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Workers Comp Allocated Expenses – Who Pays For Which Bills?


Workers Comp Allocated Expenses – The Hidden Premium Charges You May Not Owe

A long-running debate still exists today on how workers comp allocated expenses are charged to employers’ accounts.

Let us cover the:

  • Definition of the expenses
  • Process of charging the allocated expenses to the employer’s Experience Mod
  • Sources of payment confusion
  • Specialized programs for large deductible policies
  • New important finding – reserve shifting
  • Which workers comp bills that mistakenly end up paid as medical charges
  • How to audit workers comp allocated expenses on loss runs
pic hidden lighthouse workers comp allocated expenses
(c) Wikimedia Public – psyberartist

Workers Comp Allocated Expenses Definition

The definition of allocated expenses is:

(also known as ALAE) are expenses charged to a Workers Comp term file that are not indemnity or medical benefits. They are associated with the adjusting of the file. Expenses for defending claims such as attorney fees, private investigators, independent medical exams, and many others are considered as Allocated.

Process of Charging Allocated Expenses To Employer’s Mod

The expenses for a file such as attorneys, private investigators, and rehabilitation nurses are usually paid by the worker’s comp carrier.  The charges usually appear under the Expenses column in a loss run.   The other two types of payments appear under Indemnity and Medical.

Sources of Payment Confusion

When a new or inexperienced payment processor comes across a bill,  they are left to choose which one of the three payment types to add the payment to when cutting a check.  Some payment systems will not allow a medical bill to be paid under the indemnity.   Very few systems prevent a payment that should be under the workers comp allocated expenses from going under medical.

If payment is paid under medical, how is that caught by the system?

When the bill payment is issued becomes critical to make sure the bill is charged to the employer or the insurance carrier.

Reserve Shifting

Medical workers comp allocated expenses for healthcare
Wikimedia Commons – Farcaster

Reserve shifting occurs when a claims adjuster does not have enough funds to pay a certain benefit,  Instead of increasing the reserve category (medical, indemnity, or expenses),  reserves are moved from one reserve category to another.

The reserve shifting makes sense when one looks at a workers’ comp file.   The one drawback is when monies are moved from the workers comp allocated expenses reserve to indemnity or medical.

The insured Experience Mod, in essence, just incurred a reserve increase without the total file reserves being increased.  The indemnity or medical reserve increase from the reserve shifting will cause a file that seems to be the same reserve size to have gotten much larger.

J&L sees this occurring more often each year.  I have one now on my screen that I am reviewing for an agency in California where this very situation occurred very recently.   The amount of $43,500 was moved from allocated expenses to medical.

This shift may seem like a harmless adjustment of the reserves, but the employer experienced a $43,500 bump to the amounts that count into their Experience Mod.

Yes, if the adjuster just raised the file $43,500 it would have had the same effect, but this would have increased the total amount of the file which would make the increase in reserves and eventually the Mod more obvious.

Workers Comp Bill – Medical or Allocated Expense?

The bills that usually end up mistakenly input into the medical payments are Rehabilitation Nurses.  This happens frequently.  Rehabilitation nurse bills should routinely be paid under the Allocated Expense category, not medical.

Nursing Rehabilitation for workers comp allocated expenses billing area
Wikimedia Commons – Satish23reddy

Independent medical exams are a grey area.  The bills are medical appointments but are they not essentially adjustment expenses on the file and not true medical treatment.

The debate still yet occurs on these two types of bills yet even today.

When I have attended the NCCI data conferences in West Palm Beach, the determination was made that allocated expenses were s any type of funds that were not incurred to assist the injured employee medically.  

Auditing Workers Comp Allocated Expenses on Loss Runs

Reviewing workers comp payments without direct online access is next to impossible.   Obtaining online access can save time and headaches when reviewing files.

The best way to review these payments is to look at each payment to see what reserve type it was paid under for each check.  This can be confusing at times.

Some carriers may have a backstop in their systems that will not allow, for example, a certain law firm to have a check issued from the medical reserves.   Most do not.

Following the claims monthly for reserving, payment, and handling usually results in the best outcome.

Please note that I have never seen an insurance carrier purposely pay workers comp allocated expenses under medical or indemnity reserves.


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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications


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