Archives for September 2011

On Premium Audits, Subcontractors Can Cost $$ Without Proper Planning

September 30, 2011 By JL Risk Management Consultants

Subcontractors Need to Supply Certificates Of Insurance

I have posted on this subject very often. Subcontractors and Workers Compensation insurance are the most visited parts of this blog. Feel free to use the search box on the right and search for subcontractors to see all of the articles. This is an article that I wrote 12 years ago. It is still relevant today.

Picture Of Hand Presenting Small Subcontractors With Big Gold Coins

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One of the facets of doing business in today’s economy is subcontracting out part of your work product.We have seen so many employers having to pay a claim for a worker they never knew even existed and was never on their payroll.

Most State WC Boards will climb the ladder of insurance. If a subcontractor does not have proper WC coverage, the State WC Boards will look to the contractors up the ladder to provide WC coverage for an injured employee. Most states have a sub-section of the WC laws that apply just to subcontractors.

If a subcontractor your company is using has subcontracted out some of their work, you may easily have three of four layers of employees that you never knew existed on your WC policy.

Your WC carrier can technically deny coverage on a claim where the subcontractor did not cover their employee. We have seen a main/primary contractor have to pay or share in a WC payment right out of company funds in this type of situation.

Most states require employers to have WC coverage beginning with a minimum number of employees. The minimum number of employees in a company that has subcontractors may be an unknown factor.

Companies have been fined for not having WC insurance when they thought they had only one or two employees! If your company has less than the minimum required by the State, and you do not have WC insurance, once again you may be sharing in a subcontractor’s WC claim right out of company funds.

Wikimedia Commons – Hloom Templates

When you work with subcontractors always:

Obtain certificates of insurance from all subcontractors who have their own WC policy. Look over the certificates very closely. Make sure the policies do not expire before the end of the subcontract.
Avoid using uninsured subcontractors?? We have been asked at conferences, presentations, and during consultations with our clients if their company should avoid using uninsured subcontractors. We usually advise an employer to go over all of the costs and benefits and then make a business decision.
Remember to factor in the cost of covering an uninsured contractor into your company’s contract with the subcontractor. The cost may be very hard to quantify. The avoidance of paying a claim for an uninsured subcontractor’s employee will be well worth the time spent.
When you have any type of payroll audit, make sure the auditor knows these people are subs with their own WC insurance. Your company could be paying for a subcontractor’s WC coverage when the subcontractor already has coverage in place.

©J&L Risk Management Inc Copyright Notice

Quick Workers Comp Reserving Analysis – Total Incurred Is Key

September 29, 2011 By JL Risk Management Consultants

Workers Comp Reserving Is A Guesstimate

The Workers Comp reserving on your files usually is based on no formulas. This article is from another manual that I wrote many years ago. It is timeless information that is true for all states. Claim reserves are sometimes the ignored part of a Workers Comp premium reduction program.

Picture Of Man Calculator Workers Comp Reserving Using Calculator

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The main WC insurance variable this manual addresses is Claims Reserves (Reserves). THE MOST IMPORTANT THING TO REMEMBER IS THE CLAIMS RESERVES ARE THE UNREGULATED PART OF THE PREMIUM CALCULATION PROCESS. Insurers can set the level of reserves at whatever level they deem adequate with little input from you. A governing body regulates all the variables that go into the premium calculations except the claim reserves. Reserves are what the premiums are charged from, not the amount of money paid on a claim.

Now we come to the engine of this whole process. Everything we have talked about just now all centers around the loss data you have incurred over the last three years. HERE IS A VERY CRITICAL POINT. The loss reserves are not only what you have paid out, but also what the insurance adjuster thinks you will pay out over the life of the claim. Everything else in the WC insurance process usually has some type of standardization, but the amount of money that is reserved on a loss is a true GUESSTIMATE.It is the most subjective part of what you pay in premiums.The amount paid out on a claim has little to do with the premiums charged.

Graphic Of Insurance Form And Dollars Workers Comp Reserving WC claim’s

The reserves on a Workers’ Compensation (WC) file are not based on any statistical formula or guide.A claims adjuster sets the level of reserves using their own job experience as a basis for how much the expected payouts will be over the life of a claim. If the reserves exceed a certain authority level, the adjuster must have their supervisor or manager approve the reserves. Reserving is an art of sorts that is akin to valuing a house.As with valuing a house, there is a commonality on the cost of certain injuries. However, there are at least 100 variables that are unique to each WC claim’s value.

Reserving is not an exact science, and is the adjuster’s estimate of what the claim will cost in total. The following items should be taken into consideration when estimating reserves:

§ Nature and extent of injury

§ Anticipated medical costs

§ Anticipated permanency rating/impairment

§ Amount of weekly wage and compensation rate

§ Attorney involvement

§ Claims history of the claimant

§ Claimant’s age

§ Claimant’s occupation

§ Claimant’s education level

§ Claimant’s work history – personnel issues

Picture Man Calculating Workers Comp Reserving Guesstimate

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§ Availability of light or modified duty

§ State laws

There are usually three types of reserves on a specific WC file. They are Indemnity, Medical, and Expense.A WC file’s reserves are based on medical expenses; period of time an employee takes to heal; their motivation to return to work; and any permanent disability.

The Reserves on a file are the “engine” of the premium calculation process. The Workers Comp reserving for the last three policy years are used to calculate the Experience Modification Factor (E-Mod).Promulgating an E-Mod is not the focus of this manual.This manual will cover some of the basic concepts of calculating an E-Mod.

The E-Mod individualizes the premium to a certain employer. The current WC systems charge all employers based on a classification code multiplied by the associated classification code’s remuneration (payroll / 100). The E-Mod attempts to make sure the safe employers are rewarded and the unsafe employers are penalized. While the E-Mod system has been heavily questioned, it is the system in place and no other system has been devised that is any more effective or efficient at charging an employer the correct premiums.

©J&L Risk Management Inc Copyright Notice

Traditional Workers Comp Insurance Policies – There Are Other Choices

September 23, 2011 By JL Risk Management Consultants

Alternatives To Traditional Workers Comp Insurance Policies

Many alternatives to the traditional Workers Comp programs are available in today’s insurance marketplace. The trend is when the traditional WC insurance marketplace becomes expensive and employers search much more intensely for alternatives to the regular WC insurance programs. Most carriers do have non-traditional WC insurance programs in place, and more alternative programs are being added daily.

Picture Of Doctor And Senior Man Traditional Workers Comp Holding Gold Card

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Small deductible – An insurance plan that allows the employer to pay their own WC claims up to a certain amount, usually $500.Some states require the employer to file the claim with their insurance carrier even though the claim stays below the deductible. One very important pitfall is the claim may develop into a serious claim before it reaches the deductible, and the WC adjuster would have no knowledge of the claim.The small deductible concept goes against #1 of our Four Secrets to Saving WC $.If an employer holds the First Report of Injury, serious claims problems could develop before the claims adjuster can properly handle the initial part of the claim.

Self-Insurance Pools – These enable common employers or associations to pool their money together as a group to pay WC losses. A Third Party Administrator (TPA) handles the claims. Almost all states allow self-insurance pools if the pool can meet certain minimum requirements such as the funding and viability of the pool.

Graphic Of Grey Shield Traditional Workers Comp With Health Medical Icon

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Assigned Risk Plan/Risk Pool (ARP) – please refer to the definition in the WC Insurance Definitions section. The ARP is not a voluntary choice. The rates in the ARP are much higher than the general voluntary marketplace. The ARP is the fail-safe insurer if a company cannot find any insurance with any carrier due to high E-Mods, type of business, unsafe workplace, dangerous occupations, etc. The insurers are required to write a certain percentage of their business from the ARP. The use of the techniques in this manual will enable your company to get out of the ARP unless the voluntary insurance marketplace is not writing WC insurance for your type of business.

Loss Sensitive Plans – There are numerous plans of this type in the WC insurance marketplace. Their main characteristic is that an employer is willing to chance that their company will have no or little WC claims for a given period of time. However, if an employer has just one bad claim, or more than a very few claims in a specified time period, their insurance WC rates will increase exponentially. Loss Sensitive Plans look good on paper, but they can possibly end up costing an employer more $ than if they were in the above-mentioned ARP.

Captives – Check out this post on captives.

Picture Senior Couple Traditional Workers Comp Insurance Policies

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Self-Insurance – If your company is large enough, most states will allow you to self-insure for WC losses. Self-Insuring is a cost-effective method to remove your company from the expensive WC insurance system. Your company will pay all claims from your internal budget. All insureds that we have assisted in becoming self-insured have saved WC $ over a three year time period. The following is an example of the minimum requirements by a Department of Insurance (DOI):

The employer must have $500,000 in fixed assets.
A performance bond must be purchased and renewed every year.
The employer must file with the DOI 90 days before they wish to self-insure.
The employer must have reinsurance at an acceptable level.

©J&L Risk Management Inc Copyright Notice

Temporary Employee Can Wind Up Being Your Employee

September 20, 2011 By JL Risk Management Consultants

The Temporary Employee Files A Claim Against Your Company

A Temporary Employee can end up in the Ladder of Insurance(c). This is another excerpt from a Workers Comp manual I wrote 10 years ago.

Picture Of Businessman Touch Screen Temporary Employee File A Claim

Over the past twenty years, temporary employment agencies almost wrecked the WC insurance system. Unscrupulous owners would file for bankruptcy every year to avoid incurring the substantial premium increases.

The premium increases resulted from a large number of claims and no type of loss prevention or claims handling procedures. Most states have a sub-section of the WC laws that apply just to temporary employment agencies.

When the temporary employment agencies would reopen under another name, the companies never had to incur the premium increases. The WC system relies on the employers that have large numbers and/or high dollar claims to pay increased premiums to offset the lower premiums paid by the safer employers.

The State WC Boards will apply the ladder of insurance if the temporary employment agency has no coverage and one of their employees is injured. If your company uses temporary employees, there are ways to make sure that your company does not end up paying for their WC claims.

Ask the leasing agency to explain specifically how it can provide lower WC costs for the employees it provides.
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Insist that the leasing agency specify what WC classifications it uses for the employees it provides.If these classifications are different from the ones used on your own policies or different from what your research indicates is correct, examine these issues closely.
Ask the leasing company for a copy of its WC policy, not just a certificate of insurance.Obtain a complete copy of the policy, showing the classifications and the experience modifier used.
Evaluate the strength and the stability of the insurance company the leasing company is using.Be wary of an insurer with a Best’s rating of less than A-.
Have the agency provide a written statement that they will notify you immediately of a cancellation of their WC policy or any notice threatening cancellation.

The above list may be hard to obtain from your temporary employee providers. However, they should provide most of this info if they want your business.

©J&L Risk Management Inc Copyright Notice

Workers Compensation Claims Adjuster Job Duties

September 19, 2011 By JL Risk Management Consultants

Workers Compensation Claims Adjuster Has 13+ Job Duties

The Workers Compensation Claims Adjuster – this is an excerpt from a manual I wrote 10 years ago. The only area I would add is the MSA component.

One of the most thankless jobs in insurance is the claims adjuster position. This manual may point out flaws in how file reserves and closings are handled by an adjuster. It is not the adjuster, but the WC insurance system as a whole that causes overcharges in employers’ premiums. The claims adjuster is the “mediator” between the claimants and the respective insurance companies.

Picture Of Doctor In Front Workers Compensation Claims Adjuster And Medical Personnel At Back

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The claimants want to be reimbursed or provided with whatever they ask, and the insurance company wants the claim to be settled for the least amount of funds possible, without the costs of litigation. Most claims adjusters are overloaded with claims. A claims adjuster must be the master of time management or they will quickly drown in their claims load.

Anything that will help a claims adjuster do their job can only help keep your reserves as low as possible. The Four Secrets of Saving WC $ on page 19 will help reduce the amount of time spent by the adjuster on your WC files. An adjuster only has so much time to devote to each file, so any extra time that you can give the claims adjuster will enable the adjuster to spend time on your files trying to reduce your costs, not just working on the files.

There are numerous tasks in a Workers’ Compensation claims adjuster’s job:

1. Investigate claims within 24 – 48 hours after receipt of the First Report of Injury.

2. Provide benefits to injured employees.

3. File proper forms with State WC Board.

Women Workers Compensation Claims Adjuster under maintenance

Wikimedia Commons – Suzanne M. Day

4. Set initial reserves on new claims and review reserves on established claims (usually for increases).

5. Pay bills on claims (medical, rehabilitation, defense attorney).

6. Settling claims.

7. General clerical functions.

8. Completion of periodic claims status reporting to insureds, carriers and/or reinsurers

9. Maintaining up-to-date file documentation of any development on the claim including phone calls, correspondence received and sent, review of medical notes, etc.

10. Minimum of monthly reviews of the claims (via diaries) to assure claim is proceeding accordingly toward closure. Maintain and update periodic action plans to move the claims toward closure.

11. Authorize and schedule medical appointments for the injured employees and follow up for receipt of medical documentation including work status reports.

Picture Business people Workers Compensation Claims Adjuster Group

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12. Follow up with employers to determine if work is available for the injured employee (limited duty or full duty) and/or assign vocational rehabilitation to assist the claimant in finding alternative work to lessen exposure.

13. Review files for reserve reductions or closings.

Please note that reviewing reserves for reductions and file closings are the lowest rated priority on the task list for claims adjusters. Why are they the lowest priority in the adjuster’s daily tasks? It is the nature of the insurance system.

Your efforts should be focused on the parts of your WC claims that will reduce the amount of time the adjuster spends on tasks #1 – #12 and increase the amount of time the adjuster spends on #13.

That is why it is so important that you review your monthly or quarterly loss runs upon receipt. If you see files that should be closed or reserves that are too excessive, email your workers compensation claims adjuster.

8742 Class Code And Your Company – Often Misunderstood

September 11, 2011 By JL Risk Management Consultants

8742 Class Code Salespeople Messengers and Outside Collectors

One of the most misunderstood is 8742 Class Code also known as the Salespeople, Messengers, and Outside Collectors Class Code. 8742 along with Class Code 8810 are the most popular Standard Exception Codes. Please click on the link for more on Standard Exception Codes.

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8742 is not a clerical type classification code such as 8810. If the employee delivers any of the material being sold, Class Code 8742 would likely not apply. This Standard Exception code can cover many types of jobs, even sports agents.

Florida and Massachusetts are the only two states that do not recognize this classification code. Judging from our premium audit reviews, this code can often be assigned by analogy. Assignment by analogy occurs when a job type that does not perfectly fit is assigned to the one that closest represents the class code.

Assignment by analogy involves a large amount of intuitiveness by the premium auditor. For instance, a newspaper reporter is usually assigned the 8742 class code. A reporter is a messenger of a type, but it is quite a stretch. Most of the time, it is used for for salespeople. One key is the job duties performed by the employee must be off-site in almost all cases. The off-site part of the job description is critical.

There are a few circumstances where it may seem that the 8742 class code is a perfect fit. However, if a class code has the All Employees moniker then 8742 is not allowed as a class code. Some classification codes are all-inclusive such as 8829 Home For the Aged – All employees.

The All Employees moniker removes certain codes known as Standard Exception codes from that type of employer. Click on the first red link in this article to completely understand Standard Exceptions.

Medicare Set Aside Enforcement Caused Claim Counts To Spiral

September 6, 2011 By JL Risk Management Consultants

Medicare Set Aside Enforcement Caused a Backlog?

Did the Medicare Set Aside Enforcement by CMS cause claims count to spiral? The Medicare Set Asides (MSA’s) for Workers Comp article that I posted on last week is here. I wanted to continue that article.

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After a few intense calculations, I was able to make a few comparisons on pre-and-post WCMSA’s. It may be good to read the article in the above link before reading this one. The basic premise is that I wanted to examine whether or not MSA’s (also called WCMSA’s) have caused a delay or complete obliteration of Workers Comp file settlements and closings.

As I stated in the previous article – “Claims decreased by 16.2% cumulatively however the medical benefits per claim increased by 21.7% over the same time period.” I thought I would try to come up with a few questions that may generate an answer more quickly.

Could have California’s spiraling medical costs have been partially responsible? The NCCI was the source of the numbers I calculated for my percentages. The WCIRB is responsible for the California’s Workers Comp statistical reporting, not NCCI.

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Would the changes to the Medicare fee schedule have been the source for the change in percentages? Actually, the Medicare fee schedule was decreased by 20%. Even though many states base their fee schedules on Medicare, this may further prove my point. If Medicare was reduced by 20%, the 21.7% increase in Workers Comp medical benefits becomes an even more astounding figure.

Would the length of time that a claim’s medical benefits stay open be important? I think we may be on to something there. If a claims adjusting staff has to fund a Set Aside, then why not just leave the file open indefinitely and pay medical benefits as needed. There is risk/return trade-off that the medicals may end up costing more $$ on an open ended medical claim.

I have seen risk managers that would not ever settle a claim and just leave the medical benefits open on every claim. In the short term, the statistics back these risk managers. The long-term statistics indicated the risk managers sometimes bought a much larger claim down the road.

Is the medical benefit increase due to long delays such as convincing a claimant to settle, having a study made of the numbers, including those numbers in a settlement, and then waiting for CMS approval? I do think this is partially responsible for the increase in medical benefits. Basically, a new layer of governmental involvement beyond the state’s administrating over the claim has been added to the mix.

As we all know, the statistics for Workers Compensation and other insurance is a delayed cycle. I think we will need to compile approximately 10 to 15 years of data to see if my assumptions on Medicare Set Aside enforcement hold true. For now, having a great MSA provider may be the key to cutting the medical outlays.

Premium Audit For Large Deductible Programs

September 1, 2011 By JL Risk Management Consultants

Large Deductible Programs

I had been asked this question three times over the last two weeks. “We have a large deductible programs for our Workers Comp.” Can those policies be audited for overcharges?”

Hand Presenting Deductible Programs Coins and Increase Arrow

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The three main questions that I asked were:

Did your company pay some type of premium to your carrier for handling the claims?
Did your company receive or should your company have received an E-Mod sheet from NCCI or your state’s rating agency?
Was an audit performed by your insurance carrier on your large deductible policy?

If you answered Yes to all three, then your company should be able to have your current and last three years policies audited for overcharges. Even though you may have insuring agreements with your carrier, if you pay premiums and the carrier audits your polices, your company should be able to have your large deductible program examined by your own independent auditor.

The mechanics of the policies whether a regular first dollar insurance company or a large deductible are basically the same. The one main area that changes is there is an agreed amount to handle the claims that may be different from the carrier’s usual way of charging premiums.

One very large misunderstanding that we have heard from a few of our large deductible clients is that the insurance carrier will not report the claims to NCCI or state rating bureau. Almost all large deductible policies I have ever seen are reported to the rating agencies.

Up next is the answer to the question “Did the CMS’s enforcement of the Workers Comp Medicare Set Asides cause claims to stay open much longer than in the past?”