Workers Compensation And The New Federal Insurance Office (FIO)

I have received questions on the newly legislated Federal Insurance Office (FIO). I mentioned it as a probable part of the federalization of Workers Comp and other lines of insurance. The FIO will be involved with Workers Comp as the bill does not delineate any line of insurance.

On Dec 2, 2009, a FIO was quietly established in a financial reform package passed by the House Financial Services Committee. The key committee passed H.R. 2609, the Federal Insurance Office Act of 2009.

I found it interesting that the Committee was introduced as not having any regulatory authority over the business of insurance and would not be able to override state insurance laws. I find that very hard to believe. The FIO is overseen by the U.S. Treasury Department. Within the Treasury Department, of course, is the Internal Revenue Service (IRS). Would this bill give the FIO the power on the level of the IRS?

The FIO was established to address two major areas that have been the focus of criticisms of state insurance regulation.

1. To establish a knowledge base or informational source in Washington, D.C.

2. Assist state insurance regulators in representing the United States in multilateral insurance discussions or entering into binding international agreements.

Let's now look at what the revisions of the bill and what was altered or removed to satisfy all parties.

1. The bill now contains specific language that the bill does not establish a supervisory or regulatory authority over the business of insurance and bars the FIO from pre-empting state insurance laws governing rates, premiums, coverage requirements, antitrust laws, underwriting or sales practices.

2. The committee also amended the legislation to clarify that the definition of "insurer" under a mandatory data collection provision does not include insurance agents and agencies.

3. The subpoena authority given to the FIO under the administration's proposal also was removed. In the version passed by the committee, the FIO can request data from an insurer only after first checking with state regulators and the National Association of Insurance Commissioners that the required information is not already publicly available.

I am sure that with the passage of time and as the FIO begins to grow under the same agency that is over the IRS, the FIO will expand its powers. We have seen this often where agencies start small, gain power, and then regulate more and more with new legislation. I think that 1 - 3 above will likely be reconsidered over time.

I have been often questioned and debated over my view that Workers Comp and other lines of insurance will be federalized. If one looks at the CMS posts that I have written, Workers Comp has already been federalized. What if the CMS provides their data to the FIO and vice-versa? All it would take is a sharing of databases.

Best's Directory Recommended Us Again for 2010

We were once again named to Best's Directory of Insurance Expert Service Providers for 2010. We were also named to the directory in 2009. Along with our two awards from LexisNexis, the blog and our company have been awarded four times in the past two years.

I am always trying to improve the blog. Please notice that we have no advertising on the blog. We have not monetized this blog as I want it to be an open source of cutting edge Workers Compensation information for all parties.

PLEASE email or call us with suggestions. My direct line is (800) 813-1386 Ext 701. My email address is jmoore@cutcompcosts.com. You may also text me at 919-495-1917.

Medicare Set-asides - The Federalization of Workers Compensation

I have posted often on this subject lately as I think we are seeing the trees. I want to try to examine the forest in the Workers Compensation environment on this subject. The Center for Medicare/Medicaid Services (CMS) and Medicare Set-asides (MSA) are beginning to reach a fever pitch judging from some of the blogs and newsletters that I subscribe to for daily Workers Comp information and news.

The State of Maryland has now made MSA's mandatory for all Workers Comp claims. I think we will see more of this type of state legislation which is really federal legislation enacted by the states.

Congress is now debating a bill that would remove antitrust status for ALL health insurance carriers. Workers Comp cannot be that far behind. In my opinion, this is a disastrous move that will be borne by taxpayers and premium payers.

Some carriers and TPA's have already been contacted by CMS contractors (shudder) to make sure their lien is protected. This is very early in the process for contractors to already begin contacting carriers and TPA's.

We now have many trees in which to make a forest - The Complete Federalization of Workers Compensation. When I advise employers, investment companies, investment advisors, and other firms on Workers Compensation I have always input into the conversation the fact that Workers Compensation is going to be eventually federalized.

Oh, and I almost forgot. The recent financial package passed by Congress ENACTED A FEDERAL INSURANCE OFFICE (FIO). I will post on that soon. We now have two federal bureaus, the CMS and the FIO that have been collecting data from Workers Comp insurance companies payments made on Workers Comp claims. Are you now seeing the forest?

I could take that data and analyze it in so many ways that it would make it much easier to see patterns in the data to possibly make more rules and legislation. Could a federal agency use the data they are collecting for other means? I will leave that one to you and the trees and the forest to answer.

Monopolistic Washington's Workers Comp System - The Next To Fail?

An internal audit by the State of Washington's Workers Compensation Department of Labor and Industry (L&I) may be the start of another Workers Comp system converting from a monopolistic system to a private system. West Virginia recently converted their state-run system into a free market.

Washington's L&I issued an immediate press releases indicating that their monopolistic system was doing fine. There was a large draw on the contingency reserve which according to the L&I was a normal course of business that has occurred numerous times in L&I's history.

Regardless of the type of Workers Compensation, a very low contingency reserve will cause the respective state's Department of Insurance to immediately put the insurance company into receivership or at least into a probationary watch period. The Insurance Commissioner will not allow a carrier with inadequate contingency reserves to write any more coverage.

I will review the auditor's report and post my opinion next time.

Premium Audits - 10 Things To NOT Do

As most Workers Compensation policies renew on January 1st of each year, I thought I would post on what NOT to do from the time that the premium auditor calls to set up an appointment to the time your company receives the premium audit bill.

1. Ignore the premium auditor's request for appointments. The premium auditor can assess a severe state-mandated penalty for not setting an appointment. This will also cause the auditor to raise a yellow/red flag of what is the company trying to hide?

2. Keep changing the premium audit appointments at the last minute. See #1.

3. Just handing the auditor a big pile of records and letting he/she sift through them. See my last post on what to do for record presentation.

4. Being argumentative with the auditor. Please remember that this person is just doing their job.

5. Not asking questions of the auditor. The worst time to discover a premium auditor's opinion/thoughts is when you receive the premium audit results and billing. They are supposed to answer your questions as much as you owe them answers.

6. Ignoring the premium audit results or bill. Your state may have a specified time limit on how long you have to question the premium audit bill. If you wait too long, you will owe the bill.

7. Just writing a check. We see this so many times. The business owner or risk manager sends the check with the premium audit bill even though they may have questions. Question the auditor while they are at your business or when you receive the bill. Your company loses a large amount of leverage once the bill is paid.

8. Letting the audit bill sit on your desk. If your company cannot afford the premium audit bill, call their billing department immediately. Insurance carriers are somewhat flexible if you contact them early in the process.

9. Using the dispute process as a way to lengthen the time to pay. Always make sure that your point of dispute is solid. If you feel you have been overcharged, it may be a good time to call in an expert.

10. Not documenting everything. Always follow up a phone conversation with a letter, email or fax. Document all phone calls.

These are not all of my recommendations on handling the premium audit process. Most of these items came from premium auditors. The main thing to remember is for your company to not stand out from other companies.

Workers Comp Audits - Five Ways To Prepare

If you are a company that is large enough to not self-report your Workers Compensation payroll, you will experience the insurance company audit process. There are many ways to prepare for an audit. I will list five that will make the process smoother for your company and the premium auditor.

1. Organize your payroll using back up reporting to justify all payroll. QuickBooks and any other accounting package will be a great way to provide the premium auditor with concise and organized reports. Making the auditor's job easier will always increase the accuracy of your Workers Comp premium.

2. Have a designated person to answer all of the premium auditor's questions. That person should be present the complete time the auditor is at your place of business. This will enable the auditor to receive consistent answers and have a "go to" person for follow up questions or request for more information.

3. Do not have the audit off-site. This is one of the main reasons that we find inaccurate premium audits. Your accountant's office may not help the auditor with figuring out what you do in your business. A plant tour is usually a good idea.

4. Make sure that all subcontractors are noted and pointed out to the auditor.

5. Make sure that you obtain all contact information from the auditor before they arrive at your place of business.

There are many other ways to prepare. The bottom line is that your records and reports represent your business to the auditor. Neatness counts.

Medicare Set-asides - Possible No Statute of Limitations

We have received a large number of questions on my last post. I thought it was best to post the excerpt from the town hall meeting to make sure all of my readers know CMS's position on MSAs. The following is a transcript from a Town Hall teleconference. The most important part is in bold. That was a tough place to end the teleconference as the six year statute of limitations question was being addressed by CMS.


TOWN HALL TELECONFERENCE
SECTION 111 OF THE MEDICARE, MEDICAID & SCHIP EXTENSION ACT OF 2007
42 U.S.C. 1395y(b) (8)

DATE OF CALL: December 15, 2009

SUGGESTED AUDIENCE: Liability Insurance (Including Self-Insurance), No-Fault Insurance, and Workers’ Compensation Responsible Reporting Entities- Question and Answer Session.


Question: Okay. And is there any - do you have any type of statute of limitations? I was told in a seminar that there’s a six year statute of limitations. Is that correct? I hadn’t heard that before.

CMS: This could be another one of those instances where the answer is maybe yes, maybe no depending on what you want to tie to it. Generally, there is a statute of limitations in terms of how long you have to bring a litigation action. But there’s different rules in terms of when it runs from. And generally, anything we have doesn’t start to run until we have knowledge of the claim. And certainly in a liability situation it’s not the date of accident that controls. What we’re looking at is when there was any settlement, judgment, award or other payment. So we would have at least six years from that date.

Question: And after six years then you would no longer pursue recovery?

CMS: That’s not necessarily true. What I said is the six year statute of limitations is generally tied to when we can pursue action in court. But there are other recovery actions that we have that we can take as well.

Moderator: Okay Operator, I’m sorry but we’re going to have to close this call off now. Thank you everybody who was on it. We appreciate your questions. And for those who didn’t - we didn’t get your questions we’re sorry. We’ll be doing this call again - a call like this next month.

CMS May Have No Statute Of Limitations On Medicare Set-aside Arrangements

Recently, I had posted a few times on the Centers for Medicare/Medicaid Services (CMS). One question that remained in my mind was how many look-back years CMS would be allowed for their enforcement of MSA's. I was under the impression the statute of limitations was six years from the original claim date. A recent townn hall teleconference by CMS may have changed my conclusion.

One of the CMS representatives indicated the six year statute actually runs from the date of settlement. When questioned further, CMS said that there were other actions that they could take even if the six year statute had expired. The six year statute of limitations only applies to court actions. I paraphrased the exact quote somewhat.

One has to wonder what this actually meant. With a Federal Government that is sorely short on funds, would pursuing all files for all years where CMS's interests were not protected end up as a cash cow? I definitely think so.

Workers Comp Premiums And Buying Out A Business

We have received a few calls on this situation in the last few months. A company or individual decides to buy another company. The deal is cut. A premium auditor then arrives some time later. The business receives a premium bill for a large amount of money. Is there any way to avoid paying the bill or should the previous owner have to pay the bill?

I do not wish to give legal advice. However, from the Workers Compensation angle, the bill is due and payable by someone IF the premium audit bill is accurate. If the buyout contract does not specify the previous owner should pay the bill, the current liability is owed by the current owner. The new business owner very likely had some length of coverage under this policy.

The best way to avoid the situation is to have an expert look over the current Workers Compensation policy in place to make sure there are no lingering liabilities. Our most recent inquiry was on a $600,000 bill.

Workers Compensation and Changes of Company Ownership

I received a question last week concerning ownership liabilities when a company is acquired by another company or individual. There are actually very long and somewhat complicated rules on Experience Modification Factors (E-Mods or X-Mod in California) when there is a change in company ownership. I will leave that for another time. The question was more centered around premiums and the audit bill.

Without giving legal advice, a company's change of ownership will not affect the premium audit and billing process. The new owner will owe the premiums as if the company had not changed. If an individual is going to purchase a company, the liability of an upcoming premium audit and billing should be factored into the current and future liabilities.

We had a client call us into this very situation a few years ago in California. They were under the impression that the previous owner would be responsible for the billing. The premium auditor assessed a $25,000 premium audit bill against the new owner. Unfortunately, the new owner had to pay the bill. We were able to reduce the bill due to a classification error by the auditor. However, the new owner did have to pay an unexpected bill.

CMS And the Dreaded Medicare Set-aside Arrangement Memo - What Did It Mean?

Over the past week, I have covered the Centers for Medicaid/Medicare Services (CMS) Medicare Set aside agreements and how CMS changed the playing field with its 7/1/09 memo to each state's department of insurance. The memo should have set off a few alarm bells for the Workers Comp carriers, TPA's, and employers.

The memo switches the reporting of all Workers Comp data to CMS from voluntary to mandatory. The CMS will now be able to access almost all Workers Compensation claims data for any claim in the United States.

If the CMS's interests have not been protected or if claims that should have been reported to them have been ignored, a very simple search and analysis software package should let them know what claims should have been reported to them, but have not as required by federal law.

What will CMS do if they find that a claim should have been reported to them for approval by way of a Medicare Set-aside Arrangement (MSA)? I think employers and carriers will receive very heavy fines. TPA's may not be subject to the fines as the self insured employer has the ultimate financial responsibility for their claims.

How does an employer feel assured that all of their claims subject to the CMS's thresholds have been properly handled? It may behoove an employer to contact their TPA concerning this situation. Employers may want to have a MSA expert look over their claims to make sure they are protected. From what I have seen the CMS is going to hold the employer responsible whether or not they are self insured.

There are many companies available to analyze a claim for an MSA requirement and to properly report those to the CMS. Please feel free to contact me at jmoore@cutcompcosts.com if you have any further questions on this issue such as time limits, reporting thresholds, or MSA vendors.

CMS And the Dreaded Medicare Set-aside Agreement Memo

On July 1, 2009 the Center for Medicaid/Medicare Services (CMS) issued an innocuous looking memo that will likely result in sanctions by the Federal Government and many lawsuits. In fact, a landmark Alabama lawsuit had been filed concerning an employee that was turned away by the CMS.

The carrier/TPA should have properly filed a Medicare Set-aside arrangement (MSA). The carrier did not file the MSA. A large number of future lawsuits can be expected, especially on closed Workers Comp files where no MSA's were filed.

Check on my next post to see what all of this means to employers, TPA's, and carriers. The letter issued on July 1, 2009 is as follows:

Workers’ Comp Data Match Cancellation Letter

Dear –

[State name] has been participating in a voluntary data exchange program between [state’s Workers’ Comp division] and the Centers for Medicare & Medicaid Services (CMS). Through this program [State name] has been submitting certain Workers’ Compensation program information to CMS electronically. The information provided by the state has been assisting CMS in determining the nature of the Medicare program’s responsibility in the payment of Workers’ Compensation claims.

This voluntary reporting arrangement has now ended. On July 1, 2009, Section 111 of the Medicare, Medicaid, and SCHIP Extension Act (the MMSEA) became effective for Workers’ Compensation insurance coverage. As of that date, the reporting of Workers’ Compensation information in support of Medicare Secondary Payer (MSP) determinations by CMS became mandatory. All existing voluntary reporting arrangements involving Workers’ Compensation programs are now null and void.

July 1, 2009, is the date Section 111 reporting became effective, but it is not the date that states will begin to report Workers’ Compensation information under the Section 111 requirements. In summary, states that will be reporting Workers’ Compensation data through the Section 111 process are required to register for Section 111 reporting by September 30, 2009. The testing of the electronic data exchange process will start January 1, 2010. The first “production” file exchanges will start April 1, 2010.

The process for arranging Section 111 reporting, and all the reporting timeline benchmarks that have been established are described in full on the Section 111 Website, www.cms.hhs.gov/mandatoryinsrep . The current version of the “NGHP User Guide” and additional instructions needed to report Workers’ Compensation information are located on the Website’s “Liability Insurance, Self-Insurance, No-Fault Insurance and Workers Compensation (NGHP)” page.

Thank you for your participation in the voluntary workers’ compensation data information sharing program with CMS. If you have questions about your state’s responsibilities under the mandatory Section 111 reporting requirements, please contact William Decker of my staff at (410) 786-0125.

Sincerely,
Sherri McQueen
Director
Division of Medicare Benefit Coordination

Workers Compensation Medicare Set-aside Arrangements

It is the responsibility of all parties to protect Medicare’s interests when resolving cases with future medical expenses. Forecasting future Workers Compensation medical benefits can be very complicated.

The recommended method for doing this is a MSA, which allocates a portion of the settlement for future medical expenses. The amount of the set aside is determined on a case-by-case basis and is mandated to be reviewed by the Centers for Medicare and Medicaid Service (CMS) when appropriate. Once the CMS determined amount is exhausted and properly accounted for to CMS, then Medicare/Medicaid will agree to be the primary payer for future Medicare covered expenses related to the injury.


Evidence has shown that there are five key factors organizations should be focused on in 2009 and 2010 to settle and manage these cases.

• Continuous review of their cases to establish MSA thresholds for minimizing risks and maximizing compliance.

• Reserves should be carefully reviewed and benchmarked on a case-by-case basis to be certain they are optimal and segmented to each area of future expense.

• Retention of an experienced team of multi-disciplinary medical, financial, claim, and legal resources with significant experience in settling high value cases.

• A “Zero Approval” goal for each case by removing co-morbidity factors, and only relating the subject injury to the proximate cause.

• Service quality and technology dedicated to carefully managing and ensuring excellence throughout the process.

While many organizations have qualified representatives who are capable of managing the smaller cases, only a few have the dedicated resources to focus on the complex laws and regulations surrounding MSA’s.

The CMS is continually changing their rules and opinions, and it requires a consistent team of practice professionals to provide organization and clarity for each case. With this team, the organization can be assured of a careful and thoughtful approach which will receive final approvals and future certainty for the cases.

The CMS had produced a memo earlier this year that changed the rules on MSA's. If your company has not heard of MSA's from your carrier or Third Party Administrator (TPA) and you have had serious claims in the last 10 years, you may want to start inquiring NOW.

PLEASE NOTE THAT IF YOU SELF INSURE OR HAVE A HIGH DEDUCTIBLE PROGRAM - YOU AS THE EMPLOYER AND NOT THE TPA BEARS THE RESPONSIBILITY OF REPORTING THIS INFO PROPERLY TO THE CMS. With so many government funding shortfalls, this is an area where the Federal Government is going to increase their enforcement.

Next Up - The New CMS Memo

States Without Workers Compensation Medical Bill Fee Schedules - I Stand Corrected

A few weeks ago, I posted a blog on the States that have no medical fee schedules. I stand corrected as I left Virginia out as a state without a fee schedule. The states without a medical fee schedule are Delaware, Indiana, Iowa, Missouri, New Hampshire, New Jersey, Virginia, and Wisconsin. This comes from an advisory memo from the CMS (Centers for Medicare and Medicaid Services)on errors made when submitting Workers Compensation Medicare Set-side Agreements (WCMSA or MSA - more on that in a later post).

I do not go back and redo corrections in the original posts. My prior blog post left out Delaware and Virginia as not having fee schedules. Virginia is a one of a kind state on their Workers Comp medical fee schedules. Medical providers in Virginia bill using rates based on medical charges that prevail in the same community for similar treatment. That would make Virginia a non-fee schedule state.

However, Delaware does have a fee schedule. I am looking at it as I type this post. I will research and see why the Federal Government thinks that Delaware does not have a fee schedule.

I will post the next time on MSA's which employers that have serious claims should be very familiar with overall. If you are reading this and you have not heard of MSA's, please check out my next post. Employers can be hung out to dry on this part of a claim.

Waived Premium Audit May Not Be A Great Sign

I have come across situations lately where the insurance carrier has decided to waive a Workers Comp premium audit and not even attempt to audit the payroll and premiums. Almost all the employers think this is a great relief on the level of avoiding a tax audit.

I would suggest taking a step back before agreeing to this type of audit. Insurance carriers are very adept at collection premiums for their services. If a carrier decides to waive a premium audit, does that mean that your company has been charged the correct premium? Does it mean that the carrier has decided to not collect additional premium? The answer is usually no in both cases.

Most states REQUIRE the insurance carrier to perform a year audit unless the employer signs off on a waiver. Some states do not allow waivers of the premium audit. How does a company know whether or not to waive a premium audit? It is best to call in a non-agent professional to look over the situation. Your company may be leaving money on the table.

As I have said very often, almost all insurance carriers and premium auditors are very honest and upstanding parts of the insurance process. Would licensing premium auditors help in this situation? I would have to say yes.

Workers Compensation Structured Settlements

In talking with our self-insured clients, we have been reminded that we should produce a few more articles that pertain to the challenges of the self-insured arena.

We have been engaged in various claim projects and have recently conducted several surveys, where structured settlements were widely utilized to ensure quality financial outcomes and reduce expense. A structured settlement is a financial or insurance arrangement that includes periodic payments that a claimant accepts to compromise a statutory periodic payment obligation or to resolve a personal injury tort claim.

Structured settlements have been utilized extensively for high value personal injury cases in the past. However more recently, have been used for a wide variety of circumstances including Medicare Set-Asides and Special Needs Trusts.

When the self-insurer or insurer settles a case with a claimant, it finds itself with a long term payment obligation. To fund the obligation, the defendant takes one of two typical approaches; delegates its periodic payment obligation to a third party who purchases an annuity (“assigned”), or purchase an annuity from a life insurance company (“buy and hold”),

In the “buy and hold” type of case, the defendant retains the periodic payment obligation and funds it by buying an annuity from a life insurance company. The payment stream purchased under the annuity matches exactly, in timing and amounts, the periodic payments agreed to in the settlement agreement. The self insured defendant or insurer owns the annuity and names the claimant as the payee under the annuity, thereby directing the annuity issuer to send payments directly to the claimant. If any of the periodic payments are contingent on someone continuing to be alive, then the claimant (or whoever is determined to be the measuring life) is named as the annuitant under the annuity.


In an “assigned case”, the insurer or self insured defendant does not wish to retain the long-term periodic payment obligation on its books. Accordingly, the insurer or defendant transfers the obligation, through a legal device called a qualified assignment, to a third party. The third party, called an assignment company, requires the insurer or defendant to pay it an amount sufficient to enable it to buy an annuity that will fund the newly accepted periodic payment obligation.

While each method has its advantages, there has been an overwhelming acceptance of the “assigned” case method to reduce financial exposure and cash flow obligations, and eliminate liability from the risk takers balance sheets. Either method will allow an organization to improve their financial condition and to gain strategic advantages over the competition.

Five Ways That Employers Can Harm Their 1/1 Workers Comp Renewal

In my many years working for insurance companies and TPA's, I have found that employers and their agents start to rush everything through to get their Workers Comp policy ready to renew on 1/1. These five areas are critical to reducing or avoiding an increase in Workers Compensation premiums.

1. Why is your business renewing on 1/1? A large majority of policies renew on 1/1. Moving your renewal date to February 1st means that you are not in the mad rush to renew by the first of the year. This renewal date will let your agent and underwriting department have more time to renew your policy. It is the same as not running an errand during rush hour traffic.

2. There is no need for a rushed reserve review now. Your Experience Modification Factor (Emod or Xmod) was cemented in place many weeks ago. There is no use to try to fix it now as it is too late.

3. It is advisable to not use the same payroll figures from last year. As many businesses have cut back on staff and/or hours over the last few months, it is advisable to use a forecast of lower payrolls. If your company has more payroll than expected, the premium auditor will correct it at the yearly premium audit. This is a careful balancing act as forecasting the payrolls too low will result in a sticker shock at the premium audit.

4. Renewing with the same insurance carrier without questioning your agent. Workers Comp insurance carriers change their variables and rating values often. There are very few instances where staying with a certain carrier will benefit an employer. Brand loyalty can sometimes be very expensive in the insurance business.

5. Do you know the name and email addresses of all the Workers Comp adjusters who are working on your claim files? If you do not, your company is throwing money down the drain. The adjusters function just like a financial adviser in any other financial institution. The reserves your adjusters set on the files are the main figures that feed into your E-Mod.

Workers Comp + Tennessee Legislature = Small Biz Doom

A highly controversial piece of legislation just went into effect due to the Tennessee Legislature's severe error. The error was due to the state trying to over-regulate the Workers Compensation insurance industry. On January 1, 2010 the small businesspeople of Tennessee will bear the brunt of their error.

The Tennessee Legislature tried to rectify the situation where uninsured subcontractors in the construction industry had employees that were left uncovered for workers comp in case of an on-the-job accident. The legislators should have beefed up the ability of insurance companies to audit these companies. This would have fixed the situation in short order.

What the legislature passed in 2008 was a travesty for businesses. Sole proprietors and the very small businesses in Tennessee are going to pay up to 50% of their earnings in Workers Compensation premiums. At one time, companies with six or fewer employees were exempt from having to provide Workers Comp coverage.

The moral of this article is that the legislatures in any state should bring in Workers Comp expert witnesses before writing and passing such horrendous laws. There are so many intricacies such as this example where trying to correct a problem causes a much worse one. The Tennessee Legislature even had a chance to correct the law in 2009, but let it stand as passed in 2008.

I sometimes receive questions such as "Why do I write about one state's Workers Compensation situation?" My answer is that what happens in one state can happen in yours very easily. I have seen similar types of errors made in West Virginia, California, Oklahoma, North Carolina, and many other states. Calling in Workers Compensation expert witnesses to testify will avoid these situations in the future.

Workers Compensation Insurance Policy Mistakes - The Other 20

I received quite a few inquiries on the first listing of the most common mistakes made by insurance companies when reporting employer data to the rating bureaus. Please see the full blog or Policy Mistakes for the Top 10.

Why I decided to print this list is that I often hear from employers and their agents that insurance companies are very accurate in their data reporting. Almost any of these could cause premium overcharges. The next 20 in the list are:

11. Cancellation/Reinstatement transaction ID code is not a valid code

12. Policy not found on Rating Bureau database.

13. Too many transactions missing.

14. Too many transactions missing- primary name record

15. There are duplicate transactions within the submission.

16. There are duplicate sequential transactions

17. ARAP factor is required for assigned and experience rated.

18. ARAP factor is below the minimum of 1.00 for policy [----].

19. Transaction type is not approved for electronic reporting

20. Required Endorsement Report not listed.

21. Required Endorsement Items not included

22. Endorsement Record is not valid

23. No location reported for entity [---].

24. Too many transactions without exactly one header record

25. This policy contains USR's and cannot be cancelled or reinstated. Please review.

26. We have received multiple cancellations with different effective dates

27. Multiple state premiums were reported with the same rating date.

28. There are duplicate non-key field change transactions within the submission.

29. Incorrect Endorsement for this policy period.

30. We have not received the original policy for this change transaction.

If you have any questions on these, please email or call me at (800) 813-1386.

Workers Compensation Insurance Policy Mistakes - Top 30

I have often heard this phrase from employers "As far as we know, our insurance carriers are reporting everything to NCCI or our State Rating Bureau accurately." I decided to check and see if insurance carriers are highly accurate in their reporting.

I found a list of the Top 30 Mistakes That Carriers Make When Reporting Information I will list the Top 10 -

1. This policy is a duplicate of a policy already on our database.

2. No specific location city must be blank.

3. No specific location zip code must be blank or zero.

4. No specific location state must be blank.

5. Policy expiration date - [--/--/--] must be greater than effective date.

6. Policy total estimated standard premium cannot be less than policy minimum premium.

7. Transaction issue date :[--/--/--] must be within range of transmittal letter.

8. Duplicate header records not allowed.

9. Endorsement __________ is not attached

10. Reason code must be zero.

While most of these would not necessarily effect the premiums that you might have to pay, #5, #6, #7 and #9 seem to be premium drivers for your Workers Comp policy. We are not saying that insurance companies make mistakes all the time. It is just when they do, it could cost you $$$.

That is why I recommend always checking everything on your Workers Comp policy whether you have an agent or not. Assuming everything is copacetic may be costing your company premiums.

Risk Management Process Basics

I decided to take a step back and look at the forest and not the trees in this and some of the next blog posts. The Risk Management Process may look basic, but not following the natural flow can cause an enormous financial burden to small and large companies alike.

While working with various organizations, clear differences become apparent between organizations that employ a continuous series of steps to manage loss exposures versus those that don’t. If the organizational goals are clearly defined, an organized, continuous risk management process may be applied.

Such events as pending insurance renewals, serious claims, a merger or acquisition, debt or equity restructurings, or new laws or regulations can initiate a process. With a continuous process, these events can be managed in a more productive and less reactive way.

Solutions

The risk management process consists of six key steps which, when applied in a continuously, result in higher organizational profitability, quality, and asset value.

1. Identification of Losses.

There are a wide variety of methods and techniques to identify loss exposures which would interfere with an organization’s objectives. The use of document, compliance, inspection, and expert reviews typically reveals areas in which additional risk management techniques and services should be focused.

2. Analysis of Losses

The analysis of losses are typically reviewed by frequency, severity, total dollar amounts, and timing. This analysis enables an organization to develop projections, prioritize exposures, and allocate risk management resources.

3. Risk Management Techniques.

Loss exposures may be addressed with a wide variety of risk control and financing techniques. These include thousands of different products and services which may be used to deal with very specific risk exposures.

4. Selection of The Applicable Technique.

Once the first three steps have been completed, the techniques that prevent or reduce losses are put into play. All financial and non-financial matters should be taken into consideration.

5. Implementation.

All the various techniques used require immense support and guidance from the organization’s management team and governing body. Without this support, the methods will be less effective and the organization will not adequately meet its defined goals.

6. Monitoring and Revisions.

Acceptable standards and results-based performance measurement throughout the organization is vital. With constant monitoring and revisions, the organization will utilize its risk management for higher financial and social results.

As I previously mentioned, even though this blog centers on Workers Compensation, it is sometimes best to take a step back to the basic steps to prevent and reduce losses.

A Federal Insurance Office Is Voted Into Existence

The House recently passed the Wall Street Reform and Consumer Protection Act of 2009. The legislation is a great move overall to protect consumerism in the US. The part of the bill that concerns me is the creation of a Federal Insurance Office (FIO). Many years ago, Congress had decided to let the states monitor their own insurance activities. This had operated very well for decades.

The AIG bailout had very little to do with the insurance products that AIG provided for consumers and businesses. The financial sector of AIG is the area that failed horribly. Congress decided to protect all consumers from a financial insurance meltdown. They did not separate the financial sector of AIG from its insurance products when crafting this part of the bill.

There were two things that jumped off the screen when I read them. The FIO is going to be an informational source for the federal government. Why would this be needed unless more regulations are coming down the road? The other and more frightening part of the FIO is the title of systemic risk regulator. There is some mention that the property and casualty arena would be excluded - for now.

Insurance is built on a certain systemic risk or there would be no need for insurance products. Would the FIO regulate Class Codes for Workers Compensation? Could the FIO create its own federal insurer of last resort that would compete with carriers? Will agents have another pile of forms to complete every time an insurance transaction is initiated? I am sure you have your own questions about this change in the insurance system.

I just returned from an NCCI State Advisory meeting in South Carolina. I will cover the meeting more closely and cover NCCI's prediction of the FIO in my next post. It was right on target.

NCCI State Advisory Symposiums Are Time Well Spent

The National Council on Compensation Insurance (NCCI(r)) provides meetings in most of the states every year where they provide rating information. I am not putting in a plug. I rarely recommend service providers or their services.

These conferences are great to show the "State of the State" as far as the NCCI is concerned. These are different from the producer workshops that NCCI provides in some of the states. The statistics that NCCI provides concerning NCCI Class Codes and other areas are second to none. I am surprised at times that the meetings do not sell out.

I just attended a conference in Columbia, SC. The symposium was time well spent. If you happen to miss the conferences, they provide the slides used for their presentation. The information is at https://www.ncci.com/NCCIMain/Events/MinutesPresentationsMaterials/Pages/default.aspx

You may have to sign up for a free NCCI account to access this page. As they say, there is no such thing as a free lunch, but there is a ton of free statistical info if one takes the time to access their pages. As with this blog, all info from the NCCI is copyrighted.

Monopolistic North Dakota Takes A Third Look At Its Workers Compensation Program

I used to post often about the plight of North Dakota's Workforce Safety and Insurance (WSI). The WSI is responsible for the administration of North Dakota's monopolistic Workers Comp program. The WSI has had many trials and tribulations as one of the last remaining monopolistic programs in the country.

Monopolistic Workers Comp programs are ran by the state. They do not allow any sort of competition from the insurance markets whatsoever. I recently came across an article where an unnamed third consultant was going to examine whether or not there were inappropriate denials where benefits should have been paid to the injured workers.

The first consultant, Marsh, said there were 16 files that indicated benefits should have been paid to the injured workers. This was part of a much larger file review. The claims were instead denied and defended to pay no benefits. A second audit was performed by Connolly and Associates. They found no wrongdoing.

Why is there actually a need for a third audit? Marsh had said out of a group of files some of those should have had benefits paid and then Connolly found nothing wrong. Why go to the expense of having a third review company look at the files? Nothing is going to change the numbers.

In the file reviews that we have performed, we have found files where benefits should have been paid. However, that was OUR OPINION. We were not there to handle the files. The TPA or carrier took corrective action and that was the end of it.

Sole Proprietor Covers Workers Compensation For 20 Employees

I am sorry that I skipped doing an article to finish up the Ladder of Insurance(c). The Federalization of Workers Comp surfaced again. I always want to post on that situation as soon as there is any type of change.

When I do presentations, I like to bring up the situation where a sole proprietor may have 20 or more people on their Workers Comp policy and not know it. As I mentioned before, the Ladder of Insurance means that in a court situation, an uncovered liability will be covered by whatever insurance policy is in place. If a subcontractor has no policy in place and there is an accident, the courts will always go up the ladder rungs of the subcontractor - contractor relationship until a viable Workers Comp policy is found.

A sole proprietor has hired a company to remove a tree that is affecting their office. The subcontracting company does not have an insurance policy in place. The sole proprietor does not ask for a certificate of insurance. The uninsured tree removal company sends out 20 people to remove a very huge tree. If any of the tree removal employees are injured, who would end up paying for their claim?

The subcontractor does not have a valid Workers Comp policy in place. The sole proprietor has a policy for themselves only. Where would the Workers Comp court place responsibility? They would likely use the policy of the sole proprietor. I do realize there are exceptions to this rule in certain states.

How does a sole proprietor take care of this situation? They need to obtain a valid and current certificate of insurance from the subcontractor not only for liability insurance but also Workers Compensation.

I have actually seen this scenario play out on a death claim. One extra point is that the sole proprietor should also call the agent listed on the certificate of insurance to make sure there is a policy in place.

Federal Control of Workers Comp Takes Another Step

Recently, a bill was passed by the House that establishes a Federal Insurance Office (FIO) for international insurance transactions. As I had predicted numerous times in the last few months, the insurance - and in turn - Workers Compensation insurance landscape is slowly but radically changing.

In a large % of phone consultations that I perform for our investor clients, I am often asked what major development would change the "playing field" for Workers Comp over the next seven to ten years. I always answer that the slow but steady progression of the government's attempt to regulate insurance almost makes any forecasting by me nearly impossible after five years into the future.

The Professional Insurance Agents Association (PIA) has commented that they are very concerned the bill would allow proponents of federalizing insurance to advance their agendas. I could not agree more. As we all know, federalizing any type of insurance would lead to more paperwork, control, and inefficiencies.

The first business conducted by FIO would be a study of federal insurance regulation. This seems to be a conflict of interest as the FIO itself is in the position of recommending to Congress whether the power to regulate insurance should be removed from the states and made into another federal bureaucracy. My concern is that if any government agency produces a report that justifies it existence and allows expansion, the report may be biased towards expanding its duties.

Can you already see the results of the report? I can.

Subcontractor Dilemma - Opting Out

I received a great question on my post about certificates of insurance and subcontractors. What happens if a main contractor is a sole proprietor and does not cover themselves on the certificate of insurance?

This question is a great one. Business owners and certain executives can opt-out of workers' compensation coverage. If a sole proprietor opts-out, then the policy is actually a "ghost policy" of sorts. The subcontractor has a policy, but it covers no employees. The insurance auditor will definitely charge the main contractor for the coverage of the sole proprietor in this case.

If there is any question on why the insurance premium auditor would do this, please see my last post on The Ladder of Insurance. If the sole proprietor was injured, it is almost a guarantee that the Workers Comp courts would place the responsibility for payment on the main contractor's Workers Compensation policy.

Next Up - Your Company May Be Covering Extra Employees For Work Comp Coverage

The Ladder of Workers Compensation Insurance

I had originally written on this subject within the last year. As I have recently covered subcontractors, I thought this would be a good time to cover the Ladder of Workers Compensation Insurance(c) again. This is a term that I invented a few years ago.

The Ladder of Workers Comp insurance has to do with the responsibility of lawfully covering all employees with Workers Compensation insurance. The courts have taken the position if a subcontractor does not cover their employee with Workers Comp insurance then the main contractor would be responsible to cover the employee. The courts will "move up the rungs of the ladder" until an insurance policy is found to cover the employee for a given claim.

The Ladder of Insurance applies in all states. I have seen no exceptions to this circumstance. That is why it is beyond important to have current certificates of insurance for each subcontractor that works for your company.

Many years ago as an adjuster, I was working for a carrier that covered a certain school system for Workers Comp. I denied a claim where a subcontractor that was working for a school system fell off of a roof and unfortunately incurred fatal injuries. The subcontractor did not have current Workers Compensation coverage, but instead had provided the school system with an out-of-date certificate of insurance. The denial did not stand and the school system had to pay full death benefits. The subcontractor's insurance carrier would not pay as they rightly denied coverage.

That was my first experience with the Ladder of Insurance. I do not want to be repetitive. The school system very quickly learned a tough lesson on certificates of insurance. They are worth obtaining from all subcontractors.

Your Agent or Insurance Carrier Could Be Wasting Your Time

We have found that 60-70% of all Workers Compensation policies renew on January 1st of each year. That figure matches our client list percentages. We hear from some of our client that the agent and or carrier have set up a claims review meeting to make sure the reserves are correct for the coming policy year.

If your company is in this situation, you may want to cancel the meeting under this circumstance. Your reserves on the loss runs have nothing to do with what your Experience Modification Factor (E-Mod or X-Mod) will be for the coming year. Your E-Mod or X-Mod has very likely been in place for months.

Feel free to email us with your Workers Compensation policy dates. We will email back the date that your E-Mod or X-Mod has been set in stone. This is a free service. We will charge nothing for it.