Workers’ Compensation Insights

Is Paying Small Workers’ Comp Claims Out-of-Pocket Ever a Good Idea?

Decades ago, it was not uncommon for a business to pay directly – rather than report – their company’s small claims. The thought was to avoid having those claims count against the experience modification factor (the “mod”). For Workers’ Comp insurance, medical-only claims are an important element in the experience modification rating process, and in many states these claims are reduced by 70% for the mod calculation. This reduction is known as the experience rating adjustment (ERA).

The ERA was implemented in the late 1990s to encourage employers to report all losses, not just those involving lost-time claims. 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.

Today, a reduction of medical-only losses 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?

Key Factors to Keep in Mind

Before determining 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

For most scenarios, determining the ultimate cost of paying small claims out-of-pocket requires a detailed analysis, accounting for all associated costs, such as any fines and applicable medical fee schedules. In all cases, knowing your state’s 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 agent at VTC Insurance Group 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.

Work With a Workers’ Compensation Specialist

VTC Insurance Group can help you 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. Give us a call at 248.828.3377 or visit vtcins.com.

This blog is for informational purposes only and is not intended as legal advice.