Insurance Cost Shifting: Ethical Dilemmas in Claim Management

ethical dilemmaEveryday claims management teams are faced with many challenges and demands.  These pressures come in many forms and lead to ethical situations often in the form of cost shifting.



A Hypothetical: Cost Shifting At Its Worst


Sally McHurry has been working for Acme Widget Company as a laborer for the past 30 years.  Over the course of her employment, she had been required to stand on her feet and twist/turn a series of level and handles during her typical workdays.  As a result, she developed a number of conditions she suspected were work-related, which included plantar fasciitis, severe joint pain in her upper extremity joints and disc herniations in her cervical spine.


Sally was eventually placed on light duty work restrictions, which included a limitation on the number of hours she could work in a week.  ABC Insurance Company grudgingly accepted primary liability for the claimed injuries and started paying various workers’ compensation benefits.  After several months, her prognosis did not improve.  Around the same time, she was terminated from her employment without cause and forced into the state’s employment disability program.  Under the terms of this program’s lower reimbursement rates, Ms. McHurry received a reduced amount of disability benefits.



Industry Reflections on Cost-Shifting


Cost shifting occurs in insurance when one carrier seeks to reduce their expected losses by moving a claim or claimant onto another insurance plan.  This other form of insurance often pays benefits at a lower rate.  The result is the claimant receives fewer benefits.


While we do not want to believe that cost shifting occurs in the workers’ compensation system, it does happen more often than we expect.  It also raises questions about practices carriers engage in to move risk off their books and onto another form of insurance, which can result in added burdens to government programs and ultimately the taxpayers.  Some of these practices may include:


  • A carrier seeking to terminate workers’ compensation claimants without cause or legal grounds, done in a manner that leaves that person in a position where they receive reduced wage loss benefits.


  • Shifting the cost of wage loss and medical benefits onto another form of government assistance or medical programs. The result is taxpayers picking up the bill for these services, which leads to added pressures on safety net programs.  While reimbursements may take place at some point, the insurance carrier initially responsible will only be paying a discounted amount.


  • The added expense of legal fees associated with the use of defense attorneys in unnecessary and vexatious litigation.


  • Insurance defense attorneys padding legal bills on behalf of the insurance carrier for proceedings that are unwarranted or unnecessary.



Avoiding Ethical Pitfalls


All members of the claims management team encounter ethical issues daily.  It is important to be aware of this and make decisions that conform to high standards of professionalism.  Failing to act in this manner can result in loss of job, reputation and other sanctions.  It is also important to think about other issues beyond the financial bottom line.


  • Be proactive on all of your files. Know the deadlines for all activities in the course of your daily work.  Communicate with your team members and ask questions.
  • Be honest in all of your dealings. This goes beyond co-workers and includes vendors you work with and all claimants.
  • Never over promise. Keep all your promises as well.
  • When in doubt, seek an ethics opinion. If you do not have an “ethics hotline,” suggest immediate implementation within your organization.


Most of all follow the Platinum Rule: Treat others the way they want to be treated!




Author Michael B. Stack, CPA, Principal, 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.  Contact:


©2014 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law.





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