Try Not To Be So Optimistic When Reserving A Work Comp Claim

Contrary to popular belief, sometimes adjusters are optimistic when reviewing their open cases. When you deal with injury claims day in and day out, you try to be proactive and hope for the best.

The problem is that we should know better. If you have a person that hasn’t worked in over a year and they are going in for their second surgical procedure, chances are they are going to end up costing you a ton. But, as if we love to have false hope, we try to picture the best possible outcome, instead of the probable one.

In our minds, we think that once an injured worker nears MMI we will run them through a vocational program, and magically they will be placed either back at their original employer (At the same pre-injury wage of course) or at a comparable employer (again at the same pre-injury average weekly wage) and just like that we are done!!

Alas, this is a crucial error. Not only for the person handling the claim, but for the carrier/TPA in general. This trend is increasing carriers/TPAs to mass under-reserving, which is the biggest error that an adjuster can make. Here are a few things to keep in mind when reserving your claim for lifetime exposure and probable outcome:

Don’t ignore increased medication costs—especially when future surgical procedures are being considered

One of the biggest problems in work comp today is opioid medication exposure. Not only are these medications being used for every injury under the sun, but they are the most expensive. Despite using a PBM or another medication watchdog service that may or may not include fee-reduction on pharmacy bills, the bottom line is that these meds are going to be a big part of ongoing treatment—sometimes for decades. When you have a case where surgery failed, there is very little chance that your claimant will ever be medication free. There are several vendors to help you with forecasting medication expense, so utilize them. These can include a nurse case manager or Pharmacy Benefits Manager. It is not feasible to think that meds will cost $1,000/year, times however many years your injured party has to life expectancy.

Remember to include medical cost inflation

The cost of medical service is not the same as it was 10 years ago. New advances in technology come with a price attached, and at times these prices can continue to go up, especially as demand for said services increases to be the “Next greatest thing in spinal treatment” or whatever the case may be. To reserve for this unknown, adjusters usually implement a flat percentage increase for inflation, which varies anywhere from 2% to maybe 5% of total medical cost. It is best to err on the side of caution, and shoot for the higher end. I always say it is better to over-reserve a bit than under-reserve by a lot.

Don’t put all of your faith in a vocational program being 100% successful

It is great to think that your injured worker with permanent restrictions will return to gainful employment somewhere down the line. This could be true, but if you have a high wage earner it is less likely that they will make a wage comparable to what they were making pre-injury. Plan accordingly and be sure to include enough in your indemnity to cover a partial wage loss for the future. Also, if state-run retraining is mandatory (or even an option) in your jurisdiction, some programs make the comp carrier pay for books, classes, mileage, meals, and so on. All of these expenses can add up in a hurry, so be sure to not overlook them. State websites usually have an overview of their retraining programs online, including class cost, book costs, tuition, etc.

Be sure to allocate for expenses—both medical fee reduction costs and legal costs

Most all bills are run through some sort of cost-containment or fee reduction program. It is important to remember that a fee is attached to the bills that fit the criteria, which is mostly a flat percentage. Whatever vendor you may use, whether in-house or an outside vendor, fees are going to occur. Most reserve analysis worksheets have a field to complete to account for this cost. When you finally arrive at your final medical exposure figure, don’t forget to tack on whatever flat rate percentage that your company uses for these medical review fees. This expense is another one that can creep up on you and suck the life out of your open reserve monies.

Legal fees also should not be forgotten. Even if your case is not in litigation now, you can bet at some point down the road examiners are going to dispute something, and you can bet your injured worker will litigate over it. In their eyes you have covered everything for years, so why would the carrier dispute things now? On a lifetime claim the claimant often feels they have nothing to lose by litigating since their claim has already been accepted.

The magic cure is yet to be found, so don’t forget complications from recovery

If you predict future invasive procedures during the life of this claim, be sure to allocate for complications. In a perfect world, everyone has a surgery, and everyone heals within the timeframe outlined in the ODG book. You must remember that the ODG is just a guideline, not a guarantee.

This is where you have to pay attention to the risk factors that a person has to complicate recovery. This could be obesity, diabetes, arthritis, other medical conditions, their lifestyle, and so on. If you think this person is going to take forever to heal, then it is probably true.

To counteract under-reserving, be sure to give yourself a TTD cushion. If you owe wages on a long-term basis after a major surgical procedure, think about adding in at least 4-6 weeks extra, just in case a major setback were to occur. Repaired rotator cuffs and ACLs always have the potential to re-tear. The more severe the injury and complicated the surgery, the less likely the person is going to heal within the ODG guidelines.

Summary

This is just the tip of the iceberg of items to think about when reserving a major exposure injury claim. The most important thing to completing a successful reserve is to take the proper time to look at the claim from all angles. You have to make sure all of your bases are covered. The only way this can be accomplished is to take the time needed to reflect on the ultimate claim exposure. Reserving is an art form, and even the most seasoned claims adjusters have trouble reserving a lifetime claim.

Author Michael B. Stack, CPA, Director of Operations, Amaxx Risk Solutions, Inc. is an expert in employer communication systems and part of the Amaxx team helping companies reduce their workers compensation costs by 20% to 50%. He is a writer, speaker, and website publisher. www.reduceyourworkerscomp.com. Contact: mstack@reduceyourworkerscomp.com.