Workers Comp Reserve Reviews And Subrogation - Three Concerns

Subrogation refers to an insurance company seeking reimbursement from the person or entity legally responsible for an accident after the insurer has paid out money on behalf of its insured. In Workers Compensation, we often see three different areas of subrogation that should be of concern to employers.

First, we sometimes find in our file reviews for employers that there was likely a third party that was or at least was partially responsible for the Workers Comp accident. As the file adjusting for Workers Comp claims has become more specialized, insurance carriers and TPA's have sometimes not trained their claims adjusting staffs in the steps to pursuing subrogation. We do often see that the adjusters have pursued subrogation properly if there was an auto accident involved with the claim.

The second area of concern is that when subrogation funds have been received by an insurance carrier or TPA, there is sometimes no procedure on how to handle these funds inside of the Workers Compensation file. This is an area that may not exist in most claims manuals.

The third area of concern is when subrogation funds have been received and credited to the file. We do see in premium audits for employers that the adjustment of the total incurred was never reported back to the NCCI or State Rating Bureau. This can have a great effect on an employer's E-Mod/X-Mod if the subrogation recovery was significant. As up to 45 months of data go into the E-Mod, a subrogation recovery must be credited on the day of receipt to the file and the correction reported to the NCCI or State Rating Bureau immediately.

I am not saying that this situation exists in all the files that we see. However, it is of a large enough concern that all employers should monitor if the recovered funds did make it to their E-Mod or X-Mod.

Further note - The X-Mod is the same as the E-Mod. The Experience Modification Factor is called the X-Mod in California.

Our 15th Year In Business

We have just celebrated our 15th year in business. I started the Workers Comp consulting business in early 1995 - mainly helping spinning mills in North Carolina straighten out their Workers Compensation claims. The spinning mills in North Carolina are mainly gone now. We have since then been awarded with various awards, most of them for the blog that you are now reading. I will try to come up with original articles on Workers Compensation at least three times per week. If you want to join our mailing list, there is a sign up button on the right side of the screen.

8810 and 8742 Classification Code Correction

I had posted previously in this post concerning the All Employees designation under certain class codes. I knew the rule, but I was in a hurry to get the post out and made a misquote. I am glad that many Workers Compensation premium auditors including our auditors, insurance company premium auditors, and auditors for auditing companies all emailed me very quickly to correct my incorrect post.

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In the last paragraph you seem to be saying that an “all employees” notation precludes the use of the standard exception codes. That is not how I read rule 1-D-4 in the users guide. They seem to say that a class including “all employees” still uses the standard exception codes unless one or more standard exception codes is specifically precluded, such as 7720 – Juvenile Detention Center- all employees & salespersons, drivers – this wording would still allow the separate classification of employees under 8810.

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Regarding your recent post on the difference between 8742 & 8810 which states:

"I have noticed very recently some of the class codes now include an “all employees” notation. The “all employees” designation on a class code means there are not Standard Exception Codes that will be accepted for a certain type of employer. "

This is inaccurate. The all employees etc. designation has no bearing on the standard exception codes. The standard exception can be separately rated unless it is specifically mentioned in the phraseology and or phraseology note. With regards to the inclusion of standard exceptions phraseology in some recent code changes, I wrote some of them and had input into the others that were changed.

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This is one of those posts that I rushed to produce. Thanks to all for correcting my mistyping. What I had meant to say is in bold above. Thanks to Carlos, Spencer, and others for making me toe the line.

I Am Going To Agree With Insurance Companies On This Matter

Rarely do I completely agree with casualty insurance carriers on a broad subject. This is one time that I have to make an exception. I do agree that insurance carriers do not pose a systemic risk to the US financial systems.

Systemic Risk - Two Definitions

1. In finance, the risk of collapse of an entire financial system or entire market, as opposed to risk associated with any one individual entity, group or component of a system.

2. Financial system instability, potentially catastrophic, caused or exacerbated by idiosyncratic events or conditions in financial intermediaries". It refers to the risks imposed by interlinkages and interdependencies in a system or market, where the failure of a single entity or cluster of entities can cause a cascading failure, which could potentially bankrupt or bring down the entire system or market.

Systemic Risk is also sometimes erroneously referred to as "systematic risk" It is not possible to avoid systemic risk through diversification.

Why did I decide to go into definitions on systemic risk? The Federalization of Insurance - specifically Workers Compensation from a different angle is now in Congress. The Federal Government wants to rein in insurance companies by regulating them with the same laws as banks.

A letter signed by various large insurers' executives was delivered to Sen. Christopher Dodd, D-Conn., the banking committee chairman, as a precursor to bipartisan financial services reform legislation that could be introduced in the Senate this week.

I will not go into the letter except the passage “Property and casualty insurers have been an oasis of relative stability, weathering the crisis well without presenting any risk to the broader financial system." One of the main concerns of the recently formed Property & Casualty Leaders Coalition was having to pay some sort of tax that was centered on the bank failures. Also in the letter was “The property and casualty industry should not be charged any assessments to cover shortfalls that arise from a resolution of a non-insurance financial company.”

The gravity of the situation can be shown by who signed the letter. The letter was signed by Evan Greenberg, chairman and CEO of the ACE Group; Thomas Wilson, chairman, CEO and president of Allstate Corp., John Degnen, vice chairman and chief operating officer of Chubb Corp.; Thomas Motamed, president and CEO of CNA Corp.; Edmund Kelly, chairman, president and CEO of Liberty Mutual Group; Stephen Rasmussen, CEO of Nationwide Mutual Insurance Co.; Edward Rust, chairman, president and CEO of State Farm Mutual Automobile Insurance Co.; Jay Fishman, chairman and CEO of the Travelers Cos. Inc.; Stuart Parker, president and CEO of USAA Property and Casualty Insurance Group; William Berkley, chairman and CEO of W.R. Berkley Corp.; and Paul Hopkins, CEO-Americas of Zurich Financial Services Group.

California's Workers Comp System Is Shorting Employers

We have been very fortunate to have a large amount of our premium and reserve review services in California. I feel the employers in the state are not necessarily being treated fairly. The reason is the look-back period has been shortened severely in California. This is unfortunate as CA policies seem to have the highest error rate.

In California, the employer may only have their Workers Comp policies and audits reviewed for one year in the past. Most states allow a three year look-back period. I have had to explain this conundrum to more than a few aggravated California employers. Basically, when a mistake is found, that mistake may possibly be in triplicate in other states. A small error turns out to more significant when tripled.

Is it still worth the effort to review Workers Comp policies and premium audits in CA? Yes, as once the error is found, it usually becomes a permanent fix for the future. Our largest single error was found in a California Workers Compensation audit.

ASAP Must Be Built Into A Workers Comp Claims Processing Manual

We often have to examine a carrier or TPA's claims adjusting manuals while performing our file performance audits for employers. One area that can help to control claims costs is the initial three point contact (Employer, Employee, and Physician).

All the claims manuals properly address the information needed from the three point contact. We sometimes see the manuals requiring that the three point contact be completed within 48 or 72 business hours. This to me is a large mistake as the claim is set in stone approximately two days after the accident. The carrier that trained me quite a few years in the past would not accept the three point contact not being completed with 24 hours after receiving the first report of injury.

In my opinion, most of the CRITICAL work by the claims adjuster needs to be completed within 24 hours after receiving the first report of injury. The medical treatment can be controlled and the employee can be directed by the employer's choice of physician if the claim is attended to ASAP. Contacting the employee within 24 hours lets the employee know their claim is being attended to in an expedient manner.

The employer's responsibility in the process is to report claims as soon as possible and to direct the employee to the proper medical care. The time clock is ticking once the employee reports an on-the-job injury.

Class Codes 8742 and 8810 Revisited

Some of the most read articles on my blog involve Classification Codes 8810 and 8742. These two class codes can sometimes be very confusing as they are very general. They cover so many jobs and job functions in a company. There is one caveat to these two class codes – especially 8810. If an employee performs any other job function that would place them in a higher classification, premium auditors will place the person in the highest code. This is allowed by the NCCI and State Rating Bureau rules. Even if the employee works for only a few minutes in a job task that places them at a higher rate, they will be removed from the 8810 or 8742 codes.

We often receive phone calls and emails not long after an employee or group of employees have been recently reclassified by the premium auditor. Classification Codes 8810 and 8742 are called Standard Exception Codes. The reclassification sometimes results from a miscommunication between the employer and premium auditor. One recommended way to avoid any miscommunications during a Workers Comp premium audit is by designating one person to provide any requested material to and answer questions from the premium auditor.

Standard Exception Codes are normally not included in the governing classification. These are clerical, outside sales, and often (but not always) drivers. The governing classification is the one that generates the most payroll other than the standard exceptions codes.

There are many employees that can likely be classified under 8810 and 8742 in an organization as these class codes can describe many jobs in an organization – not just clerical, outside sales, and drivers. The Standard Exception codes have some of the longer descriptions in any of the class code manuals.

I have noticed very recently some of the class codes now include an “all employees” notation. The “all employees” designation on a class code means there are not Standard Exception Codes that will be accepted for a certain type of employer. Some the recent class code changes have eliminated 8810 and 8742 from being used by certain companies. I am not saying these were fair decisions. They are what we have to work with once they are changed by NCCI or the State Rating Bureau.
If a group of your employees that were classified as 8810 or 8742 have been reclassified, you may not want to just accept these changes. Always call in a non-agent expert if you feel that the changes on the premium audit bill were not correct.

CMS Press Release on Medicare Set-aside Arrangements Delay For Insurer Reporting

The following is the press release from the CMS website on the insurer TPA reporting requirements. This was the result of the memo covered in my previous post. I also added in the upcoming schedule. Please note that this in not a delay in reporting files to CMS to protect their interest. This is for the mandatory data reporting by all TPA's and insurance companies.

Acronyms

MMSEA - Medicaid Medicare Set Aside Arrangements
NGHP - Non-group Health Plan
COBC - Coordination of Benefits Contractor
RRE - Responsible Reporting Entities


MMSEA 111 What's New
What's New

February 16, 2010

CMS advises all NGHP RREs that the date for first production NGHP Input Files is changed from April 1, 2010 to January 1, 2011, effective immediately.

NGHP File data exchange testing will continue. All NGHP RREs should now be registered with the COBC, and either in or preparing for file testing status. NGHP file data exchange testing may continue during 2010, as needed.

All NGHP file data exchange testing will be completed by December 31, 2010. NGHP RREs that have completed file data exchange testing at any time are encouraged to proceed to production file data exchange status.

During the week of February 22, on this Website CMS will post the next version of the "Section 111 NGHP User Guide" and a number of Alerts relating to particular NGHP policy issues.

Also during the week of February 22, on this Website CMS will post an alert for NGHP RREs describing the steps those RREs can take to assure their ongoing compliance with the Section 111 reporting requirements.

January 11, 2010

Posted the 2010 GHP Teleconferences Notice and Agenda dated January 6, 2010 to the GHP section page. This document contains the call in dates, number and time for all 2010 teleconferences scheduled to-date.

Posted the GHP User Guide, Version 3.0 dated January 6, 2010 to the GHP section page.
Updated the E-Mail Communications/SPAM section of the Reporting Do's and Don'ts section page.

January 6, 2010

Added the October 6, November 3, December 8 and December 15, 2009 NGHP written transcripts to the NGHP Transcripts section page.
Added the GHP Teleconference dates for 2010 to the What's New and GHP section pages.

January 4, 2010

A new section page titled, MMSEA 111 Alerts has been created to house Alerts received after December 23, 2009. The following documents have been posted to this section page:

The NGHP Technical Alert Regarding Addition of DCN to the Query Process and HEW Upgrade dated December 23, 2009.
The NGHP Technical Alert For Claim Input File Field Requirements, dated December 23, 2009.

The GHP Technical Alert Regarding Addition of DCN to the Query Process and HEW Upgrade dated December 23, 2009.

The Registration Guide For NGHP RREs Who Are Foreign Entities dated December 29, 2009.

The Notice and Agenda for the 2010 NGHP Teleconferences dated December 29, 2009 has been posted to the NGHP section page. This document provides the call in time, phone number and pass code for the 2010 teleconferences.

Future Town Hall Teleconference Meeting Dates - All Town Hall Teleconferences will be held from 1:00pm to 3:00pm, EST, unless otherwise noted.

2010 NGHP Town Hall Teleconferences

NGHP Technical Support Questions & Answers

February 10, 2010 - To be rescheduled
March 16, 2010
March 31, 2010
NGHP Policy Questions & Answers

February 25, 2010
2010 GHP Town Hall Teleconferences

January 26
February 18
March 18

The Dreaded CMS Memo Round 2 - A Users Guide

I had previously written about the Center for Medicare and Medicaid Services (CMS) requiring that all the states begin report all of their Workers Comp data to the CMS on January 1, 2010. This was an obvious move by CMS to target the large reserves and settlement on Workers Compensation claims. CMS, of course, wanted to make sure their interests have been protected. A recent memo from the CMS delayed the requirement for the release of the production file until April 1, 2010. It is my understanding from reading all of the articles that the insurance industry was not ready for the initial deadline of January 1st. I am sure that CMS was also not ready for the flood of information they would have received from all parties. The CMS will be publishing a Users Guide. I am under the assumption that they user guide is for data structure, not procedures.

The reporting requirements, though, have not changed. I must say, as I had expected, this is all becoming more confusing. Insurance carriers and TPA's MUST still adhere to the reporting requirements.

The following is the letter that the American Insurance Association (AIA), Self Insurance Institute of American (SIIA) and the National Association of Mutual Insurance Companies (NAMIC) wrote to DHHS/CMS asking for the delay. CMS listened to their concerns. It is a very well-crafted letter. The three groups came as close as they could to pointing the finger without actually blaming the CMS for the requested delay. I will post the responding CMS memo next time.

Dear Secretary Sebelius:

On behalf of the property-casualty insurance and self-insurance industries, the undersigned organizations urgently submit this letter to respectfully request that the Department of Health and Human Services delay its April 1, 2010 implementation date of the Section 111: “Medicare Secondary Payer Mandatory Reporting requirements contained in the Medicare, Medicaid, and SCHIP Extension Act of 2007.

Property-casualty insurers, as well as companies that self-insure, have been working diligently for the past two years to meet the new reporting requirements. Despite our best efforts and those of the senior decision makers within the Centers for Medicare and Medicaid Services (CMS), the agency has yet to demonstrate that the new reporting system will properly function. Yet, we are expected to begin reporting data using this system in just a matter of weeks. Even more critical, CMS has not yet provided final reporting parameters to those insurers and self-insurers subject to the new requirements. Since failure to comply with the reporting requirements as of April 1, 2010 will expose insurers and self-insureds to substantial financial penalties, we believe that a more realistic implementation date is not only appropriate but also imperative.

Outlined below are five major reasons why the Department of Health and Human Services should immediately consider a delay in the implementation date.

Reporting Guidance

First, CMS has yet to issue final guidance on some issues, such as which entity has reporting responsibility when, due to risk-sharing arrangements, more than one reporting entity has a share of the settlement. Therefore, it remains difficult to determine in some circumstances which entity has what specific reporting responsibility. This lack of final guidance from CMS regarding which entities have to comply and how, has caused confusion among stakeholders, including insurers, self-insureds, agents, brokers, and third-party administrators. As recently as January 28, 2010, in a "town hall" conference call, CMS stated that guidance was still being reviewed and could not yet be released. Issuing such guidance in sufficient time prior to implementation is critical, as any failure to report carries an onerous penalty of $1,000 per day, per claim. CMS has not indicated a willingness to waive such penalties if the cause of the failure to report is a lack of clear guidance from CMS.

Collection of Social Security Numbers or Health Insurance Claims Numbers

Second, the insurance and self-insurance industries have serious concerns with the mandatory requirement to submit certain data elements, including beneficiaries’ Social Security numbers and heath insurance claim numbers. CMS acknowledged these concerns in its response to the Paper Work Reduction Act. Unlike group health insurers, this information is not readily available to property-casualty insurers, as most claims are resolved over the telephone. Under the pending Section 111 requirements, insurers and others will have to telephone beneficiaries asking for sensitive information that CMS, on its own website, (http://www.stopmedicarefraud.gov/) advises individuals to guard as they would a credit card number. In other words, reporting entities are being directed to obtain information from individuals that CMS itself advises those individuals to provide only to their physician or other Medicare provider.

Confidentiality and Security of the Data

Third, we have serious concerns that CMS is not properly using the highest-level security and encryption technology to ensure the privacy of personally identifiable information that is required to be submitted. During the testing period, companies in the industry will be creating files, for the first time for CMS, containing the names and Social Security or health insurance claim numbers of thousands of individuals. As recently as last month, while in live production of a query, a reporting agent submitted one hundred files and received thousands of unrelated files in return. These files contained the personal information of CMS beneficiaries to which the reporting agent should not have had access. A similar instance occurred in December 2009. Following the December incident, CMS assured interested parties that the problem had been fixed. Apparently, it has not. There remains a concern about the privacy and confidentiality of the information required to be reported. Americans’ right to privacy for their health records is more important than an implementation date selected by CMS.

Inadequate Testing Period

Fourth, there are also serious problems with the shortness of the test period CMS employed to make sure that the system is operational prior to the implementation date. CMS has only just begun to allow entities to test the mandatory electronic reporting capabilities and interfaces with CMS systems. This short window of opportunity for system testing has put significant stress on the capabilities of internal information technology groups, reporting agents, and the CMS coordination of benefits contractor to whom covered entities must report. Predictably, this has led to delays in the testing process. Given that there are more than 24,000 entities registered to report, the time contemplated for testing the system is insufficient to guarantee a successful implementation on April 1, 2010.

Penalties

Fifth, with respect to enforcement, we believe that the penalty provision of $1,000 per day, per claim, is excessive and, at the very least, should not be assessed on the first report submitted by any entity. The first report to CMS by a reporting entity will be the largest in terms of the volume of data submitted, as it will encompass legacy claim data from January 1, 2009 to the present. Furthermore, CMS is mandating that reporting only be done once a quarter, so errors and glitches inherent in a new reporting system cannot be addressed for 90 days. So, as currently envisioned by CMS, failure to report properly a $2,500 automobile medical payment to a beneficiary could subject the reporting entity to a $90,000 fine. Not only is this unreasonable, but the lack of an ability to correct a data submission more frequently amounts to a lack of due process in the assessment of penalties against reporting entities. Therefore, CMS should delay implementation until a data correction ability is created and tested by CMS.

In sum, we respectfully request that CMS delay implementation of the reporting requirement until CMS can demonstrate that the data will be secure, confidential, and transmitted by the appropriate entity. We also request that CMS not subject the industry to fines until production of the data reporting collection has been successful for a period of not less than one year and a data correction ability is created to allow changes more frequently than quarterly. In all of the industry’s conversations with CMS, CMS has consistently stated that its goal is accurate data, not enhanced revenue from fines. We take CMS representatives at their word, and we can confirm the enormous amount of work that CMS has put into this difficult project. None of our concerns should be read, in any way, as a criticism of the talented and hard working CMS staff that has been trying to work its way through this thicket of problems. Nevertheless, it is a thicket of problems.

We look forward to working with CMS in its continued efforts to successfully implement the reporting requirements and would very much appreciate the opportunity to talk with you and your staff about the best way to move forward.

Respectfully submitted,

American Insurance Association
National Association of Mutual Insurance Companies
Self-Insurance Institute of America

Colorado's Pinnacol Is Willing To Pay $200,000,000 For What?

I usually am able to comprehend most things that happen in the World of Workers Comp. When I read the headlines that Pinnacol is willing to pay $200 million to have more autonomy, I was flabbergasted, to say the least.

It looks to me as if Pinnacol is willing to buy votes by saying that they will pay $200 million to be left alone. The recent bills that are in place which would change Pinnacol are:

1. The denials that Pinnacol has issued to injured employees

2. The surveillance that Pinnacol has ordered on some of the injured employees

3. The status of how Pinnacol operates - is it going to be a private insurer or still a quasi-governmental unit.

4. Will the Colorado state government be able to raid the capital surplus of Pinnacol and place it in the general fund?

5. Can Pinnacol purchase other insurance carriers while still having the quasi-governmental status?

There are many other concerns with Pinnacol. As with CompSource in Oklahoma, the best method to privatize a company is to just do it. The example of Brickstreet in WV and others such as Nevada all show that the conversion can be accomplished successfully.

The problems that Ohio and Washington have had of late show the need for a full privatization effort. The open market for Workers Compensation is always the best for the state in question.

Our CompScreen System Has Been Updated

I do not like to use the blog to inform our marketers of updates. Quite a few of our marketers read the blog, but not our email updates. Our CompScreen(c) system for marketing our services has been updated. If any of our marketers have not requested the update, please email me ASAP. Thanks.

CompScreen is our copyrighted and patented system that enables our representatives to very quickly analyze the needs of employers and organizations for their Workers Comp program. The needs were distilled from the feedback our prospects and clients gave us about our services. It has been in place since 2007 and has been a great success.

Workers Comp Premium Audit Bill Payments - A Correction

I do not go back and change any of my prior posts. I decided to add in a post to lessen any confusion on my last post.

One of my colleagues has pointed out that I should not leave any of our blog readers and Google searchers with the idea that the premium audit bill should not be paid even if overdue. I had posted last time that if your company pays their workers Comp audit bill, it will lose leverage.

The main point here is that if you know or feel that your company has been overcharged, you are required by each state's insurance laws to pay the undisputed premiums when due. They amount of disputed premiums is a grey area. How would you or your company know what the undisputed amount is without assistance?

The other point I wanted to cover is to never use the premium dispute process as a method to delay paying a bill. Workers Compensation insurance carriers have not, do not, and will not accept "I think the bill is too high" as a reason. Calling in a non-agent expert is recommended if you or your company is in this situation.

Workers Comp Carriers Cancel Policies For Late Payment of Premiums

We recently received a great question about Workers Compensation carriers cancelling policies for late payment of premiums that resulted from a premium audit.

Yes, a Workers Comp insurance carrier can cancel your current policies for late payment of premiums after receiving a bill. Often you are only given 10 days to pay ONCE THE CANCELLATION NOTICE IS SENT. Your company will usually have a set amount of time to pay the bill once received. These are usually two separate events.

Please see the last few postings that I have written on what to do once your company receives a premium bill. If you receive a cancellation notice and you have questions on the accuracy of the premium audit and the subsequent billing, you have given you and your company very little time to examine the premium bill and audit.

As I have posted very often, once you receive the premium bill, you have a limited amount of time to act on it. Once you pay the bill, you have lost some of your leverage. The main thing to remember is not to just file the bill or ignore it.

Due to the economic environment, the Workers Compensation insurance carriers have become much more aggressive in collecting late premium payments. I must say that I cannot blame them for cancelling a new policy if an old one is not paid on time. Even if you think the bill is correct and you cannot pay it, you must still contact the insurance company immediately. If you are unsure if the premium audit and bill are correct, it would be best to call in an expert premium consultant.

Please remember that the clock is ticking when you receive the bill. If you do not agree with it your company can dispute it. However, as I have said in many posts, do not use the dispute process to delay paying a premium bill. That will only ruin the business relationship you have with your agent and carrier.

Experience Modification Factor (EMod/X-Mod) Is Like A Credit Score - But Worse

There have been many articles written recently on the upcoming credit law changes effective February 22nd. The articles made me think which is the hardest to improve or correct if there are errors - your personal credit score or an E-Mod/X-Mod?

One of ways that credit scores and E-Mods differ is the length of time in the past that a correction can be made if an error exists. There is no limit how far back an individual can search for an error in their credit report. Even if the error happened 10 years ago, you have the opportunity to disprove the error.

In the Workers Compensation system, anything older than 45 months cannot be reviewed - no matter how gross the policy or reserve error might have been to your E-Mod. There is one way to go further into the past and that is with a complaint to the Insurance Commissioner. We have found the complaints on very old policies to fall on deaf ears. The only time that we have been able to have a very old policy fixed was due to an error by the State Rating Bureau, not the Workers Comp insurance carrier.

This is a very important point. Your company needs to monitor its Workers Comp EMod/XMod factor every year. Errors must be found quickly or they will just float off into the past.

On the other side of the coin, the Workers Comp E-Mod or X-Mod system does not reflect on your safety record of the present. A safety program has to be in place for four years. We had assisted a Risk Manager of a South Carolina transportation company. Their E-Mod actually increased and the Risk Manager's feet were held to the fire. What management did not realize is that the Workers Compensation system is also a delayed system. Having a great claims record for just the current year will mean little. A safety and claims program has to be in place for three years or more for the effect to be fully realized. In the economic environment of today, many senior management teams can become very impatient very quickly.

Making Workers Compensation the project of the month and moving onto something else will usually end up making everyone very frustrated. The process needs to be in place for 36 months or longer to see its full effect. The first year of a great safety program will not show up for two years at a minimum on the E-Mod and it will only have an effect of 33% or less.

I am posting generalities, but the preceding paragraphs are very true. The E-Mod or X-Mod systems do not show any historical data beyond 45 months and less than 12 months. Do I agree with the system? I always answered that it is the system we have in place, so we have to deal with it.

A correction to a personal credit report will have an immediate effect. The credit scores indicate what is happening now with your personal finances. An E-Mod is delayed by at least 6 months. Credit scores operate very far into the past and right up to the moment.

How does a company counteract or manage the EMod or XMod system? There needs to be someone on staff that understands the systems fully, even if it is an outside consultant. There needs to be a workable plan in place. That plan must be sustainable. Claim reserves and policies need to be examined quarterly if not more often. If anything looks odd, it probably is.

Premium Audit Bill - A Call To Action - Five Things To Do

I am going to let everyone in on a little secret. Where does most of our employer premium audit business come from overall? We very often receive emails and phone calls from employer that have overdue premium audit bills and want to reduce the bill. Our other main source of business is when the business owner or risk manager basically feels that there is something wrong.

A business will lose some of its leverage when it does two things. The first is to just pay what the premium auditor has calculated. The second one is to sit on the bill and not doing anything about it. A bill that was paid without a review or a bill that is now overdue makes the premium audit review process of employers much more tedious and complicated.

The five things that a business should do when you receive a Workers Comp audit bill are:

1. Look over the premium auditor's worksheets if available. There will usually be a breakdown of how your company was audited.

2. Call or write the auditor to ask how they came up with their numbers if any part of the audit does not look correct to you. The auditor is bound by state Workers Comp insurance laws to respond to you.

3. If you still disagree with the auditor's assessments, then you have the right to dispute them. Most insurance company premium bills say that you have only ten days. The state insurance laws usually differ and allow you a longer amount of time to dispute the bill. However, a Workers Compensation policy is a contract. In other words, there is a grey area there. The bottom line is that you are on a time clock to respond to the bill. It is best to not use the dispute process as a way to delay paying a bill. All this will do is ruin the business relationship you have with your insurance carrier and agent.

4. If for some reason, you are unable to pay the premium audit bill, contact your insurance carrier immediately. Most insurance carrier collection departments will try to work something out with you. This may not apply to all insurance carriers. Making the first contact is much better than trying to work something out with an overdue bill pending.

5. The bottom line is to not let the bill sit or file it away. The Workers Comp premium audit bill is a call to action to either pay it after a full review or to question the audit and to dispute any incorrect areas.

Ohio's Workers Comp Crisis

I have not mentioned Ohio for a few months. Ohio is one of the few remaining monopolistic state funds where the state is the only insurance carrier. Recently, a county court judge's ruling certified the original suit as a class action which allows 100,000 small businesses statewide to seek upwards of $1.5 billion in restitution for allegedly being overcharged on their workers’ compensation premiums.

I had analyzed the Ohio situation in one of my past posts. The Ohio Bureau of Workers Compensation (BWC) had overcharged small business by allowing certain employer groups to have Workers Compensation coverage at heavily discounted rates. The BWC charges below-cost rates to group members to make up for the losses by overcharging businesses that don’t qualify for a group.

The attorney for the class action group said the flawed method entices employers with unrealistically low premiums. When a work-related injury occurs and forces a business out of a group, it creates a risk-averse system that allows the group to maintain a pristine claim experience and artificially low premiums because the ejected member must now pay excessively high premiums.

The bottom line is that monopolistic state funds do not act like a true business or insurance carrier. That is why they are not sustainable in today's current insurance market. There are now only four monopolistic funds left. If they do not adopt business models similar to the regular market insurance carriers, the remaining ones will likely not survive.

Who will eventually pay for the possible $1.5 billion from the Ohio mess? The taxpayers will end up with the tab.

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