by Maureen Gallagher, WorkCompEdge Contributor
Will paying small medical-only bills rather than reporting them to the carrier save you money – or cost you? The answer’s not simple!
The most common question an insurance agent gets from employers is whether or not they should pay (or continue to pay) small medical bills on workers compensation claims rather than submitting them to the insurance carriers for payment. The answer to this question is not simple. It can depend on several factors including:
- Whether or not the state has approved the Experience Rating Adjustment (ERA) in their experience modification formula.
- Whether or not the employer has expertise in paying according to the state fee or reasonable and customary schedule and/or has access to discounted medical networks as insurance carriers do.
- Whether or not a small deductible to handle small medical claims might be more appropriate and assist in complying with state rules.
- Understanding the state rules and penalties where the employer is located.
- Whether or not the state of operation has a favorable alternative option for handling small medical claims.
- How organized and detailed the employer is.
An Analysis of Reporting vs. Not Reporting in ERA States
Many of you do business in states which have approved the Experience Rating Adjustment (ERA) to the experience mod formula. Medical-only claims, also known as injury code 6 claims, are reduced by 70% in states where ERA is approved before they are utilized in the experience rating process. Also, the expected loss rate and discount ratio, used to compute expected losses and expected primary losses, have been changed to reflect that medical-only claims will be reduced by 70%.
Many feel the incentive to not report medical-only claims has been eliminated in states where ERA is approved. In the interest of showing that, I performed several “what if” scenarios on employers either reporting to the carrier or paying medical-only claims on their own in ERA states and its impact on the Experience Modification and the employer’s overall costs. The studies are conclusive that the employer did not save money by paying medical-only claims itself in an ERA state, particularly if the employer does not know how to apply the state fee schedule and/or has no access to discounted networks like those developed by insurance carriers. Here is an example.
No State Fee Schedule or Discounted Insurance Carrier Network Applied
Cost (premium) where all claims were reported
Cost (premium) where employer did not report medical-only claims
Premium Savings due to reduction in experience modification for not reporting medical-only claims.
Premium savings over three years due to the reduction in the experience modification for not reporting medical-only claims
Medical Claims cost paid by the employer
Additional cost to employer due to not reporting medical-only claims
The variances among states dictate that there is no one, simple answer to the employer’s quandary of whether to pay small medical-only claims or turn them in to the insurance carriers for payment. An employer must weigh the advantages and disadvantages of paying small medical claims after obtaining a complete understanding of their state’s rules and laws, evaluating their staff’s ability to effectively manage their own medical bills and reviewing the insurance alternatives available that take paying small medical claims into consideration.