Workers’ Compensation is one of the most highly regulated lines of insurance.
Every form filed and every payment transaction is an opportunity for a penalty. Claims can stay open for 30 years or longer, leading to thousands of transactions on a single claim. Each state presents different sets of compliance rules for payers to follow.
This bureaucracy is adding significant cost to the Workers’ Compensation system, but is it improving the delivery of benefits to injured workers?
Lack of uniformity
Workers’ Compensation is regulated at the state level, which means every state has its own set of laws and rules governing the delivery of indemnity and medical benefits to injured workers.
This state-by-state variation also exists in the behind-the-scenes reporting of data.
Most states now require some level of electronic data interchange (EDI) from the payers (carriers or self-insured employers). There is no common template between the states, which means carriers must set up separate data feeds for each state. This is made even more complex when you factor in the multiple sources from which payers must gather this data for their EDI reporting.
Data sources include employers, bill review and utilization review vendors. The data from all these vendors must be combined into a single data feed to the states. If states change the data reporting fields, each of the vendors in the chain must also make changes to their feeds.
Variation also exists in the forms that must be filed and notices that must be posted in the workplaces. This means that payers must constantly monitor and update the various state requirements to ensure they stay in full compliance with the regulations.
Much of the Workers’ Compensation compliance efforts focus on the collection of data, which is ultimately transmitted to the states.
The states want this information to monitor the system and ensure it is operating correctly, however, is all this data necessary?
Some states provide significant analytical reports on their Workers’ Compensation systems, but many do little with the data that they collect. In a world concerned about cyber risk, collecting and transmitting claims data creates a significant risk of a breach. If the data is not being used by the states, the risk associated with collecting and transmitting it seems unnecessary.
Another complication is that there are multiple regulators involved in the system for oversight in each jurisdiction. Too often, this means payers have to provide the same information to multiple parties because information sent to a state’s Department of Insurance is not shared with a state’s Division of Workers’ Compensation, and vice-versa.
Some regulation is also outdated based on current technology. Certain states require the physical claims files to be handled within that state. However, with many payers now going paperless, there are no physical claims files to provide. Other states require checks to be issued from a bank within those states. Electronic banking makes this requirement obsolete.
How is this driving costs?
All payers have a significant amount of staffing and other resources devoted to compliance efforts.
From designing systems to gathering and entering data, this is a very labor-intensive process. There have not been any studies on the actual costs to the system from these compliance efforts, but this easily equates to millions of dollars each year.
States also impose penalties for a variety of things, including late filing of forms and late and improper payment of benefits. The EDI process makes it possible for these penalties to be automated, but that issue raises the question of the purpose of the penalties altogether.
These penalties are issued on a strict liability basis. In other words, either the form was filed timely or it was not. A payer could be 99% compliant on one million records, but they would be automatically penalized for the 1% of records that were incorrect.
In this scenario, are the penalties encouraging compliance or are they simply a source of revenue for the state? A more fair system would be one that acknowledges where compliance efforts are being made. Rather than penalize every payer for every error, use the penalties for those that fall below certain compliance thresholds (say, 80% or 90% compliance).
The laws themselves can be vague and open to interpretation, which leads to unnecessary litigation expenses. Terms such as “reasonable” and “usual and customary” are intentionally vague, and often states will not provide further definition of these terms.
How can we improve?
One of the goals of Workers’ Compensation regulations is to ensure that injured workers are paid benefits in a timely manner at the correct rate and that they have access to appropriate medical treatment.
There was a time when payers had offices located in most states with adjusters handling only that state. Now with most payers using multi-state adjusters, payers must be constantly training and educating their adjusters to ensure that they understand all of the nuisances of the different states that they handle.
The ability to give input to regulators is also invaluable and payers should seek opportunities to engage with organizations to create positive change. Groups such as the International Association of Industrial Accident Boards and Commissions and the Southern Association of Workers' Compensation Administrators provide the opportunity for Workers’ Compensation stakeholders to interact with regulators on important issues and also provides the opportunity to seek uniformity where it makes sense (EDI, for example).
There needs to be better transparency and communication between all parties in the rule-making process so that regulators have a better understanding of the impact these rules have on payers and the effort required to achieve compliance.
Developing standards in technology would be helpful for both the payers and the states. If your systems cannot effectively communicate with the other systems, you cannot be efficient. Upgrading technology across the industry, particularly on the regulatory side, has to become a priority.
Finally, we need to give any statutory reforms time to make an impact before changing them again because the constant change adds to confusion and drives costs. In the past 10 years, there have been over 9,000 bills introduced in various jurisdictions related to workers’ compensation. Of those, about 1,000 have actually been turned into law. People expect that these reforms will produce the desired results immediately, when in reality these things often take time to reach their full impact.
Kimberly George is a senior vice president at Memphis, Tenn.-based Sedgwick Claims Management Services Inc., and Mark Walls is a vice president with St. Louis-based alternative risk funder Safety National. They host a webinar called “Out Front Ideas with Kimberly and Mark,” and this topic was discussed on Feb. 9, 2016.
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