Claim Problems – Retrospective Workers Compensation Plans

Retrospectively rated workers compensation plans are often presented to an employer as a way to save premium dollars; they often end up being a persistent problem and that problem often stems from improper claim handling by the insurance company. Lets talk.

Retro plans are extremely sophisticated programs designed to provide workers compensation coverage for an employer where the up front premium paid by the employer is only an administration fee that the insurance company charges to handle the employers claims. Now I know that this is a very simplified description but in this blog I only want to point out the effect improper claim handling can have.

When setting up a retro plan an insurance company should review the employers claim history in detail and establish what’s known as loss pics and run very complicated statistical projections of expected claims for the employer. All this is done to get a handle on what’s coming in the form of future claims. The insurance carrier will put this data together in a format that often shows the employer a savings over other fixed cost programs. Savings that often make moving into a retro plan very attractive especially for very large employer/policyholders. It allows the employer to use money that otherwise would go to the insurance company to hold to pay future claims when they occur.

You see, in a retro plan, the insurance company manages individual claims for the employer, they investigate those claims, their adjusters process those claims and they pay those claims. Then they turn around and bill the employer for the actual claim cost.

The idea here is that the insurance company is experienced at managing workers compensation claims. That their staff of claims adjusters know what they’re doing and will conduct themselves in the best interest of their client, the employer. Most of the time that’s what happens.

But what happens when claims are paid that should not be paid? What happens when claims are improperly handled and overpaid?

Remember, under retro plans, the employer is really hiring the insurance company to administer their work comp claims. The insurance company is basically being paid a fee for service in the form of the premium they are charging.

Remember it’s the employer who’s really paying their own claim costs out of their pocket by reimbursing the insurance company.

Two things happen when a retrospective rating claim is mishandled:

  • The employer incurs an unnecessary direct out-of-pocket cost – (they pay claims they shouldn’t have been paid)
  • The employer incurs an indirect out-of-pocket cost in the form of higher experience rating modification factors – (improperly paid claims are still reported to the rating bureau and included in the EMR calculations)

Steps that an employer/policyholder should take:

  • Verify that claims paid by your insurance company are actually legitimate claims that should have been paid –
  • Verify that legitimate claims are not overpaid but are properly paid and settled –
  • Have your claims reviewed by an outside, independent workers compensation consultant –

If your company uses a work comp retro plan you should always consider having your claim experience verified by conducting an independent claim file review!

Keep in mind that every mishandled claim dollar spent under a retrospective rating plan is an over-payment by the employer!

Hope this helps you out and thanks for reading!