You May Be Doing The Right Thing And Still Paying Too Much Workers Comp

 

Wrong Job Classification Codes Costs Employers Money
 
Employers who have a complete safety program, proper medical management of their workers’ compensation claims and a strong return-to-work program can overpay for their workers’ compensation insurance if they (or their insurance broker or their insurance company) make a simple mistake.  The use of the wrong classification code(s) for their business is a simple mistake that has cost a lot of employers excessive workers’ compensation premiums.
 
The National Council on Compensation Insurance (NCCI) is the insurance data and rating bureau used in 38 states to set insurance rates.  The 12 other states either utilized a modified version of the NCCI classification codes or have their own classification codes. The NCCI has over 700 classification codes to describe the work done by businesses.  Some states that use their own classification codes, and not the NCCI codes, have in excess of a 1,000 codes. [WCx]
 
 
Class Codes Are Job Definitions Used by Insurance Company
 
Classification codes are basically a list of job definitions used by the insurance company underwriters to describe your business and to place your business in a group of businesses that do the same type of work.  The classification codes are a four digit number with a job description definition assigned to each number.  The classification codes are used by all insurers writing business in the state.
 
Classification codes are used for several reasons including:
 
·         Employers within the same industry have similar exposure to risk of loss
 
·         The cost of workers’ compensation can be fairly distributed among employers
 
·         Large employers with many different types of operations and many different types of employees would be impossible to rate accurately if every employee or every occupation was individually rated
 
·         The classification of employers promotes safety, as the employers knows they are being compared to other employers in the same business
 
Every Code Assigned Rate Used to Calculate Premium
 
Every classification code will have an assigned rate that is used to calculate the workers’ compensation premium.  Improper classification of a business can result in the wrong rate being used to calculate the premium. 
 
 
3 Occurrences to Select Wrong Code
 
Insurance Broker
 
The errors in classification codes occur most often with the insurance.  Unless the broker is both very well versed in the 700+ classification codes AND has a very good understanding of the nature of your business, the broker may select the wrong classification code.  The wise broker will ask the prospective client various questions designed to establish the types or work performed by the employer and the exact nature of the employer’s business.  Based on the answers provided by the employer, the broker will assign a classification code for the business. [WCx]
 
 
Insurance Company
 
A second point in the process where the employer may receive the wrong classification code is when the insurance company underwriter reviews the new coverage application.  If the underwriter concludes the broker used the wrong classification code, the underwriter will change the classification code to the code the underwriter believes is a better match in describing the nature of the insured’s business.  Of course, the underwriter can make the wrong selection as well, resulting in the employer being charged the wrong amount for the workers’ compensation insurance.
 
 
Insurance Company Auditor
 
A third point where the wrong classification code can be assigned to the employer is when the insurance company performs a premium audit after the policy period has ended.  If the insurance company auditor reviews the policy application information and determines a different classification code should have been used, it again can be changed.
 
 
Hire Premium Auditor If You Have Concerns
 
If you as the employer have any concerns about whether the correct classification code is being used, you can hire an independent premium auditor to verify the accuracy of the premium you are being charged.  As premium auditors normally work on a percentage of the savings basis, the employer who is concerned that an incorrect classification code (or other errors have been made in the calculation of the work comp premium) should hire an independent premium auditor.  For assistance in locating a premium auditor, please contact us.
 
 

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

 


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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.

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.
 
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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.
  
 
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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

To Audit or Not to Audit – One Company’s Experience with Internal Claim File Auditing

How It Got Started

In 1999, the manager of the casualty claims supervisory office of a large national third-party administrator (TPA) was dismayed at the poor quality of claim file handling in the field branches. In 1995 the same manager was a part of the team who established the Best Practices for the TPA to use nationally. While the Best Practices were provided to the branch offices, most of the branches were still doing it their own way.

 

The manager made a recommendation to senior management in the Home Office for an on-site file inspection at some of the worst performing offices.   The idea was simple, identify and correct the claim handling errors before the clients saw them. The recommendation was declined.   The senior management attempted to correct the branch offices quality problems by sending memos out to the branches to do better.

 

By early 2000 several large self-insureds, Fortune 500 companies, complained to the TPA’s senior management about the poor quality claim service and threatened to take their claims elsewhere. Several of the Fortune 500 companies plus two major insurance companies hired independent claim auditors or sent their own staff auditors, who all confirmed the poor quality of claim handling.

 

After a multi-million  dollar account walked out the door, senior management sent more memos to the branches marked “urgent.” After a second Fortune 500 company left, the Senior Vice President of Claims finally realized memos, no matter how urgent, were not going to correct the problems.   The Senior VP contacted the manager who had the idea of doing internal file inspections to identify the problems in the field. The manager was promoted to Quality Assurance Manager and given the responsibility of performing internal file audits.

 

How To Do Internal File Audits

The new Quality Assurance Manager spent a week in each of the three offices expected to have the worst file quality. The initial report on each office reflected coverage was not being verified, initial contacts were not being made, file investigations were incomplete or even nonexistent, and claim settlements were usually initiated by the claimants.

 

While the already known poor quality was confirmed, a way of quantifying the results was needed.

 

Using samples from the external auditors audit sheets, the Quality Assurance Manager created his own audit sheet.

 

Using the Best Practices created five years earlier, an audit score sheet was designed to reflect whether or not the Best Practices were being used for coverage verification, initial contacts, investigation, data accuracy, indexing, settlement evaluation, etc. A number of points were given to each category with the total points for all categories equaling 100 points or 100 percent. A computer program was created to compile the scores from each claim file audit sheet into an overall score in each category, and an overall score for the entire audit.

 

The First Internal File Audits

The Quality Assurance Manager quickly realized one auditor was not going to be enough to audit all the branch offices on an annual basis. The Quality Assurance Department quickly grew from the one Quality Assurance Manager in 2000 to six auditors in early 2001.

 

The auditors, individually and as teams, performed claim quality audits on each of the branches. As the word got around that the Home Office was now serious about improving file quality, some of the branch managers started working with their claim staffs to improve claim-handling quality. Some of the branch managers continued to ignore claim-handling quality.

 

Each audit gave a percentage score and the score was given to the branch, the regional claims management and to the senior staff. After the first round of branch audits, there were a few branches scoring in the 95+ percentile, and there were several branches scoring in the 50+ percentiles. A score in the 50+ percentile reflects only about half of the work that should have been done on the claim files was actually done.

 

Who Needs Quality?

Due to the poor quality of claim file handling by the branch offices, by 2001 national and regional accounts were abandoning theTPA almost every day. Revenue for the corporation was declining rapidly and the stock market price for the corporation declined even faster.

 

With clients leaving due to the poor quality service, the number of new claim files coming in also sharply declined. Instead of working to improve the file quality on the new claims being received, the company took a different approach. In a very short-sighted effort to improve the financial bottom line, the TPA started laying off staff. In April, May and June, 2001, over 250 employees including branch managers, adjusters and clerical were terminated.

The Quality Assurance Manager and the entire Quality Assurance Department was terminated.

 

Turmoil Sets In

One of the large offices for the TPA promoted a woman from financial clerk, where she issued clients checks in payment of medical bills and claim settlements, to the position of adjuster trainee. The manager left the new adjuster trainee with the ability to continue to issues checks so she could be a back-up to the new financial clerk.

 

An adjuster able to request the issuance of a check and issue the check was a clear breach of the TPA’s check handling guidelines. Sure enough, the new adjuster was soon issuing client’s checks to her family and friends. It did not take long before a national account noticed the unauthorized payment of a phony claim.

 

The Quality Assurance Manager who was terminated on a Friday in June, 2001 received a call from his former employer’s Legal Department, the following Tuesday. The Legal Department hired the  former QA Manager as an outside consultant to audit the office of the adjuster issuing the unauthorized checks. Two months and two thousand files later, the TPA was able to identify all unauthorized payments made by the former adjuster and reimburse the clients’ accounts. This incident reinforced the need within the TPA for an internal file auditing system.

 

The Second Round of Internal File Audits

The former QA Manager worked as a consultant for his former employer until January of 2002 when the TPA realized they still needed to deal with the issue of poor claim file quality. He was then rehired and the internal auditing of the branch files was reestablished.

 

The internal file audits of 2002 reflected the same poor quality of claim handling as the internal audits of 2000 and 2001. The same adjusters (those surviving the mass layoff) producing poor quality in 2000/2001 were still producing poor quality in 2002. The same offices that were poor performers in 2000/2001 were still poor performers in 2002.

 

The Toothless Tiger

From the audits done in 2002 it became clear to the auditors that just doing an annual file quality audit was not going to change the behavior of poor performing adjusters and poor performing branches. It was now up to the senior management of the TPA to take actions as internal file audits without consequences were not changing the behavior of the poor performers — the file quality was still poor. The TPA’s internal file audits had become “a toothless tiger”. . . a lot of roar but no bite.

 

The Tiger Gets Teeth

In 2004, the TPA’s senior management questioned the need to continue to do the internal audits if nothing was improving. The Quality Assurance Department convinced senior management to incorporate the internal file audit scores into the performance evaluations of the branch managersbranch supervisors and adjusters. This entailed an expansion of the number of internal auditors, but every branch and every adjuster was now being audited and graded on their work product by the Quality Assurance Department.

 

As soon as the quality of the work product was the largest part of the performance evaluations and tied to pay raises (and bonuses earned by management), the quality of the claim handling started improving. The improvements in quality were so dramatic that in 2005 only two branch offices out of over 300 offices had a performance grade under 80%. (workersxzcompxzkit)

 

Summary

The quest for superior quality continues at the TPAs of the world. The internal file audit process is firmly established. While the internal file audit process is not a cure-all for all the problems facing any large claim organization, it has made a tremendous difference in the claim handling file quality at the TPA discussed above.


Author Rebecca Shafer, J.D.
, Amaxx Risks Solutions, Inc. has worked successfully for 20 years with many industries to reduce Workers’ Compensation costs, including airlines, health care, manufacturing, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing. She can be contacted at: RShafer@ReduceYourWorkersComp.com or 860-553-6604.


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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

 

 

Find Out Four Keys to Workers Comp Cost Reduction 79 Percent

Trinity International Corp.,  a holding corporation for 89 other and various companies, recently reduced incurred workers’ compensation losses by 79%; medical costs by approximately 50% and 99% of injured employees returned to work within 10 daysTrinity teaches its divisions to manage claims internally, returning employees to work as soon as medically able.

One of Trinity’s  secrets in reducing work comp costs so dramatically was they actively involved their insurance carrier to help them return injured employees to their jobs.  Containing the costs of workers’ compensation requires teamwork on the part of all parties involved.  Trinity educated their broker, third-party administrator, insurance company and, more importantly, each of their companies so everyone understood the program and knew Trinity wanted employees back at work as soon as medically possible.  It became known the corporation was willing to go to great lengths to place employees back into the work force, and their assistance in this effort was required.

Trinity redesigned  its insurance program so all auxiliary services provided by outside vendors fit together into the company’s total program. The program is designed to be a vehicle for these services.  Trinity also has implemented very detailed set of account instructions. The corporation approves all claims’ settlements, and written status reports on all claims over $10,000 are required every 30 days.  The company follows other cost-cutting guidelines.

1-File Audits

All workers’ comp  files are audited twice a year to develop a strategy to resolve not just to review each claim, These audits consist of face-to-face meetings between the company representative (usually the personnel director and general manager), the insurance company file adjuster, the insurance company supervisor, the insurance broker and the physician consultant.  Meetings are followed up with a written strategy plan to ensure each party understands the action they’re responsible for implementing.

2-Investigation and Surveillance

Each accident is  investigated in the plant immediately after it occurs, to determine the root cause and identify corrective measures. In addition, claims with  “red flags,”  or considered questionable, are investigated by professional investigators to determine whether the extent of the injury is legitimate or is being exaggerated.

Trinity recommends companies budget 5% to 10% of the total cost of the claim for surveillance.

3-Safety Management

No workers’ compensation  cost control program is complete without an effective loss control program and an in-plant safety program. While Trinity has what it considers a good loss-control program, it also realizes there will be comp claims and management must be prepared to manage properly these inevitable claims.  Trinity advises companies to utilize the services of their broker or their insurance carrier’s loss-control subsidiary or division, when available.

Also, employers  should have loss-control inspections at every facility several times a year. Not only do firms review workers’ comp claims and safety procedures regularly, but also they need an active safety committee, a workers’ comp coordinator and a safety incentive program.

4-Performance Goals

Trinity measures program results in three ways.

1.  OSHA Severity Rate:   The company tries to keep the below 40/100, a formula derived by using the number of lost work days, depending upon risk or exposure. (workersxzcompxzkit)
2.  Return-To-Work Ratio Goal: Trinity has an RTW ratio goal of returning 70% to 90% of injured workers to work within 10 days following an injury.
3.  Cost Per Employee: The company strives to keep its CPE below $150 per employee.

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, health care, manufacturing, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing. He can be contacted at: Robert_Elliott@ReduceYourWorkersComp.com or 860-553-6604.

Podcast/Webcast: How To Prevent Fraudulent Workers’ Compensation Claims
http://www.workerscompkit.com/gallagher/podcast/Fraudulent_Workers_Compensation_Claims/index.php

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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.

©2009 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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