• Menu
  • Skip to main content
  • Skip to secondary navigation
  • Skip to primary sidebar
  • Skip to footer

Before Header

  • Search
  • About
  • Contact
  • Privacy
 
CHOOSE BROADSPIRE

Amaxx Workers Comp Blog

Reduce Workers Compensation Costs By 20-50%

Header Right

  • Home
    • Training Center
  • Get Started
    • Newcomers Class for WC Professionals
    • Subscribe to Free Newsletter
    • Free Training Center Account
    • Return to Work Resources
    • WC Claims Mgmt. Resources
    • Insurance Advisor Resources
  • Membership
    • Insider (free account)
    • WC Mastery
    • Teams & Managers Mastery
    • Training Partners
  • Products
    • On-Demand Courses
    • Specialty Courses
    • Certifications & Mastery Courses
    • Ultimate Guidebooks
  • Blog
    • Video Blogs
    • COVID-19 / Coronavirus Pandemic
  • Login

Mobile Menu

Choose Broadspire

CHOOSE BROADSPIREBroadspire Delivers Meaningful Results to Our Clients and Their Claimants
  • Home
    • Training Center
  • Get Started
    • Newcomers Class for WC Professionals
    • Subscribe to Free Newsletter
    • Free Training Center Account
    • Return to Work Resources
    • WC Claims Mgmt. Resources
    • Insurance Advisor Resources
  • Membership
    • Insider (free account)
    • WC Mastery
    • Teams & Managers Mastery
    • Training Partners
  • Products
    • On-Demand Courses
    • Specialty Courses
    • Certifications & Mastery Courses
    • Ultimate Guidebooks
  • Blog
    • Video Blogs
    • COVID-19 / Coronavirus Pandemic
  • Login
  • Search
  • About
  • Contact
  • Privacy
You are here: Home / Claim Management / How To Properly Reserve a Work Comp Claim

How To Properly Reserve a Work Comp Claim

July 31, 2012 By //  by Rebecca Shafer, J.D. Leave a Comment

When a workers’ compensation claim occurs, the insurer incurs a financial obligation to pay the future cost of the claim.  Proper accounting requires the insurer to set aside the amount necessary to pay the claim.  While the exact cost of this future obligation is unknown, the insurer needs to estimate the future cost of the claim as accurately as possible in order to set aside the appropriate amount of money to pay the claim.  The money set aside to pay the claim is referred to as the claim reserve. [WCx]

It is common practice in the workers’ compensation field to break the reserve down into components.  The three major components of the reserve are:

  • Medical cost
  • Indemnity cost
  • Expenses

Some insurers will break the expense component into two parts, expenses and legal.

Click Link to Access Free PDF Download

“How Do I Get My Adjusters To Follow My Account Handling Instructions?”

Medical:

To establish how much money should be placed in the medical component of the reserve, the workers’ compensation adjuster will estimate the cost of:

  • Physicians
  • Hospitals
  • Diagnostic testing
  • Physical therapy
  • Ambulance
  • Prescriptions
  • Durable medical equipment
  • Attendant care
  • Other medical cost

A dollar amount is estimated by the adjuster for each of the above types of medical care based on the adjuster’s initial investigation establishing the nature of the injury and the level of severity of the injury.  For a sprained ankle, the adjuster might assign the following amounts to each category:

  • Physicians                                $1,000
  • Hospitals
  • Diagnostic testing                     $1,000
  • Physical therapy                       $2,000
  • Ambulance
  • Prescriptions                            $   250
  • Durable medical equipment
  • Attendant care
  • Other medical cost                    _____

Total Medical Reserve      $4,250

The medical reserving for an amputated hand might look like:

  • Physicians                                $10,000
  • Hospitals                                  $25,000
  • Diagnostic testing                    $  2,000
  • Physical therapy                      $  5,000
  • Ambulance                               $  1,000
  • Prescriptions                            $  2,500
  • Durable medical equipment      $40,000
  • Attendant care
  • Other medical cost                    $  2,000

Total Medical Reserve      $87,500

Indemnity:

To establish how much money should be placed in the indemnity component of the reserve, the workers’ compensation adjuster will estimate the cost of:

  • Temporary total disability (TTD)
  • Temporary partial disability (TPD)
  • Permanent partial disability (PPD)
  • Permanent total disability (PTD)
  • Rehabilitation / vocational expense
  • Death benefits
  • Dependent benefits

A dollar amount is estimated by the adjuster for each of the above types of indemnity benefit based on the adjuster’s initial investigation establishing the nature of the injury and the level of severity of the injury.  For a sprained ankle, the adjuster might assign the following amounts to each category:

  • Temporary total disability (TTD)           $600 per week X 10 weeks = $6,000
  • Temporary partial disability (TPD)
  • Permanent partial disability (PPD)
  • Permanent total disability (PTD)
  • Rehabilitation / vocational expense
  • Death benefits
  • Dependent benefits                                                                                _____

Total Indemnity Benefits                                                     $6,000

The indemnity reserving for an amputated hand might look like:

  • Temporary total disability (TTD)          $600 per week X 20 weeks =  $ 12,000
  • Temporary partial disability (TPD)
  • Permanent partial disability (PPD)        $600 per week X 250 weeks= $150,000
  • Permanent total disability (PTD)
  • Rehabilitation / vocational expense
  • Death benefits
  • Dependent benefits                                                                                ________

Total Indemnity Benefits                                   $162,000

Expenses:

To establish how much money should be placed in the expense component of the reserve, the workers’ compensation adjuster will estimate the cost of:    

  • Medical reports
  • Independent medical examinations or peer reviews
  • Experts
  • Attorney
  • Court reporters
  • Surveillance
  • Any other expense.

    FREE DOWNLOAD: “How Do I Get My Adjusters To Follow My Account Handling Instructions?”

As with the medical component and indemnity component of reserving, an estimated amount is assigned to each expense category and the total estimated expenses is established.

Total Reserve:

The total reserve on the file is the combined amount of cost estimated by the adjuster for medical + indemnity + expenses.

The workers’ compensation adjuster should establish the initial reserve within 48 to 72 hours of the claim creation.  The adjuster should review the reserve whenever there is important new information obtained that impacts both the amount and type of medical treatment, or impacts the amount of indemnity that will be paid.  It is often the goal of the adjuster to establish the ultimate estimated value of the claim (reserve) within 6 months of the initial report of the claim.

Accurate reserving is very important to the insurer in establishing the amount of money to be set aside for the claim.  Accurate reserving is also important to the employer as the severity of the claims, as reflected by the reserving, is a part of the calculations used by the underwriters in establishing the premium for future years.

Author Rebecca Shafer, JD, President of Amaxx Risk Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. She is the author of the #1 selling book on cost containment, Workers Compensation Management Program: Reduce Costs 20% to 50%. Contact: RShafer@ReduceYourWorkersComp.com.

Editor 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.

WORKERS COMP MANAGEMENT MANUAL:  www.WCManual.com

 Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers comp issues.

 

©2012 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact us at: Info@ReduceYourWorkersComp.com.

FREE DOWNLOAD: “How Do I Get My Adjusters To Follow My Account Handling Instructions?”

Filed Under: Claim Management Tagged With: Calculating Reserves, Reserves, Reserves and Loss Runs, Reserving, Reserving in Workers Comp

Related Articles

Selecting the Right Service Providers to Reduce Workers’ Comp Costs

Selecting the Right Service Providers to Reduce Workers’ Comp Costs

Part 3: What to Do AFTER a Workers’ Comp Claim Audit

Part 3: What to Do AFTER a Workers’ Comp Claim Audit

Part 2: Select the Right Claims for a Workers’ Comp Claim Audit

Part 2: Select the Right Claims for a Workers’ Comp Claim Audit

Part 1: Stop Wasting Time Doing Workers’ Comp Claim Audits

Part 1: Stop Wasting Time Doing Workers’ Comp Claim Audits
workers' comp Investigation

Best in Class Claims Investigation

Best in Class Claims Investigation

Review Your Claim Management Systems

Review Your Claim Management Systems

Why Every Employer Should Request Their Account Handling Instructions

Why Every Employer Should Request Their Account Handling Instructions

16 Points you MUST include in your Account Handling Instructions

16 Points you MUST include in your Account Handling Instructions

20 Unfair Claim Practices For Your Adjuster To Avoid

20 Unfair Claim Practices For Your Adjuster To Avoid

Complete A Better Accident Investigation

Complete A Better Accident Investigation

One Critical Step To Start Any Injured Worker Investigation

One Critical Step To Start Any Injured Worker Investigation

One Tip To Make Claims Reviews an Effective Use of Time

One Tip To Make Claims Reviews an Effective Use of Time

Free Download

How Do I Get My Adjusters To Follow My Account Handling Instructions? - FREE Download Click Here Now!

Train to Succeed

BECOME CERTIFIED IN WORKERS’ COMPENSATION

Proven Course Catalog & WC Toolbox Give You The Power To Achieve Lower Costs and Better Injured Worker Outcomes

VISIT WORKERS' COMP TRAINING CENTER

Previous Post: « You Can Run, But You Can Not Hide in Work Comp Fraud
Next Post: The Best Tidbits of News from the Workers Comp Community »

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

FREE DOWNLOAD

How Do I Get My Adjusters To Follow My Account Handling Instructions? - FREE Download Click Here Now!

Our Sponsors

Broadspire

Workers’ Comp 3rd-Party Administrator
 

Catastrophic Care Management, Complex Care, and Specialty Networks
 

Ametros

Post-Settlement Administration
 

Medcor

Injury Triage, Onsite Clinics

Read Our Award-Winning Blog

Blog Categories

Search Our Archive

Subscribe to Our FREE Newsletter

Footer

Search Our Archive

Search our continually growing archive of over 2500 articles about Workers' Comp issues.

Quiclinks

  • Calculators
  • Terms & Abbreviations
  • Glossary of WC Premium Terms
  • WC Resources
  • Best Practices
  • Industries

RSS Recent Blog Posts

  • Reduce Workers’ Comp Costs in a Union Environment
  • Selecting the Right Service Providers to Reduce Workers’ Comp Costs
  • 3 Techniques To Gain Workers’ Comp Management Commitment
SUBSCRIBE TO OUR FEE NEWSLETTER
Let Us Help You Stomp Down the High Cost of Workers' Comp!
Top of Page ↑
  • Home
  • Training Center
  • Get Started
  • Membership
  • Products
  • Blog
  • About
  • Contact
  • Subscribe
  • Login
Copyright © 2021 Amaxx, LLC. All Rights Reserved. · Privacy Policy / Legal Notice