Self Insurers Can Ruin Their Programs Without Realizing It
The first 12 ways self insurers ruin their Workers Comp programs are below. Workers Compensation self insurance can be more complicated than paying for a regular policy. I have received many emails asking me to comment on how self insureds can save on their Workers Comp payouts.
I often hear that being self insured has removed an employer or public entity from the E-Mod system. Nothing could be further from the truth. The following are 12 ways Workers Comp self insureds can harm their programs.
- Ignore your reserve figures. Your Third Party Administrator (TPA) analyzes the claim and tallies the total lifetime cost of the file. I often see the reserve figures not taken into account fully when a self insured is budgeting for their WC expenditures. Online loss run access is critical in following your reserves.
- Consider a large deductible as being self insured. There are a number of differences between a large deductible and a self-insured. For example, large deductibles still have an E-Mod calculated every year and it is posted to the rating bureaus.
- Not having a Loss Development Factor (LDF) calculated every year. See the intro paragraphs – your organization needs to have a figure that reflects your safety measures. The LDF, in my opinion, is superior to an E-Mod. The LDF examines many more years than the E-Mod.
- Forgetting the close fiduciary relationship with your TPA. TPA’s are spending directly out of your bank accounts. There is no buffer as there is with an E-Mod system.
- Not reviewing your TPA’s claims performance. Most (but not all) TPA’s perform at an acceptable or better level. Your claims are only as good as the Workers Comp claims staff working on your files. Adjuster turnover should be a large concern.
- Not sending out RFP’s often enough. Sending out RFP’s is an arduous task. From what I have seen, it is very well worth it. I often see companies/entities extend an RFP contract for very long periods. If that is occurring, see #5.
7. Leaving the ancillary services to the TPA’s discretion. Services such as bill review, rehabilitation nurses, and PPO network fees can easily cost more than the TPA processing fee. These fees should not be bundled into a TPA contract without a cost itemization.
8. Not Monitoring Large Medical Only Claims. This is a major cost factor that flies under the radar. You will usually know more about the current medical condition of an employee. I wrote this post on Medical Only claims last year. If their medical only claim continues for a long period of time and increases in cost, you could have a very costly claim on your hands.
9. Not requiring the TPA to call you before putting up a large reserve. I usually recommend this not be done by email. If you are setting a July 1 Workers Comp budget and the adjuster increases a reserve by $100,000, where does that fit into your budget?
11. Not pursuing the recoverables. Subrogation, bill overpayments, etc. are the small things that add up to a large total. This is pure $$ left on the table. The amount of effort to collect on these is often minimal.
12. Fighting claims that should be settled. If emotions rule the day, you may as well get out the checkbook. If the TPA claims staff or defense attorney can justifiably recommend a settlement, then keeping it out of court may be the best decision. The % of claims won by the defense is very small.
I could have listed more as there are so many areas where self insureds can inadvertently harm their program. Reading this article is the first step. Putting it into action is the next one for self insurers.
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