Workers' compensation is more challenging than ever before. Payers are continually navigating a delicate balance between ensuring injured workers' receive appropriate treatment and cost containment. Many of the headlines we see related to cost controls are focused on medical costs. And, while this remains critical, it's also important to bring attention to the costs associated with managing indemnity payments.
We all know that indemnity payments play a significant role in claim costs—anywhere from 40%-60% of expenses associated with a claim. The actual amount depends on numerous factors ranging from severity to how long the claim is open. However, increasing administrative burdens, workforce dynamics and processing fees associated with indemnity payments may actually be costing payers more than necessary.
As a payer, do you know what is actually driving up costs of administering indemnity payments to injured workers? Test yourself below by determining which statements are a myth or a reality.
Myth or Reality: Writing checks to pay indemnity is more cost effective and efficient than ever before.
Myth: Writing and mailing checks is more expensive than ever with the rise in printing, paper and postage costs. They also add inefficiencies. When you consider how much time is spent processing checks, fielding inquiries and navigating lost or stolen checks, your administrative costs are actually higher. In addition, there's no guarantee that injured workers have a permanent mailing address. That means escheatment is another inefficient and expensive result of check writing. These type of payments may also result in higher propensity for internal and external fraud.
Myth or Reality: EFT processing is not always the most efficient way to pay indemnity.
Reality: While it's less expensive to use EFT over writing a check, there are still many challenges with this form of payment. For example, injured workers are required to provide a bank account number—not something that is always easy to obtain as many workers don't have a consistent bank account. For example, according to the FDIC, 25 million Americans are currently unbanked or underbanked. The reason for this is typically because they do not earn enough income to sustain an account or are transient. Other challenges with EFT payments include incorrect distribution, potential duplication of payments, delays in posting and processing fees (sometimes per transaction).
Myth or Reality: An increase in remote workers has an insignificant impact on indemnity payment processing.
Myth: While most of today’s workforce still heads to the office, factory or jobsite each day, the number of remote workers continues to rise. According to the U.S. Census between 2005 and 2012, there was a 79% increase in the number of us working from a home office, on the road or on a remote worksite.
There is an added complexity to indemnity payment processing for numerous reasons when remote employees are hurt on the job. For example, they may not have access to a branch of a local bank. This is especially true for the nation's 3.5 million truck drivers (Source: American Trucking Associations), migrant or seasonal workers who may be eligible for workers’ compensation.
Myth or Reality: Claim severity does not impact indemnity payments.
Myth: The more severe the injury, the increased likelihood an injured worker will receive indemnity payments and for a longer duration. While claim frequency has declined over the last 10 years, indemnity claim severity (which includes expenses for medical, indemnity and defense) experienced a 2% increase (Source: NCCI).
This is important to note because the longer a claim is open, the greater the number of indemnity payments that must be pushed through the workers’ compensation revenue cycle. Administrative costs can quickly add up when using traditional payment solutions such as checks or electronic funds transfer (EFT). In addition to extra fees, payers must go to greater lengths to reduce the opportunity for missed, duplicate or incorrect payments.
Myth or Reality: Every state has realized a decline in indemnity.
Myth: Actually, states such as California and Indiana have seen an increase in indemnity payments. For example, a study by the California Workers' Compensation Institute found that the state's indemnity claim frequency saw its largest increase in a decade.
If issues such as opioid utilization and comorbidities are not addressed, other states are projected to experience an increase in indemnity. As a result, payers will face a significant increase in per-claim expenses associated with processing and managing worker's compensation indemnity payments.
Myth or Reality: Corporate fraud impacts workers' compensation indemnity payment processing.
Reality: Occupational fraud costs U.S. businesses millions of dollars per year and continues to rise. That means companies need to put stringent controls on workers' compensation payments—particularly traditional forms of payments such as checks. This, combined with corporate data breaches more frequently making headlines, makes it increasingly difficult to obtain bank information from an injured worker.
Myth or Reality: Card-based solutions may streamline indemnity payments.
Reality: There was a time when consumers were not comfortable using credit cards. However, times have changed according to a recent Federal Reserve study. U.S. card-based payments increased by $17.8 billion while non-card payments decreased by as much as $3.1 billion between 2009 and 2012. The reasons for this could include bank neutrality, no need for a permanent address and convenience in receiving faster and more efficient payments. Another benefit of card-based solutions is the ability to report a lost or stolen card immediately—something that can't be done as easily with checks or an EFT payment.
There are also significant benefits to card based indemnity payments for workers' compensation payers. Payments can automatically be loaded onto the card for the duration of indemnity, eliminating the need to electronically transfer funds or print and mail checks every time a payment is processed. In addition to streamlining payment processing, payers will ultimately realize lower processing fees and operational expenses, fewer errors and less escheatment. Card-based payments also ensure accurate and timely payments for all workers, mitigate internal and external fraud, offer liability protection, and let adjusters focus on managing injured worker medical treatment.
Myth or Reality: All card-based solutions partners are the same.
Myth: Not all card-based solutions partners are the same. Here are a few things to consider when selecting the ideal partner. It's important to work with an experienced, bank neutral partner that maintains its technology and administering of funds in-house. This ensures that once funds are transferred by your organization they will be handled by one entity, leaving less chance for processing errors or lost funds. Bank neutrality also eliminates the potential for conflicts of interest with your current bank partner. It's also critical to ensure that your card-based solution partner offers protection through a card issuer like MasterCard and has the ability to manage all inquiries about cards.
Hopefully, you now have some clarity on the realistic impact indemnity payments have on workers' compensation claim costs. If you're still writing checks or processing EFTs as your primary method of fulfilling indemnity payments, it may be time to take a second look.
At Prime Insurance Agency, we can work with you to make sure you've got the coverage you need, while at the same time using all possible credits and discounts to make that coverage affordable.
Call us at 732-886-5751 or send us a note at PRIME [at] primeins [dot] com. We want to help you meet your goals, and make sure what's important to you is protected!