjuster Arrested By The State Insurance Department For Embezzling Funds” a few times a year. I actually worked in a claims department where a fellow adjuster was submitting fake medical bills as a fictitious provider and then making payments to a PO Box, and then cashing the checks. It came as a shock to the whole claims department as the perpetrator seemed to be a person of very high ethics. I have many more such stories, but I do not want to bore you.

Bottom Line – Any insurance personnel brings their level of Ethics upfront to the table. I can see where unintended unethical actions could be a concern. Ethics should be a requirement of any insurance license or designation. It is at least a start.

©J&L Risk Management Inc Copyright Notice

Independent Medical Exams (IME) For Workers Comp Claims – Are They Worth It?

May 11, 2011 By JL Risk Management Consultants

Independent Medical Exams (IME)

Independent Medical Exams (IME’s) are usually one-time exams requested by the insurance carrier, TPA, injured employee, attorneys or an Industrial Commission. They are akin to a surgical second opinion. The IME Dr. will likely never treat the injured employee.

Picture Of Physician Independent Medical Exams Holding Stethoscope

Wikimedia Commons – Alex Proimos

For many years IME’s seemed to hold more weight with the Industrial Commissions than they do today. Decision after decision from Industrial Accident Boards has pointed out the treating physician has seen the injured employee many times and possibly had possibly operated on him/her. IME’s can be very costly as usually the requesting party may likely pay much more than the fee schedule allows for the exam.

IME’s can cover compensability, permanent impairment rating, necessity for surgery, general treatment plan by the treating physician, medication management, and many other facets of medical treatment. The two that I have seen most are for a surgical second opinion and/or permanent impairment rating.

StockUnlimited

One of the trends that I have seen from Industrial Accident Boards or Industrial Commissions is to rule against the necessity of the IME or the conclusion of the IME if the jurisdiction allows the employer to choose the initial treating Dr. Would you expect a Deputy Commissioner or Judge to allow an employer or carrier to question the medical opinion of the employer-chosen physician?

Used properly, an IME can be a very good claims or risk management technique to keep treatment costs in check. They can also assure the injured employee they are receiving the proper medical care. Presently, I think that the Workers Comp adjuster or risk manager must be much more selective on the situations where an IME would be deemed necessary than in the past.

Bottom line – IME’s are worth it, but not in all situations where they once were seen as appropriate.

©J&L Risk Management Inc Copyright Notice

What Does Stair Step Reserving Mean?

May 11, 2011 By JL Risk Management Consultants

Term Of The Day – Stair Step Reserving

The stair step reserving of Workers Comp reserves is an age-old concern of any party to an insurance or TPA policy. If loss reserves are raised by increments in order to cover the cost of claims expense as they happen, the term stair stepping comes i to use. If the claim reserves were to be charted, the resulting graph would look like stair steps. This can also be known as reserve creep.

Picture of Woman Stair Step reserving Workers Comp Concept

The slang term amongst adjusters is reserving to pay bills or the next TTD payment. Stair stepping reserves is very harmful for many reasons:

Affect insureds E-Mod negatively
Self insureds will not have accurate Loss Development Factor (LDF)
Self insured client will not budget properly for future payments
Will cause actuarial or statistical work to have a built-in error
Use up adjuster’s time by constantly having to take time to increase reserves in system
Not giving reinsurers timely notice

Many years ago, some self insureds actually wanted this practice in place as to keep their Risk Factors low. This blew up in their face eventually as all files were reserved too low and id not reflect the risk of future payouts which is the underpinning for reserves.

Many Risk Management, insurance carrier, and TPA processing systems have a large amount of built-in redundancy to alert claim supervisors and managers to stair

©J&L Risk Management Inc Copyright Notice

Fentanyl Shocker – Popular Pain Med?

May 10, 2011 By JL Risk Management Consultants

Popular Pain Med Fentanyl

The popular pain med fentanyl CWI California was shock.This very dangerous medication hit the Workers Comp airwaves late last week. An article was published by the California Workers Compensation Institute which indicated that Fentanyl was being prescribed more regularly by certain California physicians as a pain killer.

Fentanyl is one of the most powerful narcotic drugs on earth. It is usually prescribed in a patch form. I had seen two different medical shows where someone had died due to a breathing failure when they accidentally put on two patches – both times after waking in the middle of the night and forgetting they already had on a patch. According to the CWCI article, Fentanyl is 75 to 100 times more potent than oral morphine.

According to the CWCI study, $86 million dollars was spent on Fentanyl from Jamuary 2006 to December 2009 on just Workers Compensation prescriptions. CWCI’s research series has shown that the 10 percent of physicians who write the most Schedule II opioid prescriptions for injured workers in California are associated with 79 percent of all workers’ compensation prescriptions for these types of narcotics, and for 84 percent of the fentanyl prescriptions.

I am not saying that fentanyl does not have its place in treatment. As I have posted very often, why I post on any California issues is that with Workers Comp, what happens in CA will be coming to your state soon.

©J&L Risk Management Inc Copyright Notice

Is the Average Value Method Good Claims Estimation?

May 10, 2011 By JL Risk Management Consultants

Term Of The Day – Average Value Method

Average Value Method has a requirement for estimates of loss reserves that are made on an aggregate basis for a group or even a category of claims. Typically, this method is used to set a temporary average value. An individual case estimate can be made when more detailed information is received.

graphic Of hand Touch A start On Screen Average Value Method With Blurry Spot Light Background

A group of Workers Comp claims valued with this method would have this info on the worksheet.

Estimated Average Value of Claims = Total Incurred / Number of Claims

I recommend splitting the Lost Time from the medical only claims. Medical only claims tend to skew the lost time figures and visa-versa.

Estimated Average Value of Lost Time Claims = Lost Time Total Incurred / Number of Lost Time Claims

Estimated Average Value of Medical Only Claims = Medical Only Total Incurred / Number of Medical Only Claims

The average value of Medical Only claims avoids claims festering. If the Average Value is higher than expected for medical only claim, further investigation is warranted to avoid a large claim out of the blue.

©J&L Risk Management Inc Copyright Notice

Your Reserve Review Action Plan – Have You Contacted Adjuster

May 9, 2011 By JL Risk Management Consultants

Reserve Review Action Plan

I had posted often over the last few weeks concerning claimx`s review for insureds with a January 1, 2011 renewal date. I even included a schedule of sorts on how to proceed on a Workers Comp reserve review. I used the 1/1/2011 policy renewal date as an example. One of the main things to remember is that you are looking to lower your E-Mod for next year. For a 1/1/2011 policy renewal date your E-Mod is calculated at the close of business of 6/30/11 for your 2012 policy.

Vector of Hands Reserve Review in Calendar Big Pencil Noted

123RF

If your policy does not renew on January 1, then add the difference onto the dates I have given you in this and past posts. For instance, if you have a policy renewal date of 4/1/11, then just add three months onto the dates I have given you in the earlier posts. If you have a January 1st renewal date and you have not started your reserve review, then you are definitely behind schedule.

If you are on schedule, the next step is contacting the claims department and in particular your Workers Compensation adjuster to review the claims in which you had reserve questions. As I said in my last post on this subject, knowing which claims to review and which ones to leave alone can be critical. Sometimes, a full formal review of your reserves with an adjuster may result in an increase to your reserves and E-Mod.

StockUnlimited

One of the unwritten ground rules is to not call the adjuster and say lower my reserves, they are just too high. The best method of contact is by email for documentation and it will allow the adjuster to look everything over and get back with you.

If you have any questions on this info, please feel free to call me at (800) 813-1386 or email me at [email protected]

©J&L Risk Management Inc Copyright Notice

Administrative Law Judge (ALJ) Hears Workers Comp Cases

May 9, 2011 By JL Risk Management Consultants

Term Of The Day – Administrative Law Judge

An Administrative Law Judge is a legal representative employed by the Workers’ Compensation Board. This representative reviews appealed administrative orders, holds impartial hearings, and issues legal opinions. Formerly called a hearings referee.

Picture Of Administrative Law Judge In Court Room

StockUnlimited

©J&L Risk Management Inc Copyright Notice

What is Misclassification in Workers’ Compensation?

May 6, 2011 By JL Risk Management Consultants

Term Of The Day – Misclassification

An error by the rating bureau or insurer that places an employer is the wrong class code, causing an incorrect premium to be charged. Misclassifications can also occur when an employer misrepresents the scope of business in order to be classified in a class code that has a lower manual rate. Misclassification also occurs with an employer classifies an employee as an independent contractor in order to lower the premium by lowering the reported payroll.

People Icons Misclassification Using Magnifying Glass

123RF

Maximum Medical Improvement (MMI) – Doctor Says

May 5, 2011 By JL Risk Management Consultants

Term Of The Day – Maximum Medical Improvement

In most cases, Maximum Medical Improvement (MMI) is assigned by a treating physician when an injured employee’s condition has stabilized to the point that no major change is expected in his medical condition, despite continuing medical treatment. After MMI is assigned, the payment of temporary workers’ comp benefits may be suspended. To resolve a workers’ comp claim, the claimant must reach MMI.

StockUnlimited

MMI is one of the (if not the) most important part of a Workers Comp claim, The three considerations at time of MMI are:

Return to work (RTW)
Permanent Partial Disability Rating (PPD)
Future medical treatment

There are more persons involved in the MMI consideration than the Doctor. Inputs on MMI to the Doctor can come from:

Physical Therapist
Occupational Therapist
Pharmacist
Employer – indirectly

The goal of the claims adjuster and a basic insurance theme is to make the person “whole again”. Many insurance carriers have charts that predict the length of disability to MMI. These are helpful, but not 100% accurate. Maximum Medical Improvement is the first step in the claims final resolution.

Stair Stepping Reserves Bad Effect On Workers Compensation Budget

May 4, 2011 By JL Risk Management Consultants

Stair Stepping Reserves Very Harmful

In my last post, I noted the term stair-stepping. This can ruin any Workers Comp budget for a regular or self insured in Workers Compensation. Stair stepping is the total failure of a claims department and their administration – in other words NO EXCUSES.

My definition of stair-stepping is the Workers Comp adjuster increasing the reserves just enough to make a payment. This grave adjuster mistake consists of a series of increases in the reserves to cover payments beyond just once. The pattern drawn on a graph would look like stair steps.

The workers comp claims adjuster cannot always be blamed in the instance. The adjuster may be attempting to cover a TTD payment while waiting on a supervisor or manager to approve their recommended Workers Comp increase. As I stated earlier, it is a failure of the whole Workers Compensation claims department.

The supervisor can easily detect an adjuster that is stair-stepping your reserves. Some Workers Comp claims systems have a built in module that will detect and flag this type of mistake.

I recently posted a few times on the medical only problems within some claim departments. Stair-stepping would be seen as part of the problem. We have seen stair steps in our claims review on medical only claims that inadvertently hid a much worse condition.

The Harmful Effect

Picture Of Hand Carrying Plant Stair Stepping With Gold Coins

StockUnlimited

Reserve Stair Stepping skews ar WC budget.What happens when your Workers Compensation claims department increases reserves just enough to make a payment? The results can be tragic.

The bottom line to stair stepping is that your Workers Comp reserves are being increased at the same rate as the paid figure in the formula Total Incurred = Paid + Reserves.

The basic function of the Reserve figure is at that point in time, what is the valuation of all future payouts until the claim is closed? If claim reserves are increased just enough to make payments, then the formula would be Total Incurred = Paid.

Total Incurred = Paid is exact for closed claims, not open ones. As a self insured, the Reserve figure can ruin your cost projections to your Board of Directors, especially if you are budgeting as a governmental entity. What happens if you project a budget for Workers Comp claims of $2.6 million when it should have been $4.4 million?

StockUnlimited

I always like to draw a comparison between credit cards and Workers Comp insurance reserves. Stair stepping is no more than the credit card issuer that will increase your credit limit each time you max out your credit card.

The small increases would not seem that bad until what you thought was $10,000 in credit card charges is now $25,000 without really noticing it. There were a few, now defunct, credit card issuers that would increase the credit limit slightly without the customer’s knowledge. This led to bankruptcy for more than a few individuals.

Stair stepping reserves is no different. If the credit card company would have increased the credit limit from $10,000 to $25,000 all at once that would have been noticeable. This is the same for your Workers Comp reserves.

Spotting this claims staff mistake is very easy if you have online access. If the reserves are very low over a few months on a newer large claim, that is a possible stair step. Paper loss runs are not that adequate for detection.

If you receive loss runs quarterly on paper, you may find that it is too late to do anything about the stair-stepped claim.

How Does Impairment Rating (IR) Affect Workers Comp Claim?

May 4, 2011 By JL Risk Management Consultants

Impairment Rating Measures Permanent Reduced Abilities

An Impairment Rating (IR), which is also called a physical impairment rating, is a medical assessment of a claimant’s injury represented by a percentage value. A physician may assign an IR to the body as a whole or to a specific body part.

Picture Of Disability Man Impairment Rating Walking On Street

Wikipedia – Zoetnet

The rating may then be used to calculate the workers’ comp benefits owed to a claimant. Impairment ratings are particularly important in determining permanent partial disability benefits.

An adjuster’s job involves setting reserves for Permanent Partial Disability (PPD). The rating made by the treating physician usually comes at the time of Maximum Medical Improvement (MMI). Often, the rating coincides with a full return to work release or within a few months of the return to work.

Two different yet controversial types of ratings exist for doctors to use today. The most popular requirement by most states advises the physician to use the American Medical Association (AMA) guidelines.

For example, a back injury could be rated at a 20% impairment rating to the spine or body as a whole. In many states, the 20% multiplied by the number of weeks for a spine injury allows for that many weeks in PPD.

20% (rating) * 300 weeks (back or spine or body as a whole) = 60 weeks. If the injured employee’s compensation rate equals $500, the injured employee would be entitled to a benefit of $30,000 (60 * $500/wk). States or the Federal Government usually do not tax PPD benefits. The same can be said for most Workers comp benefits.

Most states allow the adjuster to pay the benefits and file a form to let the Industrial Accident Board or Commission that the proper benefits have been paid to the injured employee. The injured employee may request his/her own opinion on the impairment rating.

How Are Future Medicals (Future Meds) Calculated?

May 3, 2011 By JL Risk Management Consultants

Term Of The Day – Future Medicals

Workers comp future medicals demand accurate calculations from claims adjusters. The medical part of the total incurred and reserves requires many more calculations than the indemnity part of the reserves. Indemnity reserving possesses much more structure than any medical forecasting.

Each human body heals differently depending upon genetics, lifestyle, medication management, type of injury, and many more other factors. Adjusters should not just post a reserve that required very little thinking. Most insurance carriers and TPA’s provide the adjusters with very involved future medicals reserve sheets with a breakdown of medical costs. How adjusters use these sheets causes a large amount of debate in the insurance community.

Typically, employers are responsible for medical expense payment if associated with their employees’ on-the-job injuries. These medical benefits are often lifetime benefits (employers are generally on the hook for future meds for the injured employee’s lifetime as long as the medical expenses are related to the underlying job injury). In some states however,

the employee’s right to future meds can be terminated when the employee and employer agree to the terms and a judge or appropriate administrative authority approves the agreement

Lower Workers Comp Insurer Reserves Can Be Harmful

May 2, 2011 By JL Risk Management Consultants

Lower Workers Comp Reserves Not Always Best

The workers comp insurer reserves sometimes hide a reserve deficit. AM Best released a report on May 2nd that was startling to me. Of the 11 insurance companies that failed, nine were due to inadequate reserves and pricing. The carriers were not necessarily Workers Compensation insurers.

Picture Of Man Lower Workers Comp Cutting Credit Card

StockUnlimited

Reserves that are too low on your Workers Comp claims can be as harmful to your Workers Comp budget as reserves that are too excessive. I have dedicated a portion of this blog on how to lower your company’s Workers Comp reserves.

As I have said very often in presentation, the Workers Comp claims adjuster walks a tightrope between excessive and deficient reserves. When I post about reserves, I am actually referring to (Total Incurred – Paid).

How do deficient reserves harm your Workers Comp budget? I will break it into two parts – regular Workers Comp policy and self insurance.

Regular Commercial Workers Compensation Policy – Avoiding a massive reserve bump

There is nothing wrong with making every effort possible to lower your workers compensation reserves with risk management techniques such as a return to work program, etc. Having deficient reserves on certain claims can cause a huge unexpected reserve increase. This can cause a very large increase in your E-Mod that your company was not expecting.

Hand Holding Marker Pen Lower Workers Comp With Risk Management Concept

StockUnlimited

One of the main signs of this is a major claim where the outstanding reserves on your loss runs are approaching zero. For instance, if a claim has a back surgery pending and the reserves are very low, you can expect an increase in the reserves. Timely increases in reserves sometimes functions are a red flag that something major is going on in your Workers Compensation claims.

My advice is to never call or email your adjuster about having deficient reserves. I would just make sure that you have analyzed the reserves and are properly budgeted for an E-Mod increase. The timing of the reserve increases is very critical to your Workers Compensation budget.

Self Insurance – critical

One of the main ways to wreck a self insurance program is with deficient reserves. I have also seen this when handling claims from a self insurance risk pool. This is one of the major misunderstandings by clients that we have assisted in becoming self insured.

Low reserves in a self insured or a large deductible will kill the program. If the reserves are deficient, then a self insured company may be under the impression that all is fine with their Workers Compensation budget.

Picture Of Hand Carrying Plant Lower Workers Comp With Coins

Wikimedia Commons – 401(K) 2012

With self insurance, the employer may not necessarily have an E-Mod, but you should have a LDF (Loss Development Factor) calculated each year for your program to assess its health. Most self insureds budget their Workers Compensation yearly.

If you are looking at your reserve figures from last year to set your budget, how much of an impact would 20% of your claims not being reserved for upcoming surgeries? You have budgeted for payouts of for instance $2.6 million and you actually have a hidden risk of another $900,000?

Having an outside consultant company such as ours – shameless plug – perform a statistical analysis of the reserves and claims would show the true amount you need to budget for your present and future claims.

The easiest way to spot the lower workers comp insurer reserves and deficiencies is to be very involved with your claims process. As I have said at least 20 times in this blog, having online access to you claims and claim reserve figures is golden. Quite a few carriers allow you to run ad-hoc reports, which is the best way to find the files with deficient reserves.

Both self insurance and regular commercial policies suffer heavily with the term – stair-stepping.

Should We Hold Benefit Review Conference (BRC)?

May 2, 2011 By JL Risk Management Consultants

Term Of The Day – Benefit Review Conference

Various states offer Benefit Review Conference in order to help resolve issues and disputes resulting from on-the-job injuries. BRCs vary by state but typically involve an informal mediation conference administered by a neutral hearing officer or ombudsman. If a dispute is resolved at a BRC, an agreement may be written and signed by the injured employee and a representative of the employer (or the employer’s insurance carrier or third-party administrator).

On Screen Benefit Review Conference Concept

123RF