Any agent or broker who hasn’t been auditing workers’ compensation claims is missing a great opportunity to lower their clients’ premiums and foster long-term relationships that can build their business. Plus, you, the producer, will help attract prospects and distinguish your agency from your competitors.
The first step is to start exercising your client’s right to audit their open workers’ comp claim files–within six months after policy expiration–and stipulate that the reserves reflect the actual file documentation. These changes can lower experience modification ratings and, over time, dramatically reduce premiums.
Although a federal law granting employers the power to challenge reserves was enacted way back in 1919, few of them take advantage of this right. As a result, countless employers pay too much. That hurts–especially if they’re your clients.
An alarming percentage of employers are paying inflated workers’ comp premiums due to inaccurate experience ratings.
According to my study of cases over the past 12 years, these ratings were incorrect 55 percent of the time. And among those that were wrong, 98 percent were too high.
That’s why you need to audit and track claims with excess reserves of at least $10,000–from inception to resolution–for any client that pays $20,000 or more in annual premiums. Inaccuracies include, but are not limited to:
o Classification errors.
o Revised payroll audits not submitted to the state bureau.
o Same claim reported twice.
o Claims closed but not reported
One frequent mistake is inappropriate medical treatment and billing for a particular injury. For example, if two conditions are treated and resolved in one procedure, there should be a single bill instead of two separate bills that could raise overall costs.
All such discrepancies produce incomplete unit statistical plan filings, which must be submitted annually for each employer by the carriers to the state’s rating board. The required Unit Statistical Plan Card includes the three-year experience for claims, reserves and payrolls. This establishes the client’s experience modification rating for the upcoming policy year based on a three-year moving average.
When a reserve is reduced, you can advise the carrier of this “clerical error” and have the future experience modification rating corrected to reflect this reserve change–as long as the reserve reduction occurs prior to the carrier’s unit statistical plan filing. This correction can also be done after the filing, provided that the carrier had agreed to the reserve reduction prior to the data submission.
Below is an example of how an audit can reduce reserves by $70,000 in the case of an employee who dislocated an elbow at work.
o The carrier sets the reserves at $50,000 for each year, leading to an experience modification worksheet of $150,000 over the three years it’s reported.
o But in three years, payments of only $10,000 per year are made for a total of $30,000.
o For each year, you audit the reserves for unit statistical plan filing and negotiate with the carrier–which lowers the reserve by $30,000 in the first year, $20,000 in the second year and $20,000 in the third year.
o Over the three-year period, you lower the reserves on the experience modification by $70,000–a 46 percent reduction based on a three-year moving average.
To help ensure your client’s experience modification ratings are accurate, follow these steps.
o Verify class codes: Check the definitions and exceptions set by the National Council on Compensation Insurance and the state to identify class and rates per $100 of payroll over the previous three years. When you report an incorrect code that raised your client’s premium, the carrier will issue a credit or refund check for the current year and possibly for the previous two years.
o Verify payroll audits: Carefully review your client’s payroll. A carrier will estimate payroll based on the information received from its adjustor or an outside payroll auditing firm. In some cases, these estimates are high, which can unjustly raise premiums.
o Track subrogation recoveries: Subrogation recoveries, which significantly affect reserves, are usually not tracked. They occur most frequently when employees are hurt in motor vehicle accidents while on the job. If an accident is determined to be a third party’s fault, the injured worker, in addition to filing a workers’ comp claim, could also file a claim against the third party’s insurance company.
Whenever these third-party claims are filed, find out if your client’s insurer is seeking reimbursement from that third party and whether the insurer aggressively pursues second-injury fund benefits. The answers to each of these questions could help reduce the cost of that claim.
o Track aggravated inequities: Aggravated inequities occur when a reserve set by a carrier is challenged by the insured or the insured’s authorized representative, after which the carrier refuses to reduce the reserve–citing reasons such as continued temporary disability.
You can then apply for a reserve reduction under NCCI’s Aggravated Inequity Rule if two conditions are met.
One, the reserve is closed for substantially less–after the Unit Statistical Plan Filing and before the next policy anniversary. Two, this change in the reserve lowers the experience rating for both the current year and for the new policy year by five points or more.
Below are some options for auditing and tracking your clients’ claims on an ongoing basis.
o Do it in-house: You’ll need to hire a licensed adjuster experienced in auditing claims and challenging reserves. This person should be intimately familiar with federal and state laws.
o Retain an outside firm: Find a workers’ comp consulting firm that specializes in tracking and auditing claims and that brings a breadth of experience in different industries.
The company should employ licensed adjusters, experienced claim file editors, licensed managed care nurses and experience modification specialists. Plus, its software should be able to track field audit activity and workers’ comp claims reserve from inception to resolution.
o Find wholesalers that offer claims auditing: You may be able to find workers’ comp wholesalers that enjoy special relationships with certain carriers. This may allow them to track and audit your clients’ claims as a value-added service–without a fee–for all accounts placed through them.
Whatever method you use to track and audit workers’ comp claims, it is well worth the effort. In this tough economy and enduring soft market that refuses to fade away, you need an edge.
For you, that edge could be an excellent value-added service that improves the bottom lines for your clients–and your agency.