By Christopher Flatt, Workers’ Compensation Center of Excellence Leader for Marsh Inc.
Far too often, employers overemphasize claims administration fees when evaluating their workers’ compensation total cost of risk (TCOR). The reality is: Selecting a provider based on which one charges the lowest fee doesn’t always result in the most favorable claims outcomes. A more effective cost-containment strategy considers selecting claims administrators based on their ability to reduce variable medical cost outcomes and not solely on their claims handling, bill review, and other administrative fees.
Using analytics is an important step toward selecting the claims administrator that can have the most favorable impact on lowering your organization’s TCOR. Analytics help evaluate how various claims administrators would have responded to the same group of claims. This allows an employer to gain a more accurate estimate of their medical costs, more precise claims handling fee calculations, and a better understanding of each administrator’s specialized approach to reducing claim costs. All of which goes a long way to stem the increase in workers’ compensation TCOR.
How managed care services are charged varies by claims administrators. For example, while most claims administrators offer medical bill review and re-pricing services to aid in reducing or confirming medical bills, not all of them follow the same procedures, use the same software, access the same network providers, or receive the same discount arrangements. As a result, the total medical costs that employers pay may vary significantly among claims administrators. Analytics allow employers to evaluate different bill review programs against the same set of claims, thus gaining a better understanding of which claims administrator achieves the most cost-effective outcomes.
It’s also important to consider whether a claims administrator appropriately and aggressively manages medical costs continuously — from early in the life of a claim and as it ages. In a study published this month, “Medical Services for Claims 20 or More Years Old,” the National Council on Compensation Insurance (NCCI) noted: “It is likely that more than 10% of the cost of medical benefits for the workplace injuries that occur this year will be for services provided more than two decades into the future. That percentage has been growing and might continue to grow.”
Understanding the long-term exposure of the medical cost component of a workers’ compensation program highlights the need for specialized and focused claims handling throughout the life of a claim. The NCCI study clearly emphasizes the need for effective claims administration long into the life of a claim. Employers that invest in developing a relationship with a third-party claims administrator should assess whether the firm has the necessary expertise, appropriate adjuster case loads assigned at every point in the life of a claim, and the capability to manage the long-term medical components of workers’ compensation claims. This combination is likely to result in claims resolving more quickly and brings a greater chance to reduce ultimate claim costs and TCOR.
The ongoing efforts being taken within the workers’ compensation market to control rising medical costs has led to the emergence of many other specialized claims administration and managed care solutions. These solutions include outcome-based networks, on-call injury support and triage services, predictive analytics, pharmacy benefit management companies, bill review, and clinical case management protocols.
The decision on which claims administrator to select is significant, with long-term economic repercussions. Employers should review all aspects of their workers’ compensation total cost of risk when deciding on the optimal program to undertake. Maximizing the quality of care for injured employees and at the same time achieving the most economical claims outcomes is a complex task. It is important to look beyond the claims administration fee to achieve the best long-term medical cost outcomes.
About Christopher Flatt
Christopher Flatt joined the casualty practice of Marsh Inc. in 2012 to lead its Workers’ Compensation Center of Excellence. Prior to that, he spent 11 years at Marsh’s sister company Guy Carpenter, most recently serving as the lead workers’ compensation treaty reinsurance broker for several major clients. Mr. Flatt began his career as a casualty underwriter at The Hartford Financial Services Group and spent five years as a casualty reinsurance underwriter for a GE Capital portfolio company prior to joining Guy Carpenter. He is also an attorney.
Marsh, a global leader in insurance broking and risk management, teams with its clients to define, design, and deliver innovative industry-specific solutions that help them protect their future and thrive. It has approximately 26,000 colleagues who collaborate to provide advice and transactional capabilities to clients in over 100 countries. Marsh is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy, and human capital. With over 53,000 employees worldwide and annual revenue exceeding $11 billion, Marsh & McLennan Companies is also the parent company of Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; Mercer, a global leader in talent, health, retirement, and investment consulting; and Oliver Wyman, a global leader in management consulting. Follow Marsh on Twitter @Marsh_Inc.