Reserving a file is extremely complicated. It is one of the most difficult aspects of working a claims desk. As if keeping up with cost trends is not hard enough, the mere fact that no two files are the same only adds to the complication.
There are many factors to consider, including medical and wage exposure and the patient’s comorbidities. You have to consider their own personal medical issues, both occupational and non-occupational, body habitus, age, secondary gains, social influences, motivation, employer/employee relationship, and the list.
Base Reserve Is Set At File Inception
A base reserve or default is set in the file at its inception for most carriers. This merely indicates whether the claim is medical only or if it shows lost time potential from the start. All carriers are different and have different policies, but for the most part, some sort of reserve is set within 30 days of receipt of the claim.
This 30-day base reserve reflects known exposure at that time. Within 30 days, the adjuster should have a good idea of the potential outcome of the claim. But as we know, potential outcomes change with the weather.
So when is the appropriate time to adjust the reserve again? Common claim practices will tell you to adjust the reserve when something changes the exposure. However, anything can change the exposure. Therapy failing? Lack of a promised light-duty job? Injections did not help resolve the injury? These are all failed projections that on paper, looked to hold some promise to resolve the claim. So, should the reserve increase by tens of thousands of dollars when each or all of the above fails to yield promise?
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The answer is maybe. The issue is to look at the risk drivers on each file and the injury itself. Has an Independent Medical Exam been completed? Have proper diagnostics shown objective evidence of surgical issues? If the answer to all of the above is yes, then the adjuster should have enough medical and objective evidence to warrant an increase based on known exposure at that time.
However, there are additional things to consider. Those include surgical likelihood, prognosis post-operative, potential for permanent restrictions, vocational aspects, the legal probability with a denial or dispute on coverage, etc.
Anything Can Change The Exposure At Any Time
Anything can change the exposure at any time. A good adjuster will always be a few steps ahead. Most claims start with minimal exposure, but the adjuster must look beyond that. This information should be coming from the employer early on, namely return to light duty work potential and the overall history of the claimant that comes from the employer. Is this worker plagued with a large claim history? Are they a long-term worker with occupational exposure issues? Did they also have personal medical leaves, prior surgical issues, attendance problems, and so on? These are the first clues that this claim will not be a nominal medical only.
The adjuster has to put enough reserves in within the first 30-day period to expect the unexpected. If the adjuster failed to do so at that point, then they are not considering proper exposure on the file. If that did happen, then this claim will be destined for stair-stepping of reserves–quite possibly considered the biggest no-no in the insurance world.
Most carriers state that the ultimate exposure on the file should be placed within one year from the injury date. So between that first initial 30-day period, and the one year period, what would drive a reserve increase, and when should it be completed?
The answer will depend on the injury, the surgical probability, and the invasiveness of the treatment involved. Add to that the light duty work probability, the long-term light duty work accommodation possibility, if any, and then the secondary gain aspects the claimant may have—including litigation probability. Any or all of those aspects have a large effect on the reserving of the claim, and before that adjuster pulls the trigger on a reserve increase, they have to consider both the known and the unknown, along with the probability of invasive medical treatment, including multiple surgeries, extended rehab and recovery, medication changes, etc.
There Is No One Answer – All Parties Need To Work Together To Arrive At Game Plan
If you had expected this article to give you the ultimate answer to how and when to increase a reserve, you are now starting to understand the complexity of reserving and how difficult it is to complete that task. The real answer is that there is not one aspect. The answer to when to pull that trigger involves a myriad of possibilities. It can only be successful when all parties are involved in the claim. This includes the employer, the adjuster, a nurse case manager, and possibly legal counsel. Everyone has to arrive at a game plan and a number to reflect the known and unknown exposure on a claim.
The simple answer is this: Expecting and reserving for a worst-case scenario is OK. A better-than-expected recovery is a good thing, and taking down a large reserve number when a file closes can be good (considering the Unit Statistical Date). However, under-reserving and stair-stepping a reserve is always never looked upon favorably. The adjuster has to take the proper time to reflect on the file from all avenues, all probable outcomes, and all contributing factors. Failure to address each aspect on its own merits will result in disaster.
Contact: mstack@reduceyourworkerscomp.com.
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