Employers with the financial capacity and who are actively engaged in risk management often benefit from a Large-Deductible Workers’ Compensation plans. The size of the deductible for these plans generally ranges from $100,000 to more than $1 million while Intermediate Deductible plans below these levels are also available.
Employers choose Large-Deductible plans because of their potential overall Workers’ Compensation program savings. The expectation is that the insurance premium saved by choosing a higher deductible will exceed that of the claims costs in a given policy year as a result of an employer’s sound loss-control and risk-management practices to boost safety and reduce the number of on-the-job injuries and accidents.
Yet understanding the costs of Large-Deductible plans are not as simple as comparing bottom-line premium estimates. Premiums are but just one component of the program costs and all premiums are not of equal value to the employer. Large-Deductible employers pay the medical and indemnity costs within the retention and, in addition, are generally responsible for the allocated loss expenses (ALAE) specifically applicable to the claim. Some of the most common allocated loss adjustment expenses are attorney fees, nurse case management, investigative services, digital searches, and medical bill review services.
Allocated loss adjustment expenses are a substantial cost component within the deductible retention, as important as and, sometimes as much as, the medical or indemnity expense. It’s important for the Large-Deductible buyer to understand whether the insurer or claims management company uses ALAE conservatively to reduce the ultimate losses or are claims expenses being inflated to cover costs that are generally provided for within the insurance premiums. This cost is less transparent due to the variable nature and can make low-cost premium programs ultimately the most expensive.
Claims-Handling Costs: The Devil Is in the Details
There are numerous types of claims expenses that fall under the ALAE category. One of the most common and least understood and most costly allocated claims expense is the percentage of savings from the State Medical Bill Review Schedule.
Each medical bill is compared to the applicable State Medical Bill Review Schedule, which sets the maximum allowable charge for a procedure code. The State Medical Bill Review Schedule has the most impact on bill reduction on average by a large margin versus PPO and other bill review services. The reduced fee is great for the insured, but unfortunately, often he does not see the entire savings. The insurer or TPA will take a percentage – anywhere between 20%-25% – of that savings. If the insurer changes a percentage of the State Fee Schedule, it’s important to factor in that expected cost when comparing proposals.
Insurers and TPAs may also charge on a per-claim basis categorized by report only, medical only or indemnity while others have a flat fee and include additional fees to cover the cost of certain conveniences, such as providing access to their system to view claims information. While an important service, a TPA may also assign Nurse Case Managers more often than typically necessary, which will overinflate the cost of the claim.
Increasingly more carriers are viewing their role in the claims process as a TPA rather than the way they manage their own claims in Guaranteed-Cost programs. Allocated loss adjustment expenses on average can surpass 30% of the per-claim cost. The cost of claims management therefore can vary dramatically and not necessarily be reflected in the premium quote in a Large-Deductible plan for a true apples-to-apples comparison.
Our Approach to Claims Management, Expenses
At Prescient National, we approach claims-handling for Large-Deductible clients in the same way we do with our own Guaranteed-Cost program claims. Claims management is not a revenue source for us but rather a way to reduce client claims costs. Unless specifically requested, we don’t quote a per-claim fee, it’s included in our premium. In addition, the entire fee-reduction savings based on the State Medical Review Bill Schedule is passed onto insureds. Nurse Case Managers when needed are assigned at our cost, with no additional profit mark-up.
In evaluating a Large-Deductible Workers’ Compensation plan, it’s critical for insurance brokers and their insureds to understand the extent of the additional expenses they are paying outside of their premiums to get the full picture of the costs of the program.