Work Comp Insights
Is Paying Small Work Comp Claims Out of Pocket Ever a Good Idea?
The question at the heart of this debate is whether paying small medical-only claims out of pocket is ever a good idea. The short answer, in most scenarios, is no.
Medical-only claims are an important factor in the experience modification rating process. In many states, these claims, also known as injury or IJ code type 6 losses, are reduced by 70 percent for the mod calculation. This reduction is known as the experience rating adjustment (ERA).
The ERA was implemented in many states in the late 1990s as a way to encourage employers to report all losses, not just those involving lost-time claims. At that time, it was common for companies to pay, rather than report, their small claims in order to avoid having those claims count against the experience modification factor, or the mod. The National Council on Compensation Insurance (NCCI) and other stakeholders were interested in collecting all possible data for statistical and actuarial purposes, so the ERA was introduced.
More than 15 years later, a reduction of medical-only losses now applies in 38 states, but there is still a fair amount of talk about employers self-paying small workers’ compensation claims—even in ERA states. This raises the question: Is paying small medical-only claims out of pocket ever a good idea? Examining a few hypothetical scenarios will allow employers to try to answer the question analytically.
Key Factors to Keep in Mind
Before examining the scenarios to determine whether self-payment saves or costs the employer, keep the following in mind:
- Self-payment of small claims is not legal in all states, and may be subject to fines or penalties. Specific rules are determined by state workers’ compensation statutes.
For example, the Missouri Department of Insurance specifically suggests that employers take advantage of the state’s Employers Paid Medical Program to reduce the cost of their workers’ compensation average. It’s important to know the rules in your state.
- Self-payment of claims also has implications at the federal level if injured employees are eligible for Medicare.
- Employer access to state or “reasonable and customary” fee schedules is an important consideration in the cost of self-paid claims.
- Employers paying small claims out of pocket may risk liability if those claims develop into something more costly.
Analyze Your Choices
There are a myriad of reasons that ultimate costs could vary other than these two scenarios. However, in most scenarios, paying small claims out of pocket demands a detailed analysis that accounts for all associated costs, such as any fines and applicable medical fee schedules. In all cases, knowing your state rules is imperative. Refer to your state’s Department of Insurance or to the NCCI’s Unit Statistical Reporting Guidebook for more information.
Claiming all losses results in better data—not just for the bureaus or insurance carriers, but also for you as an employer. And better data leads to more meaningful analysis opportunities.
Work with your broker at Southwest Risk Management to analyze and act on your mod data. Getting the complete picture reveals all trends and will help you drive the most appropriate operational initiatives towards improvement.
For more information visit WORKERS COMPENSATION or contact a SW Risk Specialist at 1-866-824-7976 (SWRM).
