Reduce Reserves to Manage Claim Costs

Last month, we looked at a few ways in which an employer can keep workers compensation claims from spiraling out of control. By getting involved at the onset of a claim, resources such as medical triage and telephonic nurse case management through Early Intervention can help get injured workers back on the jobsite within 30 days and, more importantly, reduce your overall medical costs 30% to 40%.

But inevitably, not every workers comp claim can be closed in 30 days. Whether due to the severity of the injury, the employee’s underlying medical conditions or just plain old malingering, some claims may be open for many months. And all too often, you may report a workers comp claim to your insurance carrier and not hear about it again until after a payment has been made in settlement! Or perhaps you’ll get an update once a year when your broker comes to renew your insurance premiums.

If you’re solely allowing your insurance adjuster to manage your workers comp claims, you’re probably paying more than you should — both to resolve the claim and, ultimately, in workers comp premiums.

Keep It Conservative

Early in the life of a claim, the adjuster puts up a “reserve.” The reserve is a fund set aside by the insurance carrier to pay the estimated costs (medical, indemnity and legal) of each claim. The medical reserve is set aside for anticipated medical costs, whereas the indemnity reserve is set aside for the anticipated costs of lost wages and settlement. The expense reserve is the fund for expenses such as legal costs, third-party medical examiners, charges for medical records, etc.

When a claim reserve is set unnecessarily high, it may detrimentally impact your Experience Modification Factor. As you may know, the Experience Mod assigned to your business takes into account three years of your past claims history (both what was paid and what is reserved), and this factor is incorporated into the calculation of your current year’s insurance premium. High reserves may inflate your Experience Mod, which can be bad for business, resulting in the:

Inability to bid on a project: Some construction work requires an Experience Modification below 1.0 to bid.

Loss of credit: Most states require an Experience Modification of 1.0 or below to apply for a contractor’s credit.

Increased workers compensation premiums: The higher the Mod, typically the higher your premium.

The best way to ensure that your claim reserves are as conservative as possible, and that the open claims are resolved as quickly and economically as possible, is to use a Reserve Reduction program. Reserve Reduction starts with having an advocate — either inside your company or an outside expert — who reviews your claims at regular intervals to ensure that reserves accurately reflect the current status of the claim; and who can assess the appropriate medical, indemnity and expense costs. Reserve Reduction may be performed by your HR Director, by a loss control engineer or preferably by an experienced risk manager or occupational health nurse.

When to Review Your Reserves

Claims can change quickly. A suggestion by a treating doctor that your employee “may” be a candidate for surgery can send your reserves soaring an additional $20,000 overnight. If it is later determined that surgery isn’t necessary, you don’t want that high reserve lingering on your loss run. Regular and consistent monitoring of each claim is important to Reserve Reduction.

So when is a Reserve Reduction appropriate? Under the following circumstances:

There is a change in medical diagnosis: For example, a patient’s medical diagnosis improves from surgical to non-surgical.

The employee returns back to work full duty.

Maximum Medical Improvement (MMI) is achieved: A patient has improved as much as anticipated, and he or she is not expected to have any additional medical treatment.

Post settlement: A settlement is reached for less than the expected amount.

Six months prior to renewal of the policy: This is a key time to check on reserves, because claims are reported to the National Council on Compensation Insurance (NCCI) at that time.

Lastly, a significant factor to a successful Reserve Reduction program is the ability to obtain a reduction from the adjuster. This is where using an outside occupational health nurse or risk manager is invaluable. They have knowledge about appropriate medical, indemnity and legal reserves, and have experience in negotiating with adjusters on a level playing field.

A strong Reserve Reduction program is proactive and closes workers comp claims more quickly and less expensively than if left unattended. Successful Reserve Reduction can yield 20% to 30% savings on each claim, and an average of 20% reduction in premium costs for three years. ET