How do you know if you need an Expert Witness or Litigation Support to help with your workers compensation retrospective plan problem? Employers who use or are involved in retrospective rating plans for workers compensation may eventually face a very expensive reality. That reality usually comes in the form of extensive reserve adjustments that occur years after the end of the retro policy period. Be sure to visit our website page on workers compensation retrospective rating plans where you can learn a great deal about how these plans work. But in this post lets talk about the who, what, when, and why of improper retro adjustments and the associated costs they cause.
In a nutshell, an employer enters into an agreement with an insurance company to provide workers compensation services for its business. These agreements differ from the standard guaranteed cost plans in that the employer pays the insurance company a base premium based on the insurance company projecting its expenses to provide the service. Then when a claim occurs the insurance company claims department handles the claim by paying medical and indemnity costs then turns around and recoup these claim dollars paid by billing the employer for the actual costs incurred. So at the beginning of the policy the employer pays the insurance company its negotiated fee for handling the claims less the actual claim cost which is billed to the employer at a future date. Billing by the insurance company and payment by the employer of the actual claim dollars is accomplished through a process known as a retrospective premium adjustment.
Retro adjustments are typically made at scheduled intervals after the expiration of the policy. Six, eighteen and thirty months are somewhat usual. However if the retro remains open then additional future adjustments may continue to be made and the employer will be obligated to continue making payments long after they imagined they would.
Improper retro adjustments are often linked to improper claim handling by the contracted insurance company. Its been estimated that somewhere between 40% – 60% and over of claims settled by the insurance company are done so incorrectly. With retrospective rating, claim dollars paid and reserved by the insurance company have a direct impact on the employers check book. Think about it. When a claim is paid that should not have been, the employer is still presented with a bill from the insurance company who expects it to be paid.
The Problem: The insurance company investigates, pays medical and indemnity (lost wages,) establishes claim reserves and settles claims. The employer has little or no access or contribution during this process. The employer is presented with reserve adjustments and large unexpected additional premium bills long after the retro policy has expired.
These plans are complicated and should be reserved for use by employers schooled in the benefits and pitfalls of their use. They are not for the inexperienced employer!
Hope this helps you out and thanks for reading!