Workers’ Comp Penalties and Fines Are Paid By Responsible Party – who is that?
If you want to start a debate in a claims office just ask who pays for the Workers’ Comp penalties and fines in certain cases. Why does a seemingly insignificant payment amount cause so much chagrin in a claims file? Let us look at two areas of great consternation.
Responsible Party for Workers’ Comp Penalties and Fines
One scenario looks like this – an employer reports a claim 9 days after injury and the Workers’ Comp Board fines the carrier for a late compensability decision and payment of benefits. The carrier or TPA (self-insured) is fined $500.
Does the claims department pay the fine under expenses or Indemnity/Medical benefits? The employer was nine days late, but the carrier was left with five days and two of those were over the weekend. Does the carrier/TPA take the hit and pay it under Expenses and not under a benefit type?
For self-insureds, sometimes the TPA has a fourth benefit type that is labeled, such as TPA expense. Please remember that Self-Insureds pay the toll for everything and then have to pay the TPA a fee to handle the files. The fourth benefit type is where the TPA has to eat the penalty or fine kicks in for these situations. Does the data entry person know there exists a fourth type of payment category? Do not assume as a self-insured that you have to pay all fines and penalties regardless of how they occurred on a file.
For large deductible plans, the carrier adds a clause that states – the insured will pay 50% of the incurred claims handling expenses. No, really, if you are a large deductible insured, check out that clause. I have found it in hundreds of large deductible plans. Could you be paying 50% of the fees for which your company owes no responsibility?
For voluntary market policies, sometimes the person who is coding the payment type has to make that decision and they are under incredible time pressure to provide fast data entry. I have seen this happen more than seldom. The usual accuracy target is 95%. What if inside the 5% error rate, your company’s Experience Mod takes a hit for an improperly coded payment? That is why online access to your claims payments should be a priority when your policy is issued by the carrier. Check up on the payments made – worth the time.
OK, Why Do Small Payments Matter?
One has to look at this question from two viewpoints –
Small But Numerous Payments – if 10 data entry personnel cutting checks all day, all use the same rule to pay fines in Indemnity, then that could turn into a real problem. If they are all paid under Indemnity Benefits, then small payments add up to large payments over time.
Until someone reviews and finds those mistakes (J&L does so often). the insured may never know they have been paying a little extra premium or for self-insureds an extra benefit payment.
Fines and Penalties Can Be Huge- say that a $125,000 settlement check arrives at the claimant’s attorney’s office later than 14 days after the settlement is approved. The claimant’s attorney files for a 10% penalty on the payment.
That penalty tolls at an extra $12,500 the claimant’s attorney and his client receive by filing a late payment notice with the Workers’ Comp Board. Yes, J&L has seen that in files. Claimant attorneys watch the check due date very closely.
If that payment was paid under Indemnity instead of an expense, then that is a $137,500 payment for a $125,000 settlement check.
A payment such as that can tick up an Experience Modification Factor or LDF (self-insured) with just one misplaced payment type. How about six or eight of those? You get the idea without requiring more examples.
Payment Categories Become Key – Why? – Expense payments made by carriers are considered an expense of handling the claims – these payments DO NOT AFFECT THE MOD. Most states calculate your Modification Factor from Indemnity and Medical payments only.
Paying for the carrier’s expenses under your Mod can quickly increase your premiums and may land your company in the Assigned Risk Pool.
You Cannot Always Assume Fault with the Carrier or TPA if the TPA, for example, did not receive approval and the funds timely from the carrier in my $12,500 example, which is to blame then? The debate rolls on. When I worked for a TPA in the 1990s, I drove a check to the claimant attorney’s office as it was due that day. I received authority from the employer that same day. Postmarks do not make a difference as the fines are based on the date of receipt.
The $12,500 example was actually from a real incident from the 1990s. I drove the $125,000 check while the ink was drying to the claimant’s attorney’s office 1.2 hours away. Yes, the self-insured employer did not give the authority to cut the check until the same day. Whew!
At least there was a great fast-food restaurant near the claimant’s attorney’s office.
Two Ways To Avoid Paying Penalties and Fines – one easy, one hard, and one obvious
- Easy way – always respond to your carrier quickly if the adjuster contacts you with an ASAP call or email. Take my example from above; I could have just let the self-insured employer pay the fine and mailed the check. It was on them. Do not place your Workers’ Comp ratings in jeopardy by delaying the inevitable. Responding to the claims staff builds a good relationship and improves your Mod or LDF.
- Hard way – reviewing payment screens will enable the trained eye to see if the right payment type was assigned to what should have been the Expense payments. Each carrier and TPA has its specialized system and payment type notations. No standards for payment types exist when looking at the payment screens. Years of experience reviewing payment screens remains your best bet.
- Communications – If you know who your claims adjusters are and have an open line of communication with them, most fines and penalties can be avoided almost completely. Constant communications with the adjuster – by email- can cut workers comp costs including this type of payment.
Sometimes paying Workers’ Comp penalties and fines are unavoidable – again – who really pays?
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