Workers Comp E-Mod X-Mod Forecast Errors

Recently, I had come across some work from two so called Workers Comp "experts" that had guaranteed the accuracy of their E-Mod/X-Mod predictions for their client employers. I had thought this was interesting and decided to examine their predictions further.

The one obvious error in calculating the E-Mods/X-Mods for the next year is that these were magically performed at the end of the prior policy year. This will just not work. There is a date called the Unistat date that is the deadline for the reserves on the applicable files to be applied to the E-Mod/X-Mod calculations. The Unistat date is usually 6 months after the expiration of the last policy. To be entirely accurate, a consultant could as of today accurately calculate the future E-Mod/X-Mod for a policy that expired 5/1/09 to be applied to a policy that started on 5/1/10.

Why is the system set up that way? The six month delay is to enable the Workers Compensation adjusters to have time to assess accurate reserves on the files. The usually means to increase the files - rarely does it reflect many reductions. I am not for or against the Workers Comp Experience Rating System. It is the system we have in place.

This Blog Won Another Workers Compensation Award

This blog was recently named as one of the Top 25 Blogs on Workers Compensation for the 2nd year in a row by LexisNexis. We wish to say thank you to all of our blog and newsletter readers. J&L Risk Management Consultants and this blog could not have made the strides we have without you taking the time to read the postings. J&L and I have tried very hard to make this blog an easy quick read on a relevant topic. Once again - THANK YOU.

According to LexisNexis J&L's blog is "Well written and insightful, Cut Comp Costs Blog explains the nuts and bolts for how employers can reduce their premiums. If you’re an employer and want to connect the dots between politics and workers’ compensation and the impact on your premiums, Cut Comp Costs Blog is the place to start."

Premium Audits - Paying Manufacturing Rates For An Office Employee

Two weeks ago, I posted on how two computer programmers could be rated as manufacturing employees at the year-end premium audit. Unfortunately, I did not complete the next posting on the subject. I will go ahead and do that now.

Quite often, companies will make the honest mistake of having clerical employees end up in their highest rated classification. My prior example was of two computer programmers that had to cross through the manufacturing area in a plant to go on break. An insurance carrier in CA charged the company the full rate for the manufacturing classification code and not the computer programmer code. Was this proper?

No, it was not as the employees only went through the manufacturing area while on break. In CA, as other states, this would not cause the employees to be rated as manufacturing. The key here is they were on break at the time. If the employees had to cross through the manufacturing area for a job duty, then the premium auditor would have been correct to assign the manufacturing class code.

We see this situation occur on premium audits due to miscommunication between the auditor and the employer contact during the time of audit. How can this situation be avoided? I will post on that next time.

Compsource In Oklahoma - The Same Old Story

I have been traveling in Oklahoma over the last few days. One of the hot news items is that Compsource is looking to go private. Compsource is a quasi-governmental insurer of last resort for Workers Compensation for companies operating in only Oklahoma. They recently allowed companies with multi-state operations to be insured by Compsource.

As with SCIF in California, the sale of or conversion to a private company caused a great deal of confusion. For instance - are the employees of SCIF and Compsource actually state employees? SCIF in California was instructed to furlough employees, but a court decision said that could not be done with SCIF. Does the state actually have the right to sell off or convert the companies? There are many other states that are having to address these problems. It often seems that these quasi-governmental insurances are public or private as to which designation gives them the largest benefit. I cannot blame them as the governments look to wipe the slate clean, so to speak.

Removing Compsource as the insurer of last resort would be a mistake. The Workers Comp insurance rates in Oklahoma have long been stabilized by Compsource. The cost of business would increase dramatically if Compsource was disbanded, sold, or absorbed by another carrier. As I write this, I just read in the local newspaper that the whole Compsource mess is going to a hearing to have a judge rule on the future of Compsource.

Workers Compensation MSA Claims Monitoring

I received a question about how to monitor MSA claims for Workers Comp. Please check the last post for the definition of a Medical Set Aside or MSA claim. The best way to monitor the MSA - sometimes called WCMSA is to examine the thresholds.

The thresholds are:

• The claimant is currently a Medicare beneficiary and the total settlement amount is greater than $25,000; OR
• The claimant has a "reasonable expectation" of Medicare enrollment within 30 months of the settlement date and the anticipated total settlement amount for future medical expenses and disability/lost wages over the life or duration of the settlement agreement is expected to be greater than $250,000.

Whether your company has a traditional Workers Comp insurance policy or is self insured makes no difference on the monitoring of a possible WCMSA claim.

The first bullet point above is clear. If the injured employee is a Medicare beneficiary and the total settlement is $25,000 or greater, then your company has to have the settlement approved by the CMS.

The second bullet can be complicated. Our clients and companies that have contacted us have been confused about the term reasonable expectation that the employee will apply for Medicare within 30 months. The other area that is confusing is $250,000 level of future medical or lifetime medical.

The carrier or TPA is responsible to initiate the approval if they consider the claim to be a possible WCMSA. However the ultimate responsibility falls on the employer as is the case with most business insurance policies.

The simplest way is to request at policy renewal that all settlements of $25,000 or above have to be approved by you, the employer in writing. In fact, we advise most of our clients to make sure that all settlements of $10,000 or more have to be agreed to in writing by a designated person at the employer. Emails count as an approval.

This cuts down on any premium surprises at renewal and also allows the employer to be an additional checkpoint to make sure that the WCMSA Federal Laws have been satisfied.

Workers Compensation Claims and Premiums Are Already Federalized

I received a large number of questions on the subject of Workers Comp Medical Set Asides (MSA’s). The previous article on MSA's was the most popular article since I started this blog. I thought I would cover them again and include some of the rules and regulations from the CMS. The blog readers have spoken. This is one to print and keep for your records.

The US Department of Health and Human Services – Centers for Medicaid and Medicare (CMS) has issued a ruling many years ago. The ruling did and does not allow a Workers Compensation settlement to just dump all future benefit needs into the Social Security system to keep settlement values low. I will post more on this next time as this is a very long one to read – but it is critical to your Workers Compensation program. As they say – this is straight from the horse’s mouth.

All parties in a Workers' Compensation (WC) case have significant responsibilities under the Medicare Secondary Payer (MSP) laws to protect Medicare's interests when resolving WC cases that include future medical expenses. The recommended method to protect Medicare's interests is a Workers' Compensation Medicare Set-aside Arrangement (WCMSA), which allocates a portion of the WC settlement for future medical expenses. The amount of the set aside is determined on a case-by-case basis and should be reviewed by CMS, when appropriate. Once the CMS determined set aside amount is exhausted and accurately accounted for to CMS, Medicare will agree to pay primary for future Medicare covered expenses related to the WC injury.

Settlements Entered Into Prior to the July 23, 2001 ARA Letter Concerning WC Commutation of Future Benefits

(Ref: 7/23/01 Memo)

The CMS will treat WC cases that were settled prior to the issuance of the July 23, 2001 ARA letter concerning WC Commutation of Future Benefits in the same manner as those settled after the review threshold guidelines were established. This will be done regardless of when the settlement actually occurred. However, a reopening of claims (see 42 C.F.R. 405.750 and 405.841) that Medicare previously denied for these individuals will not be granted, nor will the CMS change any decisions already made with respect to settlements which pre-date July 23, 2001.

Additional Information: When the CMS issued the July 23, 2001 ARA letter, it established review thresholds for WC cases settled by injured individuals who are not yet Medicare beneficiaries. This was done in order to organize and prioritize workloads for its Regional Offices (RO’s) and to convey to its ROs that it is not in Medicare's best interests to review WC settlements that do not meet the review thresholds.

CMS Review Threshold

It is not in Medicare's best interest to review every WC settlement nationwide in order to protect Medicare's interests per 42 CFR 411.46. (Ref: 7/23/01 Memo Q1(c)) A WCMSA is not necessary when resolution of the WC claim leaves the medical aspects of the claim open.

A WCMSA may be submitted to CMS for review in the following situations:

• The claimant is currently a Medicare beneficiary and the total settlement amount is greater than $25,000; OR
• The claimant has a "reasonable expectation" of Medicare enrollment within 30 months of the settlement date and the anticipated total settlement amount for future medical expenses and disability/lost wages over the life or duration of the settlement agreement is expected to be greater than $250,000.

Next up - How To Monitor Your MSA claims

States Without Workers Compensation Medical Fee Schedules

After my last post, I received the question - Which states still do not have a fee schedule for their Workers Comp medical bills? After some research, I found out that there were now only five states left without a fee schedule. I did not delve into why they do not have one. I wanted to see if their medical bills were higher such as in the case of Tennessee before they enacted their modified fee schedule.

The five are:

• Iowa - was actually lower than the neighboring states with fee schedules
• Indiana - medical payouts were 33% higher than the median value.
• Missouri - were actually lower than the neighboring states with fee schedules
• New Hampshire - 73% of claim payouts were for medical, while neighboring states with fee schedules were at 49%.
• New Jersey - data is very hard to find on NJ as they have their own rating bureau.
• *Tennessee - even though they now have a fee schedule, their prior medical payouts were 36% higher than the median value.

This led me to research into whether these states have higher Workers Comp medical bill costs. What I found was that the states without a fee schedule were much more expensive than states with a fee schedule. Iowa and Missouri have both proved my theory as not completely accurate.

I could research the medical costs further, but for now I will just say that any state with runaway medical costs such as NH and IN should immediately enact fee schedules. As IA and MO have their medical costs under control, no fee schedule may be needed.

Workers Comp Health Costs Were Recently Controlled By A State Government

Most of the Workers Compensation data has shown that medical costs have been outpacing all other costs in Workers Comp claims. Medical costs are now approaching 60% of the total claim value in many states.

Many state governments have actually reduced Workers Comp medical costs by becoming more involved in the claim process. This is one instance of a program that is partially administered by state governments. I am referring to fee schedules. Fee schedules are one of the most efficient and effective methods to reducing Workers Compensation costs. All states that have enacted fee schedules in the recent past have experienced a reduction in the medical costs per Workers Compensation claim.

I had recently read an article in the National Underwriter that the state of Tennessee had lowered their Workers Comp medical costs significantly by $1,300 per claim. Stop and think for one moment. What individual medical charges would have been reduced the most by a Workers Comp fee schedule in Tennessee?

The major fee reductions per types of services were as follows:

• Outpatient
• Minor radiology – 15%
• Physical medicine – 12%
• Inpatient
• Minor radiology – 43%
• Major radiology – 34%
• Physical Medicine – 23%

These are very stark numbers. The state of Tennessee is to be congratulated on their efforts to help cut workers comp costs. Their medical costs are now more in line with the rest of the states with fee schedules.

There are definitely ways that a state government can aid employers in reducing Workers Comp costs. This is a prime example.

Workers Compensation Crimes

Last week, I posted on J&L being referred to as a rebating company in a presentation at the annual ISO conference. We, of course, are not a rebating company. Rebating is highly illegal. I received questions on what other crimes are involved with Workers Comp. I decided to cover some of the crimes that involve Workers Compensation premiums.

Rebating – An agent or broker “rebates” part of his/her commission back to the employer to obtain the employer as a client

Twisting – A person shall not make any statement that is known, or should have been known, to be a misrepresentation

· to any other person for the purpose of inducing, or tending to induce, such other person either to take out a policy of insurance, or to refuse to accept a policy issued upon an application therefore and instead take out any policy in another insurer, or

· to a policyholder in any insurer for the purpose of inducing or tending to induce him or her to lapse, forfeit or surrender his or her insurance therein.

· A person shall not make any representation or comparison of insurers or policies to an insured which is misleading, for the purpose of inducing or tending to induce him or her to lapse, forfeit, change or surrender his or her insurance, whether on a temporary or permanent plan.

Churning – Refers to the excessive buying and selling of policies by your broker, for the purpose of generating commissions and without regard to your insurance objectives.

Payroll Underreporting – An employer that intentionally does not report all payrolls to their insurance carrier or that pays wages in cash (under the table) to employees to subvert the Workers Comp premium process and the tax system. The IRS is cracking down very heavily on these employers.

Listing Employees as Subcontractors – An employer will list multiple employees as subcontractors as a method to avoid paying payroll taxes and workers compensation insurance. A quick test to see if the subcontractor is legitimate is by the subcontractor producing a certificate of insurance. The IRS has a list of very specific rules for the classifying between employees and subcontractors for taxing purposes.

Intentional Employee Misclassification – An employer intentionally lists an employee with a NCCI or state rating bureau classification code that results in a smaller premium for that employee.

Bid Rigging – Involves a conspiracy of brokers, advisers, TPA’s or insurance carriers to manipulate the market. There is a violation of antitrust and racketeering laws through a scheme that rigs bids for insurance policies and steering customers to certain carriers in return for payments or kickbacks.

A Sign Of Our Success - Being Named As Rebaters

I had heard many times of the saying "You know that you are successful when bad things are written about you." I am not sure of the source of the saying.

At a recent ISO national meeting, we were named as one of the 11 bad workers comp review companies that are basically spewing out untruths to make a profit. If I remember correctly, there were three premium auditors that worked on the presentation. They even had links to the "awful" websites/companies such as ours. I wonder if the ISO had thought to screen the presentations. The ISO is such a good organization to allow presentations such as this one.

They had a quote or two from the blog - of course without my permission - that said untoward things about the insurance companies. The comments of course were taken completely out of context. With almost 360 blog posts, taking a part of one sentence and holding it up to the light does not make much sense.

The one thing that concerned me is that we were identified as rebaters. Rebaters used in this sense is a totally inaccurate term. Rebaters are agents or brokers that will refund back part of their commission to a client to be able to sell the client a policy. As all of our web pages point out at the bottom, we do not sell insurance. One has to wonder how accurate these auditor presenters are on their audits if they actually had professed that we were rebaters which is totally the wrong term. Rebating is an illegal act in the insurance world.

Please note that we are not rebaters in any way or form. We review Workers Compensation policies and reserves for statistical inaccuracies that may result in overcharges for employers. We do these reviews on a contingency or hourly basis. We also are expert witnesses on premium disputes. We often do performance file reviews for Self Insureds.

I wonder what the next inaccurate bad press will say about us? I hope they at least check the definitions of the words they are including in their articles.

The Federal Government Has Been Heavily Involved in Workers Comp For Years

I have posted often in the last few weeks in reference to how and why the Federal Government has been pushing to enter more regulations on Workers Compensation insurance including 24-hour healthcare coverage and a federal insurance office.

I have not commented on how the Federal Government has affected almost all Workers Comp claims that have a settlement value of more than $25,000. A few years ago, the CMS (Centers for Medicaid and Medicare Services) issued a regulation that all Workers Compensation settlements of more than $25,000 have to be APPROVED by their offices. This caused an incredible logjam on getting cases finalized.

There are at least 10 major companies that have entrepreneured the business of assisting claims offices in getting the CMS to approve the Workers Compensation settlements. I have assisted no less than 15 investment companies in examining this market as a place to invest large amounts of cash. This is one of the hot ancillary service marketing areas in Workers Compensation today.

The rejection rate was supposedly calculated by the CMS at 28%. The CMS even issued a recent guide on how to get the Medicare Set Asides (MSA's) approved by their offices. I do not fault the CMS for being more involved as quite often there is an interfacing of Social Security/Medicare benefits and Workers Comp settlements.

The main reason I posted on this situation is to let all my blog and newsletter readers that the FEDERAL GOVERNMENT IS ALREADY HEAVILY INVOLVED IN WORKERS COMP today. I have heard some of the Workers Comp pundits say that there is a long leap between the current Workers Comp system and a federalized one.

One does not have far to leap if one is already there.

Workers Compensation Could Be In Trouble With This Senate Bill

Last week, I posted on 24 hour coverage and its negative effects on the Workers Compensation process. I had thought that bill would be the last we would hear of any federalization of Workers Comp and that the bill would not even make it to a vote. I was wrong as the following came across the wire yesterday evening.

The chairman of a key House subcommittee has released draft legislation that would establish a new Federal Insurance Office within the Treasury Department. Rep. Paul Kanjorski, D-Pa., who chairs the House Financial Services Committee’s Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, unveiled the Federal Insurance Office Act of 2009 on Thursday. According to the draft language, the Federal Insurance Office would have the authority to monitor all aspects of the insurance industry and assist the Treasury secretary in administering the federal terrorism insurance program.

In addition, the new office would coordinate federal efforts and establish federal policy “on prudential aspects of international insurance matters” and determine whether the International Insurance Agreements on Prudential Matters pre-empt some state insurance measures. The document resembles earlier bills introduced by Rep. Kanjorski to set up a Federal Insurance Office within Treasury. The full committee is slated to hold a hearing Oct. 6 on the draft legislation and other regulatory reform draft bills.

With bills being introduced over and over again to federalize Workers Compensation and all insurance lines, the subject is just not going to drop. I suggest contacting your Senators and State Representatives as this legislation could harm the Workers Comp landscape that is handled very well on a state-level basis.