Over Reserving — Or How to Impress the Boss

The claims quality control auditor noticed something unusual on the first file of the workers compensation claims audit. The auditor quickly realized the error he noted on the first claim file had been made on the second file, third file…….every file in the audit. It was a very unusual error, too. Every claim file was grossly over reserved, not just within the margin of being overly cautious, but on average four to five times the amount of total reserves that would normally be needed.
 
 
The claims office was operated by one of the largest third party administrators (TPA) in the country with an odd exception. The exception was the claims manager who was an employee of the self-insured employer. Everyone in the claims office – approximately 40 employees, who were employees of the TPA, reported through the office chain of command to the claims manager. (WCxKit)
 
 
In the first file reviewed where the claims auditor first noticed the over reserving, the claimant had a crushed finger. As the state where the injury occurred had a chart for Scheduled Injuries for limbs, hearing and vision, the maximum the self-insured employer could pay on the claim per the Schedule of Injuries for the state was $10,220.   The indemnity reserve? $50,000. A back injury with a 10% rating had a $500,000 reserve. An ankle sprain had a $200,000 reserve.   What the heck was going on?
 
 
In interviews with the staff, the claims auditor learned the claims manager was providing the reserve amount he wanted on every indemnity claim. In a discussion with the claims manager, he stated he had been instructed by his boss back at the self-insured employer to make sure there were adequate reserves on every claim. It became apparent to the auditor that the claims manager, who was put in charge of the work comp claims office, had only basic knowledge of workers compensation. All of the work comp adjusters realized the reserving was way high, but were following the manager's instructions. 
 
 
The auditor realized that the gross over-reserving was causing the self-insured employer to have way too much money set aside for the workers compensation claims. Instead of the approximate $25 million they needed in reserves for their indemnity claims, the company had over $110 million in indemnity reserves. The extra $85 million in reserves was a substantial amount of cash for the self-insured employer. So much in fact, that the self-insured employer was borrowing money to meet its other financial needs to operate their business.
 
 
The claims auditor took the unusual step of contacting the Chief Financial Officer (CFO) to see why the self-insured employer was grossly over reserving every claim file. It did not take long for the claims auditor to realize the CFO (and for that matter, the entire senior management of the self-insured employer) knew nothing about workers compensation or the operation of a claims office.
 
 
The CFO was ebullient in his praise of the workers compensation claims manager, stating “he does a fantastic job of managing the work comp claims, he gets almost every claim settled for 20 to 25% of what they would normally cost.” When the CFO was questioned about his knowledge of work comp, he admitted he had none. In further discussion, it came to light that the CFO was determining what they would normally cost  by the amount of reserves set on each claim file!
 
 
The claims office manager who reported to the CFO was intentionally overstating the reserves on each work comp indemnity claim. His purpose? Simply to look good and impress his boss on what “ a fantastic job” he was doing in managing the claims office.   In reality, the TPA's claim staff was doing an adequate job on the claims, but not a fantastic job by any means. On average, the work comp claims were settling for what they worth.
 
 
The claims file auditor, seeing that neither the claims manager nor the CFO had an understanding of how the gross over reserving was impacting the ability of the self-insured employer to manage their company's financial operations, realized something needed to be done. The auditor decided to assist them without embarrassing the claims manager for his intentional over reserving or embarrassing the CFO for his lack of understanding of what was happening.
 
 
The auditor invited the CFO to attend the audit wrap-up session with the claims manager. In the wrap-up discussion, the auditor noted on average, the claims were consistently settling for 20 to 25% of the reserve amount. The auditor asked the claims manager if there was any reason the office could not continue to settle the work comp claims as they had been doing. The claims manager acknowledged they should be able to continue to settle the work comp claims along the same lines as they had been doing. The auditor recommended that since the claims were almost always settled for less than 25% of the reserve amounts, that the reserves across the board be reduced by 75% each (which left all the files adequately reserved for their ultimate settlement value). (WCxKit)
 
 

The CFO was ecstatic to learn they could move $85 million from the work comp claim reserves into their operations cash. The claims manager smiled (an unhappy forced smile) knowing from that point forward he would have to impress his boss by actually accomplishing something rather than playing games with the claim reserves.


Author Rebecca Shafer
, JD, President of Amaxx Risks Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker and website 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.  See www.LowerWC.com for more information. Contact:  RShafer@ReduceYourWorkersComp.com or 860-553-6604.

WORK COMP CALCULATOR:   http://www.LowerWC.com/calculator.php
 
WC GROUP:  http://www.linkedin.com/groups?homeNewMember=&gid=1922050/
SUBSCRIBE: 
Workers Comp Resource Center Newsletter

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.

©2011 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact
Info@ReduceYourWorkersComp.com.

Three Types of File Organization Claims Auditors See

When a claims file auditor reviews a claim file for the first time, the claims auditor will normally see one of three types of file organization.  
 
The three types of file organization are:
 
1.      The jumbled mess.   In the jumbled mess file, there is no organized approach to the file. File documentation has been added haphazardly with medical documentation mixed with state forms mixed with claim investigation mixed with indemnity documentation, etc. The adjuster is relying on memory to handle the claim as locating anything in the file is very time consuming. Fortunately, the jumbled mess is becoming a dinosaur as most companies are now using computerized files where the computer programming sort documentation into varies types (though some careless adjusters can make even computerized files a jumbled mess by placing documentation in the wrong category).
 
2.      The chronological file. In the chronological file, everything is in the date order by when the file documentation was received. The chronological file can be either with the most recent information on top (paper files) or first displayed (electronic files), or with the oldest information on top (paper files) or oldest information displayed first (electronic files).
 
3.      The organized section file. This is the claims auditors dream. The file is broken down into clearly identified sections for claim investigation documentation, medical documentation, indemnity documentation, state forms, hearings & legal documentation, medical management documentation, vocational rehabilitation documentation, etc. The documentation is in each section is then organized by date or other clearly identifiable procedure.
I don’t think there is any good outcome to sloppy file handling where one losses details that may be necessary for defense in the future. A neat, orderly file allows you to hand off the file to another employee for additional handling. This is critical to department efficiency. Short term thinking where things are tossed randomly into the file without any organization will ultimately cost more. You might save time the first time you toss something into the file, but next time you need it then have to hunt it will take TWICE the time and if you are looking for a detail to give your defense attorney or your medical advisor to allow them to create a detailed IME cover letter, having those details is necessary.


Author Rebecca Shafer
, JD, President of Amaxx Risks Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker and website 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. www.LowerWC.com Contact:  RShafer@ReduceYourWorkersComp.com .


WC IQ TEST:  http://www.workerscompkit.com/intro/

WORK COMP CALCULATOR:   http://www.LowerWC.com/calculator.php
 
WC GROUP:  http://www.linkedin.com/groups?homeNewMember=&gid=1922050/
SUBSCRIBE: 
Workers Comp Resource Center Newsletter

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.

©2010 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact
Info@ReduceYourWorkersComp.com.

Audit Finds Mismanagement of Workers Comp Claims in Los Angeles

According to a recently released audit, mismanagement of workers compensation claims in Los Angeles by the City Attorney's Office could be costing taxpayers millions of dollars. (WCxKit)

The Daily News
was reporting that the audit — which former City Attorney Rocky Delgadillo tried to stop by suing then-City Controller Laura Chick — discovered that during his administration, the Workers Compensation Division referred only 4 percent of claims to fraud investigators when the industry standard is 17-21 percent.

The lack of
oversight could be costing the city $5.4 million a year in benefits that should never have been transferred, according to the audit.

The division
was also cited for collecting only 6 percent of the claims to which the city was entitled, potentially keeping the city from approximately $3 million in revenue each year.

Another $1-2 million
is potentially going without collection due to a practice of adjusting disability payments to mask errors committed by the Personnel Department, according to the audit.

Finally, the audit
discovered that the division used some 5.8 years to resolve cases, when the industry standard is a year or two. One case had been open for more than 20 years before being closed, according to the audit. The delay was attributed in part to the division being understaffed. (WCxKit)

The auditors
reported that the City Attorney's Office persuaded the City Council to hire lawyers and investigators to handle workers comp cases, but actually had them undertake other duties.

Author Robert Elliott
, executive vice president, Amaxx Risks Solutions, Inc. has worked successfully for 20 years with many industries to reduce Workers Compensation costs, including airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing. Contact:  Info@ReduceYourWorkersComp.com or 860-553-6604.
 
WORK COMP CALCULATOR:   http://www.LowerWC.com/calculator.php
 
WC GROUP:  http://www.linkedin.com/groups?homeNewMember=&gid=1922050/
SUBSCRIBE: Workers Comp Resource Center Newsletter

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.
 
©2010 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact Info@ReduceYourWorkersComp.com.

Outside Reviews Too Frequent and Costly North Dakota Work Comp Director Says

North Dakota's workers compensation director claims outside reviews of his agency are happening too often and proving expensive.The review cost approximately $230,000, and took a lot of staff time.
North Dakota law states the performance reviews of Workforce Safety and Insurance must be done every two years. Auditors focus on specific issues and put together reports for state legislators to review. (WCxKit)
According to Businessweek.com, WSI director Bryan Klipfel states it would be better to have reviews for a period of every three or four years. Klipfel claims sometimes the agency barely has time to digest one set of recommendations when it has to begin preparing for yet another review.
Klipfel said this year's review by the Sedgwick Claims Management Services firm was overall positive and confirmed that WSI was managing injury claims correctly. (WCxKit)
  \ 
Author Robert Elliott,
 executive vice president, Amaxx Risks Solutions, Inc. has worked successfully for 20 years with many industries to reduce Workers’ Compensation costs, including airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing.  Contact: Robert_Elliott@ReduceYourWorkersComp.com  or 860-553-6604.
  
 
Work Comp Calculator:  http://www.LowerWC.com/calculator.php
RTW Calculator:  http://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.
  
©2010 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact
 Info@ReduceYourWorkersComp.com

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