What Are Workers Compensation Claim Reserves – Confusing Term

December 20, 2018 By JL Risk Management Consultants

Workers Compensation Claim Reserves Difference Among Carriers and TPAs

Most Workers Compensation Claim Reserves begin when the data input division of a carrier sets the claim up and puts on an automatic reserve.

The automatic reserve sets at usually a nominal amount for a medical only or lost time claim.

picture workers compensation claim reserves quadratic function

Wikimedia – Aiga.Andrijanova

Medical only workers compensation claim reserves usually begin at a level of $250 – $750 depending on the insurance carrier/TPA and the claim jurisdiction.

Lost time workers compensation claims reserves usually commence at a level specific to the carrier/TPA. A claims supervisor will often input the reserves before assigning the claims to the respective claims adjuster.

The automatic or initial reserves function similarly in lost time or medical-only claims. The initial reserves allow the claims staff to pay small medical bills and possibly pay the injured employee for their time out of work past the waiting period.

This does not apply to denied claims or claims still under investigation.

The adjuster’s timetable to set reserves on lost time claims is:

14 days – initial reserves, usually altered at 60 days
60 days – reserves for the lifetime of the claim
6 months- pegs the permanent workers compensation claim reserves

Confusion Caused By Loss Runs or Online Claims Access

The above scenarios seem easy to understand. At 60 days, the adjusters adjust the reserves for the lifetime of the claim – very straightforward.

I have three loss runs in front of me that I am reviewing – not all at the exact same time. The loss runs each from different carriers has totally different representations for the term Total Incurred.

The basic formula is Total Incurred = Paid + Outstanding Reserves

Loss Run Carrier A

This loss run is more of a matrices setup:

Total Indemnity Incurred
Total Medical Incurred
Total Incurred
Total Indemnity Incurred
Paid Indemnity
Total Paid
Medical Outstanding Reserves
Indemnity Outstanding Reserves
Expenses Paid
Expenses Outstanding Reserves
Total Expenses Incurred

The confusion for an insured was finding out what the outstanding Total Reserves were for that file. In other words, what does the adjuster think the claim payout will be in the future for the claim?

Of course for the experienced worker’s compensation claim reserves reviewers, that would be:

Total Oustanding Reserves = Medical Outstanding + Indemnity Outstanding + Expenses Outstanding

However, that total number appears nowhere on the loss runs. The reserve breakdown was excellent. The Total Outstanding Reserves figure would have been nice.

Carrier B – Actually A TPA

Medical Paid
Total Claim Paid – should have been labeled indemnity paid
Total Payments – should have been labeled Total Incurred
Outstanding Claim- should have been labeled Outstanding Indemnity Reserves
Outstanding Medical
Total Expenses – not really broken down
Total Payments
Total Reserves

Streamlining Workers Compensation claim reserves – making a loss run reporting standard

A workers compensation expert would have no problems understanding the workers claim reserves and other figures on the loss runs.

However, a standard way of reporting the medical, indemnity, and expenses paid and outstanding would save a large number of phone calls and emails to the worker’s compensation adjusters who are handling a certain set of files.

Making an employer have to re-input claim figures into their own spreadsheets to figure out a loss run is counterproductive.

Many carriers and TPAs produce loss runs whether online or on paper/PDF which can be read very easily. Kudos to those carriers/TPAs that provide easily-read workers compensation claim reserves.

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When Are Final Claim Reserves Set – Is There Exact Date?

October 4, 2018 By JL Risk Management Consultants

Final Claim Reserves Set Earlier Than Expected

The final claim reserves are set much earlier than one might expect in the reserving process.

Public License Auckland Public Museum

Most adjusters set the final reserves at 60 days into a claim. The exact timetable is:

14 days – initial reserve – usually made to the medical bills for first treatment and to start any indemnity benefits (if required). These reserves may not be accurate when examining a loss run
60 days- final claim reserves – regardless of claim severity the reserves are set “for the life of the claim.” The adjuster reviews the reserves every 30 days to make sure of adequacy to pay benefits, medical bills, and expenses. The 30-day reserve review can be very difficult to accomplish with the other 13 daily adjuster tasks. The claims supervisor usually has a diary at 50 days to analyze the reserves and ask the adjuster questions on the reserves. The review date for denied claims may be longer.
6 months – locked in reserves – any adjustment to the 60-day final claim reserves is analyzed at this point in the claims. At 6 months, the claims staff has sufficient knowledge of claim seriousness. The Claims Manager usually has a 6-month diary for any larger claims. For the very large claims, a diary for the Claims VP/Examiner may kick in at this point.
Repetitive diary -(Every)
- 30 days for claims adjuster
- 60 – 90 days for claims supervisor
- 6 months for Claims VP or Examiner
AdHoc – As needed – reserves are increased when:
- Reserves not sufficient to pay benefits or medical/expense bills
- Claim risk changes – usually an increase in severity
Varied Timetable – not all insurance carrier and Third Party Administrator claim reserve timetables match the above exactly. The overall idea is to have the employers participate in the process. The final claim reserves should have input from the employer before setting them.

Employer Responsibilities With Final Claim Reserves

Man final claim reserves holding a bag of Money

by StockUnlimited

The employer responsibilities to keep claim reserves in check are:

Establishing a business relationship with your adjusters – one of the quiet cost savers on claims. Adjusters who know their employer and vice-versa will always have lower reserves on those claims. Do not forget the critical medical only claims adjusters – another quiet cost saver.
Information flow – make sure the claims staff has all the information you receive on the claim ASAP. Investigate the claim occurrence onsite if possible. The more great info an employer can provide the adjuster before the 60 days Final Claim Reserves, the better the outcome. Do not make the adjuster go into protection mode on the reserves.
Avoid Twilight Zone phone calls from medical providers and the injured employee. These will result in tremendous reserves. Trust me on that one. I can remember those phone calls from the 1980’s.
Make sure the adjuster knows (overall and on the specific claim) that you have followed my Six Keys To Cut Workers Comp Costs.
Negotiate at policy renewal (if possible) a contact from the claims department is reserves are increased by X amount ($25,000 recommended). Many TPA’s have this built right into their systems.
Online claims access – you can check the progression of the claim without having to contact the claims adjuster. Do this – it will pay off in the long run. A knowledgeable employer always has lower reserves.

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$250,000 Claim Reserve Level – Why Is that Number So Important?

June 15, 2018 By JL Risk Management Consultants

$250,000 Claim Reserve Level Creates Many Critical Responsibilities

The $250,000 claim reserve level causes many necessary actions. Some of them are obvious. The other not-so-obvious actions are just as important.

Please note that the Reinsurer and Excess Insurer are the same for this article.

Picture of Turkish Money $250,000 claim reserve level

Public Use License with permission

Usually, a claim that reaches this level involves Vice President or Examiner approval to input the reserve into the system. The checklist action plan can be enormous at this level to the claims adjuster.

Some of those tasks are:

Reinsurance reporting – This area can slip by if one is not careful. The $250,000 claim reserve level will likely cause some type of flag to the reinsurer. It never looks good if the reinsurer has to ask the claims staff for the report. The reinsurer should have some prescribed report they wish to receive at the $250,000 and higher claim reserve levels. Each reinsurer may require a totally different type of report.

Employer reporting – Completion of this task needs to occur before they reserves are entered into the system. Apprising an employer of this reserve level will save many headaches in the future. Many times we receive loss runs where a large reserve exists on the file with no explanation.

Money $250,000 claim reserve level in money clip

by StockUnlimited

Assigning to Field Case Manager or Rehabilitation Nurse – When a file hits the reserve level, better late than never to assign out a rehabilitation nurse Is there any reason to not assign it out to one? Medical control is mission critical along with a strong return to work plan. The rehab nurses are one of my favorite risk management techniques.

Subrogation Liens Must Be Covered – An interesting fact from a report by Mark Walls of Safety National is 24% of all huge claims in their inventory result from automobile accidents. Obtaining a police report is an easy task. Do not be the adjuster that forgets to cover their subrogation. We see no effort to pursue subrogation in files quite often. Writing a subrogation lien letter takes such a short amount of time.

Employer Involvement – Claims that reach this level must be followed closely by the employer. Did you send the employee to your carrier or TPA’s recommended industrial-minded physician? Do you have a modified duty job available? Are you in contact with the injured employee and keeping up with their medical treatment? What restrictions does the injured employee have at this point? An active employer usually reduces the cost of the claim while providing their injured employee with the best care.

These are a few things to cover when a claim is initially set or increases to a $250,000 claims reserve level.

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Work Comp Reserves And Twilight Zone Phone Call

July 14, 2016 By JL Risk Management Consultants

How To Negatively Affect The Initial Work Comp Reserves

The Work Comp reserves on a file are based on a more complicated formula than just an educated guess. One of the quickest ways to have the claims staff set very high initial reserves is by starting the file with the term I coined a few years ago. The Twilight Zone phone call always has these frustrating characteristics:

graphic of clouds work comp reserves emblem from website

Wikimedia Commons – fir0002

No first report of injury has been filed by the insured
The Twilight Zone phone call is for some type of authorization
The caller cannot figure out why the adjuster cannot provide an authorization on the spot
The adjuster has to drop everything, call the employer and ask for a first report of injury
The First Report of Injury has to be input quickly.
Then the adjuster has to call back whomever was seeking a treatment authorization
The adjuster is left with a conundrum of authorizing something without having fully investigated the file.
This type of situation is usually a trend with some employers, not an isolated occurrence

Within 60 days, the adjuster will be tasked with setting reserves on the files. After the aforementioned occurrence, the natural reaction of the adjuster is to possibly set the reserves higher than normal.

This is a different type of reputational risk. If the adjuster or claims staff recognizes that a certain employer has a trend of providing them with Twilight Zone phone calls, the natural reaction to the reputational risk will be offset by the adjuster setting the reserves at a higher level than normal.

StockUnlimited

The 60 day work comp reserves are usually the ones that are on the file at its conclusion unless the injury worsens. The claims staff setting higher work comp reserve levels will result in the employer incurring a higher E-Mod (X-Mod) or LDF. This is just one example of how having a great working relationship with the adjuster will pay off handsomely in the long run.

The timely filing of the first reports of injury is one of my Six Keys To Cutting Work Comp Costs. With the ability to now input claims directly into the claims systems, there is little excuse for an extremely last first report of injury.

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Best Way To Waste Time On Workers Comp in December

December 4, 2013 By JL Risk Management Consultants

The Easiest Way To Waste Time On Workers Comp Before The New Year

I have discovered the best way to waste time on Workers Comp in December. Workers Compensation reserves do not directly apply to a policy that renews within 30 days. We receive many emails and phone calls in December with inquiries on reserve levels. Many CFO’s, owners, risk managers, agents (etc.) want to clean up the loss runs before the end of the year.

Students Waste Time On Workers Comp computer

Wikimedia Commons – Michael Surran

If the upcoming renewal on January 1st is the reason you wish to do a loss run and reserve review, you are wasting your time. The best way to spend your time if you have a 1/1/2014 renewal date is by starting a loss run review schedule for 7/1/2014. This is when your reserve reviews peg to your Experience Mod (E-Mod) for your 1/1/2015 renewal date.

The loss run dated 7/1/2013 should be used for your 1/1/2014 renewal. The best way to look at the missed opportunity is by being prepared for your 7/1/2014 Unit Statistical Date.

There are numerous articles on this blog that pertain to planning a loss run review program. Using the search box in the top right part of the blog will be the easiest way to find the articles on loss run or reserve reviews. If you wish to click directly over to the articles, they are listed below with the proper links.

The main goal is to make sure that your company starts to review your loss runs long before the date your E-Mod affects your insurance program. As always, a great safety program will keep your company from having to worry about loss runs.

If there are no accidents, the loss runs will have no claims listed on them. The lack of claims on your loss runs means your company is keeping out of the E-Mod system as much as possible.

StockUnlimited

Articles for loss run review links are below:

Unit Stat Date
Reserve Review Program

One group of companies will find it best to start analyzing their Workers Comp reserves in December. I will cover that next time.

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Workers Compensation Predictive Modeling Will Never Work

November 8, 2013 By JL Risk Management Consultants

Workers Compensation Predictive Modeling

One of the more popular buzz phrases now is Workers Compensation predictive modeling. If one looks at any of the WC groups on LinkedIn, there are many discussions on this very matter.

Wikimedia – Jaberi-Douraki M

There are many predictive models on WC. Those models usually leave the observer with an empty feeling. Yes, you can forecast the Indemnity and Expenses almost to the penny. There are many modeling programs that will suffice in this case.

The inherent problem is valuing and forecasting medical benefits on any file. A health profile and background of the injured employee may shed some light on the subject. However, we are all very genetically unique individuals.

Woman Workers Compensation Predictive Modeling Carrying Files

StockUnlimited

A ruptured spinal disc can vary in treatment from two months to two years or longer.Predictive modeling requires some sort of stability in the variables. As any adjuster will tell you, it is hellish to try to predict medical treatment at the outset of the file. There are medical outcome determining factors that are not known for many months.Workers compensation claims adjusters walk a very fine line with medical forecasting. Sixty days into the file development, the adjuster is supposed to make a medical reserve determination for the life of the file. This is not possible. Reserving files is an art, not a science. We analyze many reserves on files on a daily basis. Reviewing reserves is a complete exercise of hindsight which is usually 20-20. Discussing what reserves were placed on a file one or two years ago is an easy task. The reverse of discussing what the reserves should be on a file in one or two years is difficult at best.Communicating with the claims adjusters about the status of an employee can reap large dividends, but as they happen, not three months later. Emails work best for claims departments.

Bottom line – a well-trained experienced adjuster is the best predictive modeler in Workers Compensation.

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Self Insureds – Do You Know If Your Excess Insurer Has Been Notified?

February 26, 2013 By JL Risk Management Consultants

Self Insureds Need To Monitor Excess or Reinsurer Notification

Do you know if your self insureds has been notified? Workers Compensation excess insurance (reinsurance) can often go unnoticed in all the inner workings as a file progresses towards its conclusion. A reinsurer denying coverage because they were never put on notice is very rare for Workers Comp.

House of fire Self Insureds insurance association

Wikimedia Commons – Laima Gūtmane

A recent article where the underlying insurer sued their excess insurer pointed out the “rock and a hard place” the excess insurer is placed in when it has no knowledge of a claim that may require payment. Most liability insurers are very careful when it comes to reporting claims that may reach above the primary insurance level.

For instance, an example of where a self insured employer may end up paying out of pocket:

Employee has serious injury
Total Incurred (Reserves + Paid) is set at $295,000.
Small paid amount = $17,400
Reserves are above the reinsurance reporting threshold of $200,000
Overloaded TPA claims adjuster and supervisor do not report claim to reinsurer
Three years later, settlement is recommended that will cause the total claims payout to exceed $300,000.
TPA decides to report to reinsurer at this late date
Reinsurer is not happy as they were not involved in negotiating the settlement
Reinsurer should have had an initial status from the TPA three years ago when the Total Incurred exceeded $200,000

Picture of Self Insureds man empty pocket and dollar sign

123RF

Which party has the ultimate responsibility? The responsibility is with the employer. Of course, the employer could pursue the TPA.

How does a self insured employer avoid this situation? The avoidance mechanism should already be in place. When the TPA contract was agreed upon, were there reserve levels that should have the employer’s approval before the increase by the TPA?

Self insured employers will often remark that the “reserves are not that important” as we do not pay premiums. That may be true, but Workers Comp reserves can also be used as an alert when they reach certain levels – one of them being the reinsurance reporting level.

There are some TPA computer systems that will automatically report a claim to the reinsurer when the reserves reach a certain level. The reinsurer will usually ask for a full report once the TPA system flags a certain claim.

Reinsurers have become more analytical and not just an insurance commodity. Denials of coverage by the excess insurers may become more commonplace.

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Outstanding Reserves Are Key to Comp Cost Reduction

August 8, 2012 By JL Risk Management Consultants

The Outstanding Reserves Are The Key

Outstanding reserves can make or break any company’s Workers Comp budget. I received two questions this week on the three parts of what is considered Total Incurred. Total Incurred is reported by your insurance carrier to the respective rating bureaus.

Picture of Key hole Outstanding Reserves With Grass

The basic formula is Total Incurred = Paid + Outstanding Reserves.

There is little that you can do about what has already been paid on a claim. One of the best methods to cover what has been paid is to do a statistically sound claims performance audit. This type of audit basically puts the onus on the carrier to have handled the files properly and efficiently.

The main and negotiable part of the claim is the outstanding reserves. Outstanding reserves are the leftover forecasted funds by the claim adjuster or department. This is the amount of funds that is reserved for future expenditures.

What happens to the outstanding reserves when a claim is closed? They are zeroed out so that Total Incurred and Paid are the same. However, and this is the important point, if the date arrives for your Mod to be tabulated and there is an outstanding reserve on a file or group of files, YOU PAY FOR IT AS IF THE MONEY WAS ALREADY SPENT!!

Picture of Auditing Outstanding Reserves Concept

123RF

That is why there are three very important numbers/dates to track:

Outstanding reserves
Total Incurred
Date your E-Mod (X-Mod in CA) is calculated

If you do not know the date your E-mod will be calculated, email or call me at [email protected] and we will find it for you.

Let me give you an example of what I call reserving budget rot. Your E-Mod (X-Mod) will be pegged on August 31, 2012 at close of business. That is what the insurance carrier will report t to the rating bureaus for your E-Mod (X-Mod). You have a file that was closed on September 3rd, 2012 that had an outstanding reserve of $134,000.

You call the insurance carrier and ask them to roll back the $134,000 of over-reserving to August 31st. That will not happen. Even if the reserves are removed or reduced the next biz day after your Total Incurred is recorded, you are stuck with the $134,000 on your E-Mod. That is the way the Workers Comp biz works. Carriers will never do this on purpose. It is just another function of the Workers Comp insurance process.

Knowing the three bullet points above is going to save you a ton of heartache at your renewal. Why did I write this post? We had a new client contact us earlier this week where the above example just happened with their E-Mod.

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Workers Compensation Claim Reserves – The Skinny

December 9, 2011 By JL Risk Management Consultants

WC Claim Reserves Indemnity

From an article and a manual, I wrote many years ago. 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.

Graphic of shaking Hands One is Injured Claim Reserves Indemnity

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.

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:

Picture of Premium Concept Claim Reserves audit

§ Nature and extent of the 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

§ Availability of light or modified duty

§ State laws

Picture Of Two Jar With Dollar and Coins Claim Reserves Indemnity

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 Reserves 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.

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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

123RF

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

123RF

§ 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.

©J&L Risk Management Inc Copyright Notice

Lower Workers Comp Insurer Reserves Can Be Harmful

May 2, 2011 By JL Risk Management Consultants

Lower Workers Comp Reserves Not Always Best

The workers comp insurer reserves sometimes hide a reserve deficit. AM Best released a report on May 2nd that was startling to me. Of the 11 insurance companies that failed, nine were due to inadequate reserves and pricing. The carriers were not necessarily Workers Compensation insurers.

Picture Of Man Lower Workers Comp Cutting Credit Card

StockUnlimited

Reserves that are too low on your Workers Comp claims can be as harmful to your Workers Comp budget as reserves that are too excessive. I have dedicated a portion of this blog on how to lower your company’s Workers Comp reserves.

As I have said very often in presentation, the Workers Comp claims adjuster walks a tightrope between excessive and deficient reserves. When I post about reserves, I am actually referring to (Total Incurred – Paid).

How do deficient reserves harm your Workers Comp budget? I will break it into two parts – regular Workers Comp policy and self insurance.

Regular Commercial Workers Compensation Policy – Avoiding a massive reserve bump

There is nothing wrong with making every effort possible to lower your workers compensation reserves with risk management techniques such as a return to work program, etc. Having deficient reserves on certain claims can cause a huge unexpected reserve increase. This can cause a very large increase in your E-Mod that your company was not expecting.

Hand Holding Marker Pen Lower Workers Comp With Risk Management Concept

StockUnlimited

One of the main signs of this is a major claim where the outstanding reserves on your loss runs are approaching zero. For instance, if a claim has a back surgery pending and the reserves are very low, you can expect an increase in the reserves. Timely increases in reserves sometimes functions are a red flag that something major is going on in your Workers Compensation claims.

My advice is to never call or email your adjuster about having deficient reserves. I would just make sure that you have analyzed the reserves and are properly budgeted for an E-Mod increase. The timing of the reserve increases is very critical to your Workers Compensation budget.

Self Insurance – critical

One of the main ways to wreck a self insurance program is with deficient reserves. I have also seen this when handling claims from a self insurance risk pool. This is one of the major misunderstandings by clients that we have assisted in becoming self insured.

Low reserves in a self insured or a large deductible will kill the program. If the reserves are deficient, then a self insured company may be under the impression that all is fine with their Workers Compensation budget.

Picture Of Hand Carrying Plant Lower Workers Comp With Coins

Wikimedia Commons – 401(K) 2012

With self insurance, the employer may not necessarily have an E-Mod, but you should have a LDF (Loss Development Factor) calculated each year for your program to assess its health. Most self insureds budget their Workers Compensation yearly.

If you are looking at your reserve figures from last year to set your budget, how much of an impact would 20% of your claims not being reserved for upcoming surgeries? You have budgeted for payouts of for instance $2.6 million and you actually have a hidden risk of another $900,000?

Having an outside consultant company such as ours – shameless plug – perform a statistical analysis of the reserves and claims would show the true amount you need to budget for your present and future claims.

The easiest way to spot the lower workers comp insurer reserves and deficiencies is to be very involved with your claims process. As I have said at least 20 times in this blog, having online access to you claims and claim reserve figures is golden. Quite a few carriers allow you to run ad-hoc reports, which is the best way to find the files with deficient reserves.

Both self insurance and regular commercial policies suffer heavily with the term – stair-stepping.

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Workers Comp File Reserves – You May Be Running Late

March 17, 2011 By JL Risk Management Consultants

Workers Comp File Reserves Timing Important

I try to post information on Workers Comp file reserves this time of year. Why? The majority of Worker Compensation policies renew on January 1^st.

Wikimedia Commons – Daniel R. Blume

The Unit Stat date for those policies is 7/01/11. Your companies Unit Stat date will occur 6 months AFTER your policy expiration date.It will not count for the current or prior policy year.

The Unit Stat date pegs your E-Mod reserves for the NEXT policy period. As posted often in this blog, my advice is to start your Workers Comp reserve reduction strategies by Mid-March, at the latest. Trying to negotiate reserves at the last minute with an insurance carrier will be an exercise in frustration.

Picture Of Hand Passing Workers Comp File Reserves Secret Letter

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The SECRET is knowing which claim reserves to negotiate and which to leave alone.Stirring up interest in the wrong file may cause a reserve increase instead of a decrease.If you have your loss runs handy or can obtain them online, then you have saved yourself two weeks in obtaining them.

Unfortunately, there is no structured answer on which files to examine and which to leave alone. As you look over the loss run, it is best to know the current medical status of your injured employees. There may possibly be a valid reason for an extremely high reserve figure.

If you have access to the adjuster notes, they will sometimes suffice for an actual medical status. If you have to obtain a medical or claims status from an adjuster, use email. Never call an adjuster saying that your company’s reserves are too high. You need some type of number analysis to substantiate your position.

Calling an adjuster went out of style ten years ago. I do not recommend texting an adjuster. That is too informal.

The bottom line is to get started NOW on your E-Mod for NEXT Year. You may be already running 17 days behind.

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Bulk Reserves Cover Large Number Of File Concerns

January 31, 2011 By JL Risk Management Consultants

Term Of the Day – Bulk Reserves

The term bulk reserves are one of the antiquated terms in insurance. An accumulated amount determined to provide for future loss of payments for known claims. These include case reserve inadequacies, additional case reserves, and claims that may reopen or other reserves not allocated to specific claims. IBNR would be part of the bulk reserves.

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Loss Reserves – Where Do I Find Them For My Workers Comp Claims?

August 19, 2010 By JL Risk Management Consultants

Loss Reserves Are An Adjuster’s Forecast

Loss reserves are the the dollar amount set aside or reserved to completely cover the expected cost of a claim or claims under the workers comp policy issued by the insurance company.

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This determined amount is set aside as of the annual statement date.Loss reserves become a factor in computation of premium.

These loss reserves – sometimes referred to as reserves – should be monitored to ensure no over reserving or under reserving has been done. The term causes much confusion with Total Incurred. The Total Incurred figure equals the Paid plus loss reserves The Formula is:

Reserves + Paid = Total Incurred

The figure can be negotiated with the carrier at certain points in the life of the claim. Workers Comp adjusters pay attention mainly to the reserves. They do not want to over-reserve the file or run out of reserves.

Stairstepping happens when the claims adjuster increases the loss reserves just enough to cover medical bill payments or a few weeks of indemnity benefits. Having inaccurate and artificially low reserves through staristeepping should be considered dangerous for an employer’s workers’ compensation program.

Loss runs contain all of these very critical figures. Your company should ask for the loss runs monthly at least. Online access to loss runs makes the process much easier. You can usually run your own ad hoc loss runs at will with online access.

Online access may cost more, but it is worth every penny if your company is going to track your losses and premiums more closely.

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Workers Compensation Loss Run Most Important Information

August 10, 2009 By JL Risk Management Consultants

Workers Compensation Loss Run Information Critical

The Workers Compensation Loss Run contains very important information. I have posted almost ten times concerning online claims access. If your company is unable to have online access to your claims, at least the loss run will contain some very pertinent information. If any insurance carrier has a claim open from even 20 years ago, your company should be provided a loss run for that claim. Having loss runs is not a privilege, but a right of the policyholder.

Man hand and cellphone important information in Workers Compensation Loss Run Information

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This may be a good time to pull out your company’s loss run and look at the numbers. As I write this, I am reviewing one for a transportation company. Their E-Mod increased from .9 to 1.6 in two years. One of the main pieces of advice that I can give to an employer is that the E-Mod cannot be fixed in one year. It usually takes 2 – 5 years. Why? The E-Mod is calculated from claims that have been open for less than four years. That is not an exact statement, but I want to keep this as straightforward as possible.

The main number to examine is the outstanding reserve, reserve, unpaid funds, etc. The outstanding reserves may be named with different terms. Regardless, it is the $ that has not yet been paid out on a Workers Comp claim. The outstanding reserves are the forecasted payouts by the adjuster for the lifetime of the file. As I have said often, even though the money has not been spent, it is charged off directly to your E-Mod, which in turn heavily affects your premium.

Clipart of unpaid debts in rope Workers Compensation Loss Run Graphic

The basic formula is Paid Funds + Outstanding Reserves = Total Outstanding Reserves. The total outstanding reserves are the figures that your insurance carrier reports to the NCCI or the State Rating Board. There is little that you can do about what has already been paid. There are a few specialists that we work with that can review the paid funds to see if there were very many overpayments.

The quickest way to cover the claims that may affect your company’s E-Mod is to look at claims that are five years old or less. The outstanding reserves for these claims need to be reviewed. If you look at any of these claims and the $ amount of the outstanding reserves seems too large for the injury, you may have found a way to cut your Workers’ Comp costs.

I could post well over 50 pages of what to look for in the outstanding reserves. These estimations can be complicated. I will cover outstanding reserves in your workers compensation loss run further in the next post.

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Workers Compensation Expense Reserves Are Often Ignored

August 2, 2009 By JL Risk Management Consultants

Expense Reserves vs. Medical Reserves

The third and final reserve figures are the Expense Reserves. These reserves have caused quite a large amount of confusion ever since I started my career in Workers Compensation. The confusion always centered on what should be included in the Expense Reserves vs. Medical Reserves.

Picture of Hand Draw Arrow Increase Expense Reserves With Dollar Signs Graphic

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The definition is the funds set aside for the cost of adjusting the Workers Comp file. The following fees are sometimes coded as Expense:

Defense Attorney
Independent Medical Exam (?)
Rehabilitation Nurse (?)
Bill Review (?)
Adjuster Time and Expense (T&E) (?)
Medicare Set Aside Services (?)

I inserted the ?’s as these are the areas that confuse all the claims departments as to where these expenses are included. Quite often, even inside each claims department these expenses are included in different reserves.

The best way to think about this category of funds is what the claims staff decides to directly pay to help adjust or process the claim – not medical or indemnity such as a weekly workers comp TTD check or a medical bill for a physician office visit. The adjuster has more control over the provider than any other type of payout.

There is no need for concern if you are not self-insured. The reserves are still charged to your Workers Comp premiums as one total (Compensation + Medical + Expenses). There are some other areas of concern that I will post next.

There is one expense that SHOULD NEVER be included as any type of reserve in the above list. Which one do you think it is?

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Medical Reserves and CPT Codes In Workers Comp Claims

July 29, 2009 By JL Risk Management Consultants

Medical Reserves – CPT Codes

Workers Comp medical reserves are the most complicated of the three reserves to estimate. Can you imagine trying to predict all of the medical treatment that will occur over the lifetime of a file? There are as many medical treatments as there are CPT codes. CPT codes number into the thousands.

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If we look at CPT coding, there are six kinds of medical treatment

1. Evaluation and Management

2. Anesthesiology

3. Surgery

4. Radiology

5. Pathology and Laboratory

6. Medicine

There are other considerations that have to be taken into account that are not coded such as mileage.

Most of the Workers Comp injuries are orthopaedic in nature. It may be a good idea to review the orthopaedic CPT codes and their costs for each of the states where you company operates in most of the time.

Medical Personnel Medical Reserves Using Calculator

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The fee schedules for each state will likely reduce the full value of most medical procedures. Another area in the medical reserves that may help reduce reserves is if the insurance carrier or TPA has their medical networks that allow for a discount for medical services. It is advisable that you ask your claims adjuster if the fee schedules and Workers Compensation treatment networks were taken into account when the reserves were set for the claim.

Medical payments on claims are approaching 60% of the claim values nationwide. In some states, medical payouts are more than 60% of a claim’s value. There are many reasons for the increase. Workers Comp indemnity payments are based on wages. Medical inflation has increased much more quickly than wages.

I wish that I could be more specific on medical reserving. There are so many medical treatments that I am only able to cover the surface of medical reserving. The next post will cover the Expense reserves and a few areas that have resulted in confusion over what is a Medical or Expense reserve.

Workers Comp Indemnity Reserves Basic Definition

July 27, 2009 By JL Risk Management Consultants

Workers Comp Indemnity Reserves Are One Of Three Reserve Categories

Graphic Of Disability Workers Comp Indemnity Reserves On Wheel Chair

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The Workers Comp indemnity reserves on a claim represent the future payouts of benefits to the employee over the life of the claim.

The definitions for most of these terms can be found by clicking on the Definitions tab/button in the menu. I will not reiterate them here to keep the post at a readable length.

The indemnity part of claim reserves is basically the amount that is paid directly to an injured employee for:

Wage loss – Temporary Total, Temporary Partial, Permanent Total
Permanent reduction in function to a body part – Permanent Partial, Disfigurement
Other – Many state-specific indemnity payments

Unlike the medical reserves, the indemnity reserves are more easily forecast. This is not to say that they are easy to predict for the lifetime of a claim. They are usually easier than the medical reserves to estimate.

Crutches Workers Comp Indemnity Reserves Vector Images

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One of the areas that can cause great unpredictability is if an injured employee is under consideration for a Permanent Total rating. If an adjuster has to consider the employee as being unable to return to work for the rest of his/her life the indemnity reserves can spike tremendously. If an employer can offer a return to work even with a different job function, this is very helpful to avoiding a huge reserve and may be very beneficial to the employee. Quite often, states will have “make-work” laws that prevent an employer from just making up a job for an employee to return to work. This is an area of very heavy litigation in certain states.

Using my Six Secrets/Keys to Cutting Workers Comp Costs will reduce the likelihood of extreme reserve increases and will benefit your employees. The Four Secrets tab will soon be Six Secrets. I will write a quick post after the other two are added to the list.

I may change this post as I write the ones for Medical and Expense Reserves. Check back on this post when you are reading the upcoming ones.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Workers Comp Claim Reserve Contains Three Parts

July 25, 2009 By JL Risk Management Consultants

Workers Comp Claim Reserve = Three Parts

This post could be a very long one as there are hundreds of variables that comprise a Workers Comp claim reserve. Each state is unto itself on the benefits that are provided under Workers Compensation. There is no one list that points out every reserve variable in every state.

Insurance benefits drawing concept Workers Comp Claim Reserve On Table Graphic

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There are three main areas of reserving:

Indemnity
Medical
Expense

These three are defined in the Definitions page. Please check there for further clarification. The most important of the three would be the medical reserves. These are growing each year to become the largest percentage of Workers Comp payouts and reserves. Medical payments are approaching 60% of claims value nationwide.

The Expense figure the bullet points denotes Allocated Expenses or ALAE. The Allocated Expenses are rarely passed to your company’s Total Incurred figure. Total Incurred represents the exact figure one sees in their respective Experience Modification Factor Sheets.

I will cover each one of these three areas over the next few days. I will cover one of the most controversial areas which is what exactly is covered under the Expense Reserve and the Medical Reserve. There seems to be a large amount of confusion on those two reserves.

More on Recession proofing Your Workers Comp Policies

December 10, 2008 By JL Risk Management Consultants

Workers Comp Recession Proofing – Another Angle

The Recession proofing program centers this times on reserves. I have received quite a few emailed comments and questions about the current recession. Quite a few forward-thinking employers have asked about the quickest method or methods to reduce Workers Comp premiums in 2009.

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The first thing to remember is that Workers Compensation is a delayed-effect type of expenditure. Trying to reduce the Workers Comp premiums for 2010 should now be a company’s goal. The 2009 policy is already in place unless your renewal date is after 7/1/09. The Workers Comp reserves that are set on files are usually set in stone six months before the policy renewal. If you are renewing on 1/1/09, all of the variables for your Experience Modification Factor (E-Mod or XMod) were in place on 7/1/08. Please look at my recent posts on how your time is being wasted by end-of-year claim reviews.

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One question we are asked concerns going back in the past and arguing with the insurance carriers over past high reserve levels on certain files. We and any other consultant usually cannot audit old reserve figures.

Reserve levels apply to the present only. That is why it is so important to monitor the reserves set by the adjuster on each Workers Comp file. A question to your Workers Comp carrier on a reserve level from 2007 will do no good in most circumstances.

Quite a few of our clients have us monitor all reserve changes on their files. Why? Changes to the Workers Comp reserves have to be questioned or corrected very quickly.

The longer an excessive reserves figure exists on a file, the more difficult it is to have it changed. The one thing to remember is NOT QUESTIONING the reserves on every file. You have to pick your battles on the right files.

We will revisit the ways to cut premiums next time.

One Thing Not To Do With File Reserves on Loss Runs

September 3, 2008 By JL Risk Management Consultants

One Thing Not To Do On Your File Reserves

Working in a Claims Dept for many years, I had seen one thing that would totally backfire on an employer that had questions on their Workers Comp file reserves. If you have established a working relationship with your Workers Comp claims adjuster, the following may not apply.

The National Archives

The one thing to not do centers around not being prepared. Calling your Workers Comp claims adjuster without being prepared to discuss the reserving on the file will usually cost your company more in premiums. Please remember that the Workers Comp adjuster is very similar to calling your bank’s loan officer. The issue of credibility is critical. Being prepared = credibility.

The easiest way to prepare is by reviewing the Workers Comp loss runs. Usually, the loss runs do not have a status. You can email your adjuster and ask for a status on every claim or obtain online access to your claims. You should be able to see what is happening with your claims online.

How do you know what Workers Comp reserves are correct? That is a very tough call. It takes most insurance adjusters 5 – 7 years to gain enough experience to set the reserves on files. Setting reserves is a tough business. If you do not feel comfortable having this discussion, please call a Workers Comp audit expert. As I said before, negotiating your Workers Comp reserves is like talking with your bank. It will directly affect your budget.

Finally, the one thing to not do is to just call up the adjuster and confront him/her that your reserves are too high.

Picture Business Meeting One Thing File Reserves

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This person is responsible for the reserves on your Workers Comp files which feed into your E-Mod that directly affects your insurance budget. This tactic can sometimes backfire.

Workers Compensation Reserves- Silent Budget Killer

April 6, 2008 By JL Risk Management Consultants

Workers Compensation Reserves – The Ever-Silent Budget Killer

Workers Compensation reserves can be critical when trying to lower your company’s premiums.

The silent budget killer for most company’s Workers comp program revolves around the claim reserves.

Picture of Man Hand Pointing workers compensation reserves On Screen with Globe

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I have posted very often about the process for calculating Workers Comp premiums. The one area that I could never cover enough is Workers Comp reserving. The reserves are the engine for all calculations that have to do with calculating your Experience Modification Factor, or E-mod.

What makes the reserves on a file so unique? In all the process of how your Workers Comp premiums are charged, the Reserves are the only unregulated numbers in the equation. The reserves on a Workers Comp file are left up completely to the claims department. The adjuster can set the file reserves at any level they wish. The only regulation the file has is the supervisory staff of the claims department.

How are reserves calculated? It is usually some form of an educated guess by the claims adjuster. You have very little control over the Workers Comp reserve figures.

Questioning the loss reserves on a file should be a quarterly, if not monthly task for you or someone in your organization. A well-placed email to the claims adjuster on the file. Do not just email the adjuster and say the reserves are excessive. Why are they excessive?

How do you take control of your reserves? A Workers Comp Loss Run review is a great way to make sure you are not overpaying on your Workers Comp premiums. One of my prior posts covers the review in detail.

If you feel that this is a very complicated process, you are very correct. Do not hesitate to call in a claims expert such as our company to help you make sure you are not overpaying.

Next Up- A Workers Comp Definition

Our main website is www.cutcompcosts.com

Reduce Premiums – Fastest Way With Workers Comp Reserve Review

November 21, 2007 By JL Risk Management Consultants

Fastest Way To Reduce Premiums Reserve Review

Performing a Workers Comp reserve review is the key to reduce premiums of your reserves very quickly.

Your Workers Comp premiums can be reduced very QUICKLY in most situations.. It is the reserve review.

Graphic of Money in clock Way To Reduce Premiums Fastest

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The reserves are the engine of the premium charging process by insurance carriers.

I had written a post on this very subject a few weeks ago. The loss run is the map, so to speak, to use for the reserve reviews. Look for the column that is designated “outstanding reserves.”When is the critical date to start a reserve review? The answer is 9 months before the next policy date.

Why start so many months ahead of time? Actually, you have only 3 months, not nine.

Please note – (with few exceptions) almost all policies lock in their E-Mods 6 months before the policy. No matter what policy provisions are in place if the reserves on the files are wrong, you are paying dearly for Workers Compensation coverage.

The three month lead time is needed as many claims departments may have to go through many levels of supervisory and management personnel to have any reserves changed.

If you have a very large reserve, this process can easily take 60 – 90 days to complete. Changes to reserves on large claims have to go across many desks or computer screens.

The usual route consists of:

The adjuster recommends a reserve reduction or increase up to their level of authority
If the file reserves are beyond the adjuster’s authority, the supervisor must approve them after discussing it with the adjuster. Claims supervisors rarely approve a reduction without a protracted meeting with the adjuster. If the claims supervisor agrees with a reserve reduction, then the reserves are reduced.
If the claims supervisor does not have the authority to that level of reserves, then the supervisor passes it up the line to the claims manager. The adjuster, supervisor, and claims manager have a long meeting if a request has been made to reduce the reserves by the adjuster and supervisor.
If the claims manager does not have the level of reserve authority, then the file passes onto the Claims Vice-President. Usually, VPs are consulted only if the file reserves are very large, over $350,000 for example. Then, a meeting has to be scheduled for the claims adjuster, supervisor, manager, and VP to discuss the claim reduction. Getting all four parties in an office or conference room at the same time is a very difficult task.
So if a file has over $350,00 you are looking at 90 days to get approval for a reduction. So you cannot wait to one month before your policy renews to send the adjuster an email on over-reserving with a specific file.

That is why you must start at the latest 9 months before your next policy expiry to see about lowering file reserves to reduce premiums.

Next Up – How do you effectively do a worker’s comp reserve review?

Premium and Reserve Reviews Are Very Different Tasks

October 12, 2007 By JL Risk Management Consultants

Work Comp Premium and Reserve Review Differences

The difference between Workers Compensation premium and reserve reviews comes up often during one of our presentations or in speaking with current or potential clients.

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To keep from boring you to tears, we will cover Premium Reviews today and Reserve Reviews next time. We avoid the word audit when we can as the audit has such a bad connotation – IRS audit, year-end payroll audit by the insurance carrier, etc. Audits sound confrontational.

Premium Reviews – this is also called a policy review. We look at the “mechanics” of how your Workers Comp premium has been calculated. We look at various items including:

Payroll Statements
Current and previous Work Comp policies
Website advertising and brochures
Previous Work Comp year-end payroll audits from the insurance carrier
NCCI or State Rating Bureau sheets
Audit Billing Statements
Audit Workpapers
Any type of premium adjustment after initial policy issued
Job Descriptions for each employee
Description of Operations

We are often asked why we need website info, brochures, advertising, and a description of operations. We want to take the time to understand your company and what your company does in its operations. Without knowing it exactly, we would not be able to do a complete and accurate premium review.

We can usually go back three years from the date of the review. If we find errors, we can usually recover the error for three years, not just one. With a premium review, we are looking at the current Work Comp insurance situation and back in time for three years.

Next Time – Reserve Reviews – the hidden way to save $ on Workers Comp

PS – Our main site is at https://cutcompcosts.com/. Feel free to read our archived articles. They can be accessed by clicking on the months on the right side of the web page.