Legacy Claims: 10% of Medical Costs For Services 20+ Years in Future
A January report from the National Council on Compensation Insurance, Inc. (NCCI) states that “it is likely that more than 10% of the cost of medical benefits for the workplace injuries that occur this year will be for services provided more than two decades into the future”. The 10% number was based on the analysis of workers’ compensation claim payments covering the time period of January 1, 2009 to April 1, 2011 of claims with a minimum age of 20 years old, but not exceeding 30 years old. The data was derived from the 35 jurisdictions where NCCI provides ratemaking services and from 7 additional states where the NCCI provides statistical information to independent state rating organization.
While claims professionals refer to work comp claims that have been around for years as “old dogs”, the NCCI and the management level of the workers’ compensation insurers refer to these older files as legacy claims. The age a workers’ compensation claim reaches legacy status will vary by insurers with some insurers considering any work comp claim over three years old a legacy claim, while others refer to the claims as legacy claims when they reach five years old. Probably the best approach is to consider any claim where the claimant has reached maximum medical improvement, and the claimant continues to have indemnity payments or medical maintenance cost to be a legacy claim.
Legacy Claims Major Financial Burden
The most common type of legacy claim over 20 years old are those involving
- injury / disease of the musculoskeletal system (43% of the female employee legacy claims, 32% of the male employee legacy claims);
- traumatic complications (18% of the female employee legacy claims, 15% of the male employee legacy claims);
- diseases not musculoskeletal or nervous system (7% of the female employee legacy claims, 11% of the male employee legacy claims);
- disease of the nervous system (6% of the female employee legacy claims, 11% of the male employee legacy claims).
In certain cases, the decision to “opt” to keep the medical component of the workers compensation claim open as opposed to resolve it as part of the settlement can be very costly.
Duke T. Wolpert, Director of Marketing at Ringler Associates, offered some insights.
“At times, the risks associated with increased claim severity are unknown when a decision is made to settle the indemnity side of the workers compensation claim and leave the medical component of the file open. Other times, optimism plays a role when making this decision. Therefore, it is very important to proactively manage this claims population and re-evaluate settlement options (in jurisdictions that allow for the closing of medicals) as a mechanism to address claims that are driving the loss dollars.”
“Historical data suggests that the Pareto Principle (80-20 rule) applies to workers compensation claims. Thus, one’s ability to identify, manage and consider structured settlement alternatives is critical.”
By preventing claims from ever reaching the legacy stage, the claims professional will not be issuing checks on claims 20 years later. Ultimately, the 10% of workers’ compensation cost spent on claims 20 years old or older is eliminated.
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.
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: email@example.com.
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