Allocated Adjustment Expense Analysis – Secret Within WC Claims
Why do I recommend an allocated adjustment expense analysis on Workers’ Comp claims? Let’s cover this Sherlock Holmes-type number, beginning with where to find the numbers. Look at any Workers Comp claims loss run or an individual claim. The three categories are Indemnity, Medical, and Expense. On medical-only claims, the Indemnity column should be blank.
I have written numerous times on Allocated Adjustment Expenses (ALAE). A major part of claims leakage can occur in this third claim payout category.
We hear the most about ALAE when Insureds with large deductible programs end up being charged 50% of the ALAE.
ALAE – definition and my new term
Allocated Expenses (also known as ALAE) are expenses charged to a Workers Comp term file that are not indemnity or medical benefits. They are associated with adjusting the file. Expenses for defending claims, such as attorney fees, private investigators, independent medical exams, and many others, are considered allocated.
The ALAE is not charged to an insured’s Experience Mod. Self-insureds pay for them the same as any other part of the claim.
Self-insureds need to review these expenses every month. Yes, you are paying for the mystery third category out of pocket. Check with your TPA on these expenses.
ALAE is sometimes confused with ULAE (Unallocated Adjustment Expenses), such as claims adjuster salaries, claims office facilities, etc., which are not allocated to one claim.
My new term, invented this morning, will call ALAE claims function costs as part of the Allocated Adjustment Expense analysis. Without these costs/expenses, the claim cannot function. The claims staff uses these expenses to adjust the claim. Think of Defense Attorney costs as a prime example.
New Term For Allocated Adjustment Expense Analysis
The Claims Function Expense Analysis shows the expenses with the claims department to get the claims to function. Without these expenses, the workers’ comp claims adjuster could not adjust the claim, the medical bills could not be processed, or an Independent Medical Exam (IME) would not occur. In other words, the claim would sit still and pay unchecked benefits.
I recommend analyzing these expenses because they show what happened in the claim. If you have no claim notes to review, then these claim function costs become invaluable. Together with the claims adjuster notes, you now have a powerful review technique.
The one piece of advice that I always give to any claims adjuster is to document why you are causing an expense to be charged to the file. Just one line of documentation would suffice. Workers’ Comp bill review seems to be the most charged internal bill to the file, so those would not necessarily require documentation.
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