How About a Flat Fee?
More employers wanting predictability in the fees they pay workers’ comp third-party administrators are negotiating to pay a single, flat fee for bill-review services, sources tell me. The arrangements follow from criticisms some employers, their brokers and consultants have heaped on TPAs, saying traditional TPA charges for bill-review services obscure the ultimate cost of those services.
Under traditional arrangements, a TPA might charge an employer on a per-bill basis for each medical-provider bill reviewed. Or, they might charge on a per-line basis, tallying a fee for each expense line on a bill. They can also charge the employer according to the percentage of savings produced by the bill-review process.
The inconsistency in billing methods has fueled suspicion that some TPAs — operating in a highly competitive environment — win business by bidding to provide basic claim-handling and administration at a low cost, and then boost their revenue with additional charges.
TPA executives have countered that their billing measures are transparent, at times even arguing that brokers stir the controversy to attract consulting business. But questions remain.
TPAs also differ from one to the next in their billing formats for the broad range of other claims management services they offer. So employers with the resources to do so often pay their brokers or consultants additional sums to analyze their bills and to help them select the best TPA agreement for them.
Srivatsan Sridharan, senior vice president, product development for TPA Gallagher Bassett Services Inc., said more large employers are negotiating to pay a consistent flat, per-bill fee for all bill-review-related services for each claim. The employer then pays additional amounts for claims handling and all of the other TPA services required to resolve a claim, although the charges for those other services have tended to be more predictable than the bill-review fees.
Data collection has made it possible for TPAs to model an employer’s expected claims-management expenses and accommodate flat-fee deals, Sridharan said. Such arrangements won’t reduce the cost of managing a claim, but they can make bill review costs more predictable, he added.
In a similar vein, brokers meeting privately with TPA executives during the National Workers’ Compensation and Disability Conference® & Expo, held in late November, asked TPAs about their willingness to charge one, all-inclusive fee for an employer’s entire book of claims business, said Joe Picone, chief claim officer for Willis of North America.
Ultimately, employers want to know the “true cost” of managing their claims and this “could be the next evolution of TPA pricing,” Picone said. “Why don’t we just say, ‘Instead of paying $1,500 per claim, my whole contract is worth $1 million or $500,000.’ ”
The mountain of workers’ comp claims data that TPAs collect could help make the broader flat-fee arrangement possible, at least theoretically, because TPAs could mine the data to predict the claims management costs an employer will generate when operating in a specific region and industry, with certain employee demographics and exposure differences.
We will have to wait and see whether innovative employers and TPAs go down that path.
But additional employer options for paying workers’ comp expenses would be a good thing. And with data increasingly available to help TPAs and employers understand claims-management costs, the time is right for employers wanting pricing predictability to seek change.
Fate of Two Comp Alternatives Lies With Courts
The push to reform state workers’ compensation systems to allow employers to opt out is by no means secure in Oklahoma, the first state to enact such reform. Similar efforts face new challenges in Tennessee, the second state to seek opt-out legislation.
Eight of nine current Oklahoma Supreme Court justices received their appointments from Democratic governors. In April the justices will hear a constitutional challenge to the law allowing employers to leave the Sooner workers’ comp system by implementing an alternative benefits plan.
By contrast, a conservative legislature and Republican governor friendly toward business interests adopted the opt-out legislation in 2013, bringing the opt-out alternative into law beginning in early 2014.
Claimants presenting the constitutional challenge before Oklahoma’s Supreme Court argue the law is unconstitutional because it denies injured workers due process and creates two sets of workers with disparate rights.
The court’s justices may be sympathetic to such an argument.
Past Oklahoma Supreme Court rulings make it apparent the body leans more liberal in judgment than the state’s “very, very conservative legislature,” said Trey Gillespie, senior workers’ comp director at the Property Casualty Insurers Assn. of America.
“I think everybody in Oklahoma will agree the Oklahoma Supreme Court is significantly more liberal in their view of the construction of laws and the application of laws than the Oklahoma Senate and House of Representatives,” Gillespie said. “There have been instances…where it appears the Oklahoma Supreme Court seems to get a lot of joy out of declaring certain acts of the Oklahoma legislature unconstitutional.”
Bill Minick, president of consulting firm PartnerSource and a chief proponent of efforts to allow opting out of state workers’ comp systems, called the Oklahoma Supreme Court’s makeup “a legitimate consideration.”
But Minick argues that the lawsuit’s goal of preventing employer’s from opting out of Oklahoma’s workers’ comp system will fail in the long run. It “is clear that the Oklahoma legislature is committed to do anything necessary to preserve” the law adopted as the Employee Injury Benefit Act, he said.
Gillespie said opt-out backers are already urging Oklahoma legislation that would adjust the law to mitigate the impact should the lawsuit plaintiffs prevail.
Gillespie and Minick will both speak at the National Workers’ Compensation and Disability Conference & Expo to be held November 11-13 in Las Vegas. They will present two divergent viewpoints on opt out.
Meanwhile, on March 25, Tennessee legislators in the House Consumer and Human Relations Subcommittee deferred taking action on opt-out legislation, which could delay further consideration of its passage until next year.
Two days prior, a Tennessee Advisory Council on Workers’ Compensation voted 6-0 against recommending the legislation that would allow employers to leave the state’s workers’ comp system and set up alternative plans.
The advisory council provides research and recommendations to Tennessee’s General Assembly and to state agencies. Mr. Gillespie testified before the council against the opt-out legislation, embedded in Senate Bill 0721 and House Bill 0997.
Tennessee is the first state where proponents for laws allowing employers to opt out of state workers’ comp systems are seeking favorable legislation after winning the right to do so in Oklahoma.
Conditions for Oklahoma’s adoption of an opt-out alternative were ripe at the time of that legislation’s signing into law by Republican Gov. Mary Fallin. Oklahoma employers were frustrated with a dysfunctional workers’ compensation system while neighboring Texas provided an example of advantages employers could gain by opting out.
Texas has allowed employers to opt-out of its workers’ comp system since that system was first created.
The case Oklahoma’s Supreme Court is scheduled to hear on April 14, is Judy Pilkington and Kim Lee V. State of Oklahoma.
Pilkington was injured in 2014, while working for retailer Dillard’s Inc. Lee was also injured in 2014, while an employee of Swift Transportation Co. of Arizona, according to their legal filing.
They claim Oklahoma’s opt-out law strips them of the right to have their workers’ comp cases heard by an unbiased body.
“There is no due process protection in allowing an Oklahoma employer to OPT OUT of the statutory workers’ compensation system, set up its own benefit plan, make all the decisions regarding benefits, determine who and how a plan can be reviewed, and have total control of the development of the record for appeal,” the plaintiffs’ Supreme Court filing states. “Nowhere along the way is there an agency or court or unbiased tribunal to look at the merits of an injured worker’s case. OPT OUT employers are allowed to replace a judge with a committee chosen by the employer.”
They also argue that the Oklahoma Injury Benefit Act creates disparate rights for accessing benefits. For example, injured employees working for employers that do not opt out generally have one year to file a claim while an employer that opts out may allow only a 24-hour statute of limitation, they claim.
Oklahoma’s constitution prohibits separate treatment of members of the same class of people, said Bob Burke, an attorney representing the plaintiffs.
Asked whether the Supreme Court justices about to hear his case are likely to be influenced by the fact that 8 of them were appointed by Democratic governors, Burke said that “the court has a tradition of maintaining access to justice for injured workers and anyone harmed.”
A Modern Claims Philosophy: Proactive and Integrated
According to some experts, “The best claim is the one that never happens.”
But is that even remotely realistic?
Experienced risk professionals know that in the real world, claims and losses are inevitable. After all, it’s called Risk Management, not Risk Avoidance.
And while no one likes losses, there are rich lessons to be gleaned from the claims management process. Through careful tracking and analysis of losses, risk professionals spot gaps in their risk control programs and identify new or emerging risks.
Aspen Insurance embraces this philosophy by viewing the data and expertise of their claims operation as a valuable asset. Unlike more traditional carriers, Aspen Insurance integrates their claims professionals into all of their client work – from the initial risk assessment and underwriting process through ongoing risk management consulting and loss control.
This proactive and integrated approach results in meaningful reductions to the frequency and severity of client losses. But when the inevitable does happen, Aspen Insurance claims professionals utilize their established understanding of client risks and operations to produce some truly amazing solutions.
“I worked at several of the most well known and respected insurance companies in my many years as a claims executive. But few of them utilize an approach that is as innovative as Aspen Insurance,” said Stephen Perrella, senior vice president, casualty claims, at Aspen Insurance.
“We do a lot of trending and data analysis to provide as much information as possible to our clients. Our analytics can help clients improve upon their own risk management procedures.”
— Stephen Perrella, Senior Vice President, Casualty Claims, Aspen Insurance
Utilizing claims expertise to improve underwriting
Acting as adviser and advocate, Aspen integrates the entire process under a coverage coordinator who ensures that the underwriters, claims and insureds agree on consistent, clear definitions and protocols. With claims professionals involved in the initial account review and the development of form language, Aspen’s underwriters have a full sense of risks so they can provide more specific and meaningful coverage, and identify risks and exclusions that the underwriter might not consider during a routine underwriting process.
“Most insurers don’t ever want to talk about claims and underwriting in the same sentence,” said Perrella. “That archaic view can potentially hurt the insurance company as well as their business partners.”
Aspen Insurance considered a company working on a large bridge refurbishment project on the West Coast as a potential insured, posing the array of generally anticipated construction-related risks. During underwriting, its claims managers discovered there was a large oil storage facility underneath the bridge. If a worker didn’t properly tether his or her tools, or a piece of steel fell onto a tank and fractured it, the consequences would be severe. Shutting down a widely used waterway channel for an oil cleanup would be devastating. The business interruption claims alone would be astronomical.
“We narrowed the opportunity for possible claims that the underwriter was unaware existed at the outset,” said Perrella.
Risk management improved
Claims professionals help Aspen Insurance’s clients with their risk management programs. When data analysis reveals high numbers of claims in a particular area, Aspen readily shares that information with the client. The Aspen team then works with the client to determine if there are better ways to handle certain processes.
“We do a lot of trending and data analysis to provide as much information as possible to our clients,” said Perrella. “Our analytics can help clients improve upon their own risk management procedures.”
For a large restaurant-and-entertainment group with locations in New York and Las Vegas, Aspen’s consultative approach has been critical. After meeting with risk managers and using analytics to study trends in the client’s portfolio, Aspen learned that the sheer size and volume of customers at each location led to disparate profiles of patron injuries.
Specifically, the organization had a high number of glass-related incidents across its multiple venues. So Aspen’s claims and underwriting professionals helped the organization implement new reporting protocols and risk-prevention strategies that led to a significant drop in glass-related claims over the following two years. Where one location would experience a disproportionate level of security assault or slip & fall claims, the possible genesis for those claims was discussed with the insured and corrective steps explored in response. Aspen’s proactive management of the account and working relationship with its principals led the organization to make changes that not only lowered the company’s exposures, but also kept patrons safer.
World-class claims management
Despite expert planning and careful prevention, losses and claims are inevitable. With Aspen’s claims department involved from the earliest stages of risk assessment, the department has developed world-class claims-processing capability.
“When a claim does arrive, everyone knows exactly how to operate,” said Perrella. “By understanding the perspectives of both the underwriters and the actuaries, our claims folks have grown to be better business people.
“We have dramatically reduced the potential for any problematic communication breakdown between our claims team, broker and the client,” said Perrella.
A fire ripped through an office building rendering it unusable by its seven tenants. An investigation revealed that an employee of the client intentionally set the fire. The client had not purchased business interruption insurance, and instead only had coverage for the physical damage to the building.
The Aspen claims team researched a way to assist the client in filing a third-party claim through secondary insurance that covered the business interruption portion of the loss. The attention, knowledge and creativity of the claims team saved the client from possible insurmountable losses.
Modernize your carrier relationship
Aspen Insurance’s claims philosophy is a great example of how this carrier’s innovative perspective is redefining the underwriter-client relationship. Learn more about how Aspen Insurance can benefit your risk management program at http://www.aspen.co/insurance/.
Stephen Perrella, Senior Vice President, Casualty, can be reached at Stephen.email@example.com.
This article is provided for news and information purposes only and does not necessarily represent Aspen’s views and does constitute legal advice. This article reflects the opinion of the author at the time it was written taking into account market, regulatory and other conditions at the time of writing which may change over time. Aspen does not undertake a duty to update the article.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Aspen Insurance. The editorial staff of Risk & Insurance had no role in its preparation.