Workers' compensation is more challenging than ever before.Payers are continually navigating a delicate balance betweenensuring injured workers' receive appropriate treatment and costcontainment. Many of the headlines we see related to cost controlsare focused on medical costs. And, while this remains critical,it's also important to bring attention to the costs associated withmanaging indemnity payments.

We all know that indemnity payments play a significant role inclaim costs—anywhere from 40%-60% of expenses associated with aclaim. The actual amount depends on numerous factors ranging fromseverity to how long the claim is open. However, increasingadministrative burdens, workforce dynamics and processing feesassociated with indemnity payments may actually be costing payersmore than necessary.

[Related: Here's how to manage a successful workers' compclaim]

As a payer, do you know what is actually driving up costs ofadministering indemnity payments to injured workers? Test yourselfbelow by determining which statements are a myth or a reality.

Myth or Reality: Writing checks to pay indemnity is morecost effective and efficient than ever before.

Myth: Writing and mailing checks is more expensive thanever with the rise in printing, paper and postage costs. They alsoadd inefficiencies. When you consider how much time is spentprocessing checks, fielding inquiries and navigating lost or stolenchecks, your administrative costs are actually higher. In addition,there's no guarantee that injured workers have a permanent mailingaddress. That means escheatment is another inefficient andexpensive result of check writing. These type of payments may alsoresult in higher propensity for internal and external fraud.

(Photo: Shutterstock)

Myth or Reality: EFT processing is not always the mostefficient way to pay indemnity.

Reality: While it's less expensive to use EFT overwriting a check, there are still many challenges with this form ofpayment. For example, injured workers are required to provide abank account number—not something that is always easy to obtain asmany workers don't have a consistent bank account. For example,according to the FDIC, 25 million Americans are currentlyunbanked or underbanked. The reason for this is typically becausethey do not earn enough income to sustain an account or aretransient. Other challenges with EFT payments include incorrectdistribution, potential duplication of payments, delays in postingand processing fees (sometimes per transaction).

Myth or Reality: An increase in remote workers has aninsignificant impact on indemnity payment processing.

Myth: While most of today’s workforce still heads tothe office, factory or jobsite each day, the number of remoteworkers continues to rise. According to the U.S. Census between2005 and 2012, there was a 79% increase in the number of us workingfrom a home office, on the road or on a remote worksite.

There is an added complexity to indemnity payment processing fornumerous reasons when remote employees are hurt on the job. Forexample, they may not have access to a branch of a local bank. Thisis especially true for the nation's 3.5 million truck drivers(Source: American TruckingAssociations), migrant or seasonal workers who may be eligiblefor workers’ compensation.

Myth or Reality: Claim severity does not impactindemnity payments.

Myth: The more severe the injury, the increasedlikelihood an injured worker will receive indemnity payments andfor a longer duration. While claim frequency has declined over thelast 10 years, indemnity claim severity (which includes expensesfor medical, indemnity and defense) experienced a 2% increase(Source: NCCI).

This is important to note because the longer a claim is open,the greater the number of indemnity payments that must be pushedthrough the workers’ compensation revenue cycle. Administrative costs can quickly add up when using traditionalpayment solutions such as checks or electronic funds transfer(EFT). In addition to extra fees, payers must go to greater lengthsto reduce the opportunity for missed, duplicate or incorrectpayments.

(Photo: Shutterstock)

Myth or Reality: Every state has realized a decline inindemnity.

Myth: Actually, states such as California and Indianahave seen an increase in indemnity payments. For example, a studyby the California Workers' Compensation Institute found that thestate's indemnity claim frequency saw its largest increase in adecade.

Related: It's time to revisit payroll calculations used inworkers' comp]

If issues such as opioid utilization and comorbidities are notaddressed, other states are projected to experience an increase inindemnity. As a result, payers will face a significant increase inper-claim expenses associated with processing and managing worker'scompensation indemnity payments.

Myth or Reality: Corporate fraud impacts workers'compensation indemnity payment processing.

Reality: Occupational fraud costs U.S. businessesmillions of dollars per year and continues to rise. That meanscompanies need to put stringent controls on workers' compensationpayments—particularly traditional forms of payments such as checks.This, combined with corporate data breaches more frequently makingheadlines, makes it increasingly difficult to obtain bankinformation from an injured worker.

Myth or Reality: Card-based solutions may streamlineindemnity payments.

Reality: There was a time when consumers were notcomfortable using credit cards. However, times have changedaccording to a recent Federal Reserve study. U.S. card-basedpayments increased by $17.8 billion while non-card paymentsdecreased by as much as $3.1 billion between 2009 and 2012. Thereasons for this could include bank neutrality, no need for apermanent address and convenience in receiving faster and moreefficient payments. Another benefit of card-based solutions is theability to report a lost or stolen card immediately—something thatcan't be done as easily with checks or an EFT payment.

There are also significant benefits to card based indemnitypayments for workers' compensation payers. Payments canautomatically be loaded onto the card for the duration ofindemnity, eliminating the need to electronically transfer funds orprint and mail checks every time a payment is processed. Inaddition to streamlining payment processing, payers will ultimatelyrealize lower processing fees and operational expenses, fewererrors and less escheatment. Card-based payments also ensureaccurate and timely payments for all workers, mitigate internal andexternal fraud, offer liability protection, and let adjusters focuson managing injured worker medical treatment.

Myth or Reality: All card-based solutions partners arethe same.

Myth: Not all card-based solutions partners are thesame. Here are a few things to consider when selecting the idealpartner. It's important to work with an experienced, bank neutralpartner that maintains its technology and administering of fundsin-house. This ensures that once funds are transferred by yourorganization they will be handled by one entity, leaving lesschance for processing errors or lost funds. Bank neutrality alsoeliminates the potential for conflicts of interest with yourcurrent bank partner. It's also critical to ensure that yourcard-based solution partner offers protection through a card issuerlike MasterCard and has the ability to manage all inquiries aboutcards.

Hopefully, you now have some clarity on the realistic impactindemnity payments have on workers' compensation claim costs. Ifyou're still writing checks or processing EFTs as your primarymethod of fulfilling indemnity payments, it may be time to take asecond look.

With more than 20 years of experience in the insurancemarket space, Dave Stair has a long history of successfullyproviding service and business development in workers'compensation. Throughout his career, he’s worked in salesmanagement and business development, specializing in providingmanaged care, claims adjustment and fraud prevention. He has playeda vital role in providing payment solutions for insurance carriers,workers’ compensation and group health TPAs andself-insured/self-administered employers nationwide. Today, heserves as the Director of Insurance Payment Solutions at DataPath, overseeing the development of the RenewCardand Provider Payment solutions.