What Happens When Your Insurer Goes Bankrupt

Most employers never think about the possibility that their workers’ compensation insurer could go bankrupt.  Many risk managers think that with the high premiums work comp insurers charge, there is no way an insurer could go bankrupt, but it happens, and with the state of the economy, it is happening more frequently.

 

 

Insurers Bankrupt From Poor Claims Handling & Inadequate Premiums

 

There are two primary reasons workers’ compensation insurers go bankrupt – poor claims handling and inadequate premiums.  If the claims are not properly adjusted, the poor claims handling results in leakage – payments that are not justified.  If the amount of leakage is greater than what the profit margin would be if the claims were handled properly, the insurer has a negative cash flow, which cannot be sustained for an extended period of time.

 

If the claims are totally handled correctly, but the insurer has not properly underwritten the risk, and the premiums collected are inadequate to cover the cost of operations. Again, the insurer has a negative cash flow which cannot be sustained for an extended period of time.

 

Every state has financial stability guidelines that insurance companies within their state must comply.  These financial requirements include having adequate assets to pay their cost of operations and the expected cost of their claims.  When the Department of Insurance or other state agency determines that an insurance company does not have the necessary assets to cover their cost, the initial action taken by the state agency will be to have a court to issue a court order for “rehabilitation”.

 

 

Court Appoints a Receiver

 

When an insurance company is placed in rehabilitation, the court will instruct the “receiver” (often the state insurance commissioner) to take possession of the property of the insurance company [their assets], to conduct the insurer’s business, and take the necessary steps to rehabilitate the company to where it can return to profitability and stay in business. 

 

If the receiver determines that the liabilities of the workers’ compensation insurer are too great to overcome, and the work comp insurer cannot return to being profitable, the receiver will advise the state court.  The state court then issues a “liquidation” order requiring all assets of the insurer be used to pay the claims the workers’ compensation insurer has outstanding. 

 

 

Guaranty Fund Takes Over Payments On Open Claims

 

Every state and the District of Columbia has a “guaranty fund” which takes over the handling of the open workers’ compensation claims of injured employees residing within their jurisdiction.  The guaranty fund is usually a special purpose non-profit corporation of the state. Each state has only one insurance guaranty fund. The guaranty funds of all states belong to The National Conference of Insurance Guaranty Funds.

 

The guaranty fund obtains the money to pay the claims of the bankrupt insurer by assessing a fee from every other workers’ compensation insurer licensed to do business within the state.  The amount of assessment is in proportion to the total dollar volume of workers’ compensation insurance premiums of the assessed insurers.

 

The good news: the employer does not have to pay the work comp claims of their bankrupt insurer. 

 

The bad news:  The transfer of work comp claim files from the bankrupt insurer to the guaranty fund is seldom a seamless process.  Often the payment of medical bills, indemnity payments and payments to vendors are disrupted, creating inconvenience and often a quite a bit of hassle for both the injured employee and the employer.  Plus, remember one of the primary reason work comp insurers go bankrupt – poor claim handling that created overpayments on claims.  Those overpayments of claims are now a part of the employer’s loss history, which will impact the cost of work comp premiums for the next five years.

 

 

Carriers Should Be ‘A’ Rated or Better

 

Employers can protect themselves from having to deal with a bankrupt insurer, whether for property, casualty or workers’ compensation.  Employers should always check the financial stability rating of the insurer through A.M. Best, Moody’s or S&P.  An insurance company with a financial stability rating lower than A is a cause for concern.  If the insurance company has financial stability rating lower than B, the wise employer will ask their broker to find a more financially stable insurance company.

 

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

 

©2013 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law.


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

How High Will Your Work Comp Premiums Go?

Employers in 2013 are finding it difficult to renew their existing workers’ compensation policy or to obtain coverage from a new workers’ compensation insurer.  For many employers, 5% to 10% price increases in 2012 are being followed by another 5% to 10% price increase in 2013.  Workers’ compensation insurance has become the most difficult insurance line for many risk managers to obtain. Work comp also has become the highest cost component of many employers’ insurance programs.

 

The Work Comp Insurance Market is “Hardening”

If you ask insurance brokers what is causing the price increases in workers’ compensation or the difficulty in finding work comp coverage, you will often get the reply that the market is “hardening.”  A “hard” insurance market is a period of time where insurance brokers have to work extra hard to find any coverage or affordable coverage for their clients.  This “hardening” of the insurance market is being caused by several factors, including:

  • Stringent capital requirements are dampening insurers’ risk appetite
  • A low interest rate environment has lowered the income insurance companies get from their investments
  • Insurers have been incurring underwriting losses – paying out more on claims and related cost then they are taking in, in premiums
  • The component costs of workers’ compensations, both indemnity (wages) and medical have been steadily increasing, especially the cost of medical care, which continues to accelerate as a percentage of the overall cost of workers’ compensation

The response of the insurance companies to the above factors is to become more selective on whom they will insure.  If insurers are willing to provide workers’ compensation insurance, they do not want to incur an underwriting loss to do so; hence the insurers raise their premiums to a level where they anticipate they can make an acceptable level of profit.

 

Employers Need to Take Action to Control Their Premiums

Employers do not have to sit idly by while their workers’ compensation insurance premiums continue to go higher and higher.  There are several steps employers can take to put the brakes on the unrelenting upward spiral of work comp costs.  This includes:

  • Analyzing the risk financing strategy
    • Self insurance
    • High deductible program
    • Full coverage through a work comp insurer
      • Multi-year program
      • Negotiated fixed future price increases
  • Evaluating and reevaluating the risk management strategy
  • Improving the safety program
    • Analyzing and updating the safety program
      • Identifying the drivers of frequent accidents
      • Identifying the types of accidents that have high severity
      • Increasing enforcement of established safety procedures
      • Training of employees, supervisors and managers on how to be safe
      • Creating a culture of safety
      • Auditing safety compliance
  • Screening new hires to eliminate job candidates prone to injury
  • Claims management practices
    • Immediate reporting of accidents
    • Required or recommended medical providers
    • Frequent follow up with the injured employee by both the adjuster and the employer
    • Transitional duty programs
    • Medical management

Employers who take the above actions make themselves more attractive to workers’ compensation insurers.  These steps reduce the likelihood of accidents and the resulting workers’ compensation claims.  The workers’ compensation market will remain “hard” for employers who make limited efforts to control the cost of their workers’ compensation claims.  The cost of workers’ compensation premiums will not go up near as high for the employers who proactively manage their workers’ compensation program.

 

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.

 

©2013 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law.


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

Impact of Changes in New York Maximum & Minimum Workers Compensation Rates

The NY legislature has passed a bill changing the maximum and minimum comp rates.
 
After 5/1/13, the minimum weekly rate on a comp claim will rise from $100/wk to $150/wk.
 
After 7/1/13, the maximum weekly rate will rise from $792.07/wk to $803.21
 
 
All Employers Will Be Affected By Rate Changes
 
All employers, whether they pay workers minimum wage, or pay thousands of dollars per week, will be affected by the rise in minimum rates, in ways they may not suspect. The maximum rate will largely affect only employers with workers who average weekly pay exceeds, roughly, $1200/wk.
 
Employers, however, should be aware of how these rates become important in claims going to final settlement on permanent disability claims. Such settlement account for over 70% of all attorney fees, and lawyers use both the maximum and minimum rates in settlement strategies.
 
 
Large Impact on Settlements
 
A worker receiving the weekly minimum of $150/wk can still negotiate for a final settlement on, roughly $39,000-$50,000 (or more, depending on the ongoing medical costs, up from $26,000), and much lower if the worker is receiving wages plus comp. But the assumption that it only applies to minimum wage workers is entirely false.
 
At the upper end, the maximum settlements will rise, roughly, from $206,000, plus allowance for medical expenses, to $209,000, plus medical. (Maximum settlement can exceed these limits by $50,000, or more, in certain circumstances.)
 
Employers paying high end wages should be aware that they have workers that are the clients of preference to comp firms, considering that attorney fees for settlement can exceed $30,000 on their workers settlements.
 
That answer for employers is a better understanding of what can best lower settlement figures.
 
 
Return to Work Is Powerful Defense
 
The most powerful is an effective return to work plan. If the worker returns to full wages, a settlement is unlikely to occur. The claim will be closed for zero.
 
But if the worker can be returned to less than full wages, the settlement can be 10%, or less, than the max rate figures.
 
Employers should be aware that a return to work at lower wages, still entitles the worker to comp. If the worker returns at wages that are $225/wk to $150/wk, the worker is still entitled to the $150/ wk minimum rate. BUT, if the worker returns to work for wages where the reduction is less than $150/wk, the comp rate is the actual difference in wages.
 
Thus, a worker making $80/wk less than before an accident receives a weekly rate of $80, not the $150 minimum.
 
To put it succinctly, returning a worker to as high a wage as possible saves the employer impressive amounts on future premiums.
 
What if the worker is offered a job and refuses, hoping for a max rate settlement? That will be covered in the next piece. And the seemingly over- complicated discussion above will be greatly simplified.
 
Author: Attorney Theodore Ronca is a practicing lawyer from Aquebogue, NY. He is a frequent writer and speaker, and has represented employers in the areas of workers’ compensation, Social Security disability, employee disability plans and subrogation for over 30 years. Attorney Ronca can be reached at 631-722-2100. medsearch7@optonline.net  
 
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.  
 
©2013 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law.

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

Excess Insurer Reporting Standards for Work Comp Self-Insured

Self-insured employers seldom are totally self insured. Almost all self-insured employers will have an excess insurer who is responsible for any workers’ compensation claim that exceeds a predetermined cut-off point for self insurance. The reason for this cut-off point is to prevent a catastrophic claim from causing financial damage to the employer.

 

 

Excess Insurer Cut-Off Limit Ranges

The determination for when an excess insurer is needed depends on the size of employer and the available financial access of the employer to meet the statutory financial obligations incurred in compliance with the workers’ compensation laws. For some smaller self-insured employers, the cut off limit might be $250,000 or $500,000, while a large company with substantial assets might not have an excess carrier involved in their work comp claims until the catastrophic claim payments reach $2.5, or even $5 million on a claim.

 

Excess insurers normally require the self-insured employer to report to them any claim that has reached 50% of the self-insured employer’s cut off point. For example, if the employer is self-insured for the first $250,000 and the excess carrier must pay all claim cost over $250,000, the excess carrier will require the self-insured employer to report the details of the claim to them once the reserves reach $125,000.

 

In addition to the dollar amount where claims become reportable to the excess insurers, it is common practice for the excess insurer to require the self-insured employer to report all potential catastrophic injuries to the excess carrier, regardless of the dollar amount of reserves.

 

Catastrophic injuries that require reporting to the excess insurer normally include:

  • Spinal injuries resulting in paralysis
  • Brain damage with loss of cognitive function
  • Brain stem injuries
  • Third degree burns over 25% of the body
  • Second and third degree burns combined that cover over 50% of the body
  • Amputation of hand, arm, foot or leg
  • Total vision loss
  • Total hearing loss
  • Reflex Sympathetic Dystrophy
  • Post Traumatic Stress Disorder
  • Occupational diseases requiring organ transplants
  • Major accidents involving injuries to multiple employees at same time
  • Permanent total disability of an injured employee

The self-insured employer should consult with the excess insurer for a listing of the type of catastrophic claims that should be reported. The excess insurer may have additional catastrophic injury types that are not included in the above list.

The report of the catastrophic injury by the employer to the excess insurer should include all pertinent details about the claim.

 

The claim report should include a detailed discussion of the following areas:

  • How, when and where the injury occurred
  • The nature of the injury
  • The extent of the injury including the primary medical provider’s identification, the doctor’s diagnosis, prognosis, short-term treatment plan and long-term treatment plan
  • The anticipated date of maximum medical improvement
  • The probable level of disability the injured employee will incur
  • The amount already paid for medical bills and indemnity benefits
  • The amount of future reserves needed for future medical care and indemnity benefits
  • The potential for subrogation
  • The structured settlement company that will be utilized in the settlement process
  • The potential for a Medicare Set-Aside Agreement
  • Any other factor that may impact the total claim cost

 

The information needed by the excess insurer is in many ways similar to the information a workers’ compensation insurer would need if you were not self-insured. By reporting catastrophic claims timely and in detail to the excess insurer, the self-insured employer will have a smoother transfer of the high dollar claims when they are transferred to the excess insurer.

 

 

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.

 

©2013 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law.

 

 


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

How to Reduce Your Workers Comp Premium with Loss Runs

 

Loss Run Outlines the Details of Each Claim

 

A loss run is a data summary of the claims you have.  The loss run outlines the details and the cost of each claim.  It is normally produced monthly for the employer, but can be done more or less frequently.  As loss runs are computer generated, they can be tailored by your insurer or third party administrator to provide the amount of information the risk manager or workers’ compensation manager wants to see.

 

The insurance company underwriter will review your loss run financial data to determine what number will be used for your E-Mod – your experience modification factor.  The E-Mod is the insurance company’s calculation as to whether or not your claims experience is better or worse than average.  The average E-Mod is 1.0.  If the underwriter calculates your E-Mod to be 1.2, it means your claim cost is 20% higher than average, and your next insurance premium will reflect your higher than average claim cost.

 

The underwriter reviews both the frequency of claims and the severity of claims.  By time you get the loss run, there is not anything you can do about the frequency of the claims, but a careful review of the loss run will allow you to have an impact on the severity of the claims.

 

The financial data in a loss run is a treasure trove of information the employer can use to reduce future work comp premiums.  By carefully reviewing the loss runs, you will spot several areas where you can influence the claim cost and the calculation of your E-Mod for the next policy renewal.

 

 

Open Claims

 

Review your claims carefully to see if any open claims should be closed. In addition to the payments already made on the claim, the open claim will have reserves set aside for future payments.  The extra reserves setting on claims that are open, but should be closed, are included in the underwriter’s E-Mod calculations.  By having the claims office close the claims that should have already been closed, you eliminate the unpaid reserves and reduce the total claim cost the underwriter will be using to calculate your E-Mod.

 

 

Closed Claims

 

Ask that your loss runs include the claims closed within the last 90 days.  The payments on closed files are usually accurate, but occasionally a settlement payment or other large payment is listed twice, artificially increasing the cost of the claim.  By verifying the accuracy of payments on closed files, you prevent unnecessary claim cost from being included in the underwriter’s calculations.

 

 

Reserves

 

The underwriter will utilize the unpaid open reserves in the calculation of the E-mod.  The underwriter’s approach is the unpaid open reserves will be paid eventually and they are a reflection of the claim’s value.  Unfortunately, many times reserves are not updated when new information becomes available on a claim that will have an impact on the final cost of the claim.  As you review your loss run, ask yourself on each file “is the reserve accurate?”  If the answer is no because the reserve is too high (for example:  the employee’s surgical correction turned out better than expected, of the disability rating was lower than expected) have the adjuster to reduce the unpaid open reserve to reflect what will be paid on the claim.  When the review of reserves is done on every file, it can have a major impact on what the eventual E-mod for the next policy period will be.

 

A word of caution:  Do not try to push the adjuster to review every file for possible reserve reductions.  If you push for reserves to be reduced on every file, you may remind the adjuster of possible reserve increases which can hurt your E-mod.

 

 

Subrogation

 

This is the most overlooked area where an employer can reduce their E-mod. Any time a third party is responsible for the injury to your employee, the adjuster should pursue recovery from the third party.  Every dollar recovered should be recorded on your loss run as a credit against the dollars spent on the claim.  By reducing the total cost of the claim, you reduce your future insurance premium. Review your loss run carefully to be sure you are getting credit for the subrogation recoveries.

 

 

Not Our Claim

 

Every loss run is based on data inputted into the computer.  The data is numbers which the computer translates into words.  A mistake in inputting the employer data can result in a claim being on your loss run that is not your claim (the old garbage in – garbage out thing).  If you spot a listing for a claim that you are not familiar with, take time to verify it is your claim.  The incorrect listing of a claim on your loss run that is not your claim has a double negative effect on the underwriter.  The claim is counted against your company for both frequency and severity.  Contact the insurer or third party administrator and have the claim that is not yours removed from the loss run

 

 

By carefully reviewing and correcting all errors on your loss run, you can have a positive impact on the underwriter’s calculation of your loss experience.  By verifying the accuracy of the E-mod use to calculate your next insurance premium, you can eliminate unnecessary overcharges.

 

 

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.

 

©2012 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law.

 


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

Self-Insurance and High Deductible Provide Most Control for Managing Workers Comp

 

Self-insurance programs and high deductible programs are the two most common ways for a company to get almost total control over how their claims are handled.

 

Formal self-insurance is accomplished without the use of an insurance company. A company must file an application with the state insurance commission to become self-insured. They can either handle their own claims in an arrangement called “self-administration” or have a third-party administrator (TPA) handle their claims. In some cases the TPA can handle the claims in a “dedicated” claims unit which handles only the claims of that particular company. The term “self-insured/self-administered” is used when a self-insured company handles its own claims in-house, i.e. they hire their own adjusters to handle their claims. Many companies that are self-insured participate in industry or state organizations made up of other self-insured companies.

 

 

The Benefits to Self-Insuring

 

  1.    Maintains use of their cashuntil a loss is paid. However, when the loss is paid, if it’s a large claim they often “feel the pain” because none of the risk is transferred so they must pay the entire amount. If the division incurring the loss is a smaller division of a large company the cost can equal the amount of a significant percentage of their sales.

 

  1.     Flexibility and control because the company selects counsel (and pays for it), settles all claims and makes all other decisions associated with the claim. The adjusters can be part of the workers’ compensation cost control teams that make phone calls to employees reminding them about medical appointments, etc. Conversely, if the company does not have a return-to-work program, they pay for all lost days out of pocket. They CAN however, place more emphasis on medical control by retaining a medical director either full-time or part-time to make sure independent medical examination cover letters are well-written and perhaps even contact the injured employee and their medical provider (where allowed by state laws).  Thus, the emphasis can be place on improved medical care.

 

  1.     Reduced cost of overheadwith the insurance function taken in-house.  However, self-administering is not cheap, and a careful analysis should be made before making the decision to self-insure.

 

While there are benefits, there are also drawbacks. Carefully consider the decision to take the risk on without the use of an insurance vehicle.  For more information about what you can do to reduce your losses, go to www.ReduceYourWorkersComp.com

 

 

High Deductible Program

 

Another approach for a self-insured employer unable to set aside the necessary reserves for catastrophic claims is a large deductible program. In a large deductible program the employer purchases a policy of insurance from an insurance company. The employer is responsible for reimbursing the insurance company for each claim in the policy period up to a dollar limit. The employer will also have a maximum amount of exposure for all claims combined.

 

 

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.

 

©2012 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law.

 


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

Construction Workers, Independent Contractors, and Workers Comp

 

Who Is and Isn’t Covered by Workers Comp in Construction?

 

Employers in the construction industry are often perplexed as to who they should cover with their workers’ compensation insurance policy.  Full-time employees are covered, but what about part-time employees, day laborers, leased employees, borrowed employees and occasional volunteer work by a family member?  In most states all of these types of employees will be covered by the workers’ compensation insurance policy.  However, independent contractors are normally excluded from coverage by the workers’ compensation insurance policy.

 

The issue that arises most often between independent contractors and construction company employers is when the independent contractor does not have workers’ compensation insurance of his/her own and is injured while working for the employer.  When the injury is severe and the independent contractor does not have workers’ compensation coverage, often the independent contractor will try to collect workers’ compensation benefits from the employer’s workers’ compensation insurance company.

 

 

Employers Coverage Denys Claims From Independent Contractors

 

The employer’s workers’ compensation insurer will normally deny the claim as the insurer has not collected any premium for the additional exposure of the independent contractor.  The independent contractor (and his/her attorney) will often turn to the Workers’ Compensation Board/Industrial Commission and ask the governing authority to rule on whether or not there is coverage for the independent contractor.

 

The Board or Commission will normally look closely for any reason where they can classify the independent contractor as an employee of the construction company employer.  If the employer has not complied with all the requirements of hiring the independent contractor as an independent contractor, the Board or Commission will find the injured worker to be an employee.

 

 

Construction Employers Need to Know Law

 

For the construction company employer to protect its self from workers’ compensation claims of independent contractors claiming workers’ compensation benefits, the employer should know the law pertaining to independent contractors in their state.  Many states follow the federal government guidelines outlined in the federal Fair Labor Standards Act (FLSA).  On the federal level, the U.S. Supreme Court has ruled several times that there is not a single issue that makes a worker an independent contractor as opposed to an employee, but a preponderance of all the information surrounding the independent contractor-employer relationship.

 

 

Federal Fair Labor Standards Act

 

Per FLSA, the following issues define whether or not the worker is an independent contractor or an employee:

 

  1. The extent to which the services rendered are an integral part of the principal’s business

 

  1. The permanency of the relationship

 

  1. The amount of the alleged contractor’s investment in the facilities and equipment

 

  1. The nature and degree of control by the principal

 

  1. The alleged contractor’s opportunities for profit or loss

 

  1. The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor

 

  1. The degree of independent business organization and operation

 

Generally put:

 

  • If the construction company employer utilizes only one independent contractor to always perform the same type of work, he may be considered an employee.

 

  • If the independent contractor works for no other company, he may be considered an employee.

 

  • If the construction company controls when, where and how work is performed, the worker will be considered an employee.

 

  • If the worker has no exposure to financial loss on a job, he will be considered an employee.

 

  • If the worker maintains a separate business address, he will most likely be considered an independent contractor

 

  • If the worker has a federal identification number for income tax purposes, and does not use a social security number, he is more likely to be considered an independent contractor

 

 

 

Factors That Do Not Determine Employment Status

 

There are some factors that construction-company employers think should be considered in the determination of employment status, but generally the states do not agree.  The factors that normally do not make a difference include:

 

  • The location of where the work is performed

 

  • The lack of a formal hiring agreement

 

  • The licensing, or lack thereof, the worker

 

  • The frequency or timing of payment

 

 

Tips to Protect Against Contractor Claiming to be Employee

 

Construction companies can protect themselves from an independent contractor claiming to be an employee.  The construction company must mandate the independent contractor provide a copy of a policy of workers’ compensation insurance in the name of the independent contractor.  The construction company should contact the independent contractor’s insurance agent and confirm the workers’ compensation policy is paid up and has not been cancelled.

 

Construction company employers should also have a formal contract with the independent contractor stating:

 

  • The work to be performed will be completed by a definite date, but the independent contractor will determine the days and hours actually worked

 

  • The independent contractor will furnish his/her own materials, equipment and tools

 

  • The independent contractor will complete the agreed to work for the set price, regardless of the number of hours/days needed to complete the job and regardless of whether or not the independent contractor makes a profit.

 

  • The independent contractor will maintain workers’ compensation insurance covering all of the independent contractor’s employees until the agreed work is completed to the satisfaction of the construction company

 

  • The independent contractor will determine the means and methods of how the work is performed

 

  • The independent contractor is free to work for other employers before, during and after the work for the construction company

 

 

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.

©2012 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law.

 


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

It is Deer Hunting Season, Be Aware of a Spike in Work Comp Claims

Deer Season Can Equal Spike in Work Comp Claims

 
Fall has arrived.  Time is say goodbye to days at the beach and trade in your golf clubs for shotguns or bows and arrows.  In the early Fall, whitetail deer season is a tradition among many families.  These hunters dress up in their camouflage fatigues and paint their faces in order to try and bag their trophy buck.   It is a time to become one with nature and to spend time with family and friends at the deer cabin or the family cottage.
 
What does this mean for employers?  The answer is simple: a spike in work comp claims.  Although I have not seen many formal statistical studies, I know from years of experience that this time of year creates spikes in lost work production time due to worker absences. I know of many people, hurt or not, that would drag themselves out to their deer blinds no matter what type of pain they are experiencing.  Many people hold deer season in very high regard due to the tradition of families spending time together away from home roughing it in rural areas around the country.  So what can you do to protect yourself from questionable comp claims around this time of year?
 
 
 
Do a Thorough Investigation
 
Be it this time of year or not, the best defense you can have in any comp claim is a thorough investigation.  Some workers may plot to have a “work injury” around this time of year so they can get the allotted time off to go hunting.  It may start off simply enough in the form of casual conversation around the water cooler talking about an injury that may or may not have occurred. Bill may say to you “Boy my back sure is sore today, I think I may have overdid it the other day unloading inventory off the truck.”  You ask them if they are ok and if they need treatment.  Oftentimes they will say they do not, and they do not want to file a claim or anything, since this “injury” should get better on its own. But they will let you know if they need treatment or need to file an actual comp claim for the “injury.”   
 
Then a month later when deer season comes around, Bill heads up to your office and says he has been receiving treatment and his doctor says he needs to take some time off of work. In addition, he should file a comp claim so his bills can be paid.  Be this a work injury or not, you still need to complete your investigation by sitting Bill down and asking him the normal questions about the injury, getting his medical information from his doctor, and asking about witnesses and other pertinent information.  Be sure to follow up and be as thorough as possible.  Just because Bill said he was injured at work a month ago doesn’t make that entirely true.
 
 
 
Gather the Facts
 
Be honest when Bill comes to your office asking you if you remember him mentioning an injury to you a month ago.  Sometimes employers are afraid to say no, fearing that they could get in trouble for not documenting something.  Chances are you may not remember, and that is OK.  But if you want to be more proactive, when an employee comes to you and mentions an injury, no matter how insignificant it may be or however casual the conversation, you should always jot a note down and put it in his personnel file for future reference.  You do not have to do a full blown investigation at that time, but it is a good idea to get some general details and get some potential witness names, then go talk to those witnesses and see if Bill’s story checks out.  If you have that feeling that something isn’t right, file the claim and send him to your occupational clinic and have the doctor do an evaluation.  Chances are if this injury isn’t entirely legit, the doctor will release Bill from care without any work restrictions.  When this happens, it automatically derails Bill’s idea that he can bring this injury back up at a future date. 
 
 
 
Be a Proactive Listener
 
No matter what time of year, you should always be a good listener.  You spend a lot of time with your workers day after day, year after year.  You may already know the people that are avid in outdoor activities such as hunting, fishing, snowmobiling, etc.  You may know that Chuck has a cottage up north where his family goes a few times a year to hunt or vacation.  In addition, other workers may unintentionally spill the beans on their coworkers.  If you are in the lunchroom and hear a conversation between some coworkers about another worker “planning some extra time off around the holidays by saying they got hurt at work” then it is probably a good idea to make a note of that. 
 
Now this is not to say that you can deny a claim based on some hearsay you obtained one day a few months ago.  But, it may remind you that someone knew this was coming, and it certainly won’t help them try and pull the wool over the eyes of their adjuster that is handling the claim.  Little tidbits of info like that are priceless to an adjuster.  That information alone can be what it takes to get the adjuster to take an extra close look at the claim, and sometimes that is what you need in good overall aggressive claims handling.  Perhaps Bill really did get hurt, and if that is the case and all of his details check out, then fine.  But if not, and the claim is questionable, then you may have prevented financial leakage by paying for a work injury claim that was never work related to begin with.
 
 
 
Accommodate Work Restrictions
 
Nothing is better at stopping a mini-vacation from work like not being able to be off in the first place.  Your workers are not dumb.  They know by being around the work floor that anytime someone gets hurt, they are never back to work until they are fully released from their doctor.  This is ammo they can use against you down the road when it is their time to claim a work “injury.”  By being flexible and accommodating medical restrictions whenever possible, workers know that just because they may get injured it doesn’t mean that they will be off of work until the doctor releases them from care. 
 
One of the best deterrents against questionable soft tissue work injury claims is providing light duty work while they rehab from said “injury.”  Workers know that they cannot cash in easy time off of work just by claiming they are hurt, and the more examples they see of this the better.
 
 
 
Summary
 
The arrival of deer season will possibly create a spike in work comp claims around your workplace.  But by taking notes, gathering facts, being a good listener, and accommodating medical restrictions you can take a leg up on your potential workers planning an extended vacation to go bag their trophy buck.  In the end, these claims cost you money in the form of dollars spent and possible increased insurance premiums.  By following the guidelines above, you can keep these workers in check and focus on more important issues. 
 
 

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

VIEW SAMPLES PAGES

MODIFIED DUTY CALCULATOR:  www.LowerWC.com/transitional-duty-cost-calculator.php

 

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.

Ghost Policy May Be the Answer For Business Start-Ups

 

Business Start–Ups Can be Great Reason for Ghost Policy

 

Ghost policies, a comp policy for a business that has no employees and the owners opt not to be covered, seems to be aptly named – but why would anyone pay for  one?

 

Nearly always, they are purchased by the owner of a small business who is required to have a comp policy in order to get business from larger companies, even though the smaller company has no employees. But there is another good reason to have them – business start-ups.

 

 

Get It Before You Need It

 

When people start their own businesses for the first time, and have no employees, they realize that they do not have to purchase a comp policy, and few do. The problems start, however, when the very first “employee” is hired. Many people assume that the occasional part time helper, who may very well be a relative, does not have to be covered.

 

Such situations grow more dangerous with time and the occasional part time help might turn into a full time helper. Racing to get a policy for these people after an event is a sure invitation to up close and personal meetings with the labor bureaucracy. The solution is to start off with a ghost policy. The cost, fully tax deductible, is more than justified by the protection afforded.

 

 

Owner Only Policy is Another Option

 

There is also the owner only policy, plus a declaration that employees, if any should appear, are also covered. Owners of new businesses have many excellent reasons to cover themselves but, in an effort to hold down start-up costs, elect not to take it. But a comp policy, for the owner, is perhaps the best protection against serious injury during the start-up period, when a loss of earnings for even a few weeks can doom the start-up.

 

In addition, the policy comes cheaply, since the owner, to the chagrin of many new business owners, makes little or nothing in the first year. True, the wage loss benefits wouldn’t be great, but the medical protection would be. The owner also acquires the flexibility to hire relatives for casual work with full protection from lawsuits in negligence.

 

 

Many Small Family Businesses Have No Coverage

 

Every comp lawyer has received phone calls from small family businesses involved with an injury. Almost always, there is no comp policy covering the person injured – often the spouse or a child – and there is no viable negligence claim. If a younger relative, under age 26 in New York, is involved the comp policy would have covered wage expectancy – which would have made maximum comp rates possible, even though wages were a quite small. And many young business owners have spouses under age 26.

 

So the “ghost” can become a very guardian angel for new businesses.

 

 

 

Author: Attorney Theodore Ronca is a practicing lawyer from Aquebogue, NY. He is a frequent writer and speaker, and has represented employers in the areas of workers’ compensation, Social Security disability, employee disability plans and subrogation for over 30 years. Attorney Ronca can be reached at 631-722-2100. medsearch7@optonline.net

 

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
MODIFIED DUTY CALCULATOR:  www.LowerWC.com/transitional-duty-cost-calculator.php

 

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.

 

Maximize the Value of Your Pharmacy Benefits Manager

 

PBMs Can Be More Than Discounted Prescriptions
 
Insurers and self-insured employers often utilize Pharmacy Benefit Managers (PBM) to manage the cost of prescription medications in their workers’ compensation claims.  The contracts that PBMs have with the national drug store chains reduce the cost of each individual prescription given to an injured employee. Unfortunately, that is where many insurers and self-insured employers stop utilizing their PBM.  Often more, or even much more, can be done by insurers and self-insured employers to control the cost of medications.
 
 
Most Doctors Disconnected From Cost of Workers Comp Claim
 
Most doctors treating injured employees have little or no direct contact with the employers and adjusters handling the workers’ compensation claim.  The doctor’s office staff will handle all telephone calls, emails or faxes from employers, nurse case managers or adjusters. The limited contact the doctors have with anyone besides the employee will be brief discussions with the nurse case manager. For the most part, doctors work absent of any input from other parties involved in the workers’ compensation claim and are oblivious to the cost control activities on the claim.
 
The goal of the treating doctor is to assist the injured employee in regaining as much functionality as possible.  The treating doctor will normally prescribe all necessary diagnostic testing, medical treatment and medications without concern for the cost. 
 
 
Lack of Involvement Leads to Higher Costs
 
This lack of involvement in the cost of medications often leads the doctor to make medication choices that cost more, but are no more beneficial to the injured employee than alternative choices.  For instance – doctors will often write a prescription with the notation “DAW”.   DAW stands for ‘dispense as written’ which tells the pharmacist not to substitute a generic drug for the name brand drug.   As many drugs have a generic version that is biochemically and therapeutically equivalent, the DAW adds additional cost to the prescription, but does not provide any additional benefit to the injured employee.
 
The PBM should contact the medical provider’s office and inquire why the DAW is needed when there is a generic equivalent.  If your PBM is not doing this when the medical provider writes the prescription for the name brand drug, you should request they start doing so.  Also, a follow up letter should be sent by the PBM to the medical provider asking for all future prescriptions to be for the generic version of the medication.  If your PBM is not doing this, again you should request they do so.
 
 
PBM Should Push for Generics
 
If the medical provider continues to write prescriptions for the name-brand drugs when generic equivalents are available, a Letter of Medical Necessity should be generated by the PBM and sent to the medical provider before the PBM authorizes the pharmacist to dispense the medication.  The Letter of Medical Necessity will ask the doctor to provide documentation as to why the name brand drug must be used and not the generic equivalent.  Often there is no reason for the name brand drug other than that is what the doctor has always prescribed for the particular medical need.  When the doctor has to respond to the Letter of Medical Necessity, the prescription usually gets changed to the generic version.  This is not to say that there are no situations where the name brand drug is a better option.  The Letter of Medical Necessity does not dispute the use of the name brand drug, but does ask why.
 
If neither an inquiry as to why a prescription is written as DAW nor a Letter of Medical Necessity changes the behavior of the treating doctor, the employer, nurse case manager or adjuster should request a Peer-to-Peer Review, which may make a difference. 
 
 
Your PBM Should Have Medical Opinion to Review All Prescriptions
 
Your PBM should have on-staff, or at least on retainer, a doctor who can discuss with the treating doctor the reason a particular prescription is being written (especially with narcotics and other medications which are utilized on a long-term basis).  The treating doctor may have a valid reason why the more expensive (or most expensive) option is necessary.  The Peer-to-Peer Review will frequently result in the treating doctor recognizing that cost is a factor in the medical treatment, resulting in the treating doctor writing prescriptions that provide the needed medical care while controlling cost.
 
We recommend you confirm with your PBM they are questioning all DAW prescriptions, sending a letter to the doctor asking for future prescriptions to be generic, sending a Letter of Medical Necessity when generics are not used, and utilizing Peer-to-Peer Reviews when needed to control the cost of medications.
 
 

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

VIEW SAMPLES PAGES

MODIFIED DUTY CALCULATOR:  www.LowerWC.com/transitional-duty-cost-calculator.php

 

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.

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