Claims management organization washington state
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Chapter One: Claims Management
In Chapter I of the report, Claims Management Organization, Washington's claims management organization will be analyzed and recommendations presented in three sections:
1. Background ? provides an overview of Washington workers' compensation insurance, and covers the three main insurance "types" that formed the focus of the audit.
2. Structure of the L&I Claims Management Program ? examines the claims management program with an eye towards efficiency.
3. Claims Management Differences Based on Insurance "Type" ? analyzes the differences between the three types of insurance.
1.1 WORKERS' COMPENSATION INSURANCE
First, we will provide a general description of the system used in Washington for workers' compensation insurance. There are essentially three "types": Self-Insured, Insured, and then within the Insured type, Retrospective Rated.
We will start with an overview of the "Insured" type, which is the traditional form of workers' compensation insurance and is the default requirement in Washington. Over the past 100 years, state workers' compensation systems in the United States have tended to converge on a few design and administrative principles. They typically involve some form of "no fault" insurance purchased by employers that provides statutory benefits to workers who suffer workplace injuries.
Workers' compensation insurance is mandatory in Washington. However, as in other states, there are some exclusions, the result of which is that approximately 2.5% of Washington workers are not covered.1 Certain domestic employees working in private homes, persons hired for gardening or maintenance at private homes, horse-racing jockeys, newspaper carriers, children under 18 years of age working on a family farm, and barbers who lease booth space are examples of employments that are excluded. Additionally, business owners are generally excluded, but can opt to purchase coverage. Finally, employments covered by other programs, such as the Federal Employees' Compensation Act, the Jones Act, or the Longshore and Harbor Workers Act are not required to have Washington workers' compensation insurance.
1 Table 3 and Table A, Workers' Compensation: Benefits, Coverage, and Costs 2012, National Academy of Social Insurance, Aug. 2014 (available at ) (reporting 2.75 million Washington workers covered by workers' compensation).
Washington's workers' compensation insurance system is administered by the Department of Labor and Industries (L&I), which manages and pays claims out of a pooled fund called the Washington State Fund (State Fund.) The State Fund is the exclusive insurance mechanism for workers' compensation in Washington. Besides Washington, in the United States this relatively unique structure is in place in Wyoming, North Dakota, and Ohio.2 In other states, most workers' compensation insurance is purchased from private insurance carriers or a competitive state fund. Canadian jurisdictions utilize the exclusive insurance structure.
Washington workers' compensation premiums are paid by both employers and workers. ? Employer premiums fund the "Accident Fund," which pays non-medical claim costs, such as income-
replacement benefits. ? Both employer and worker premiums fund the remaining three funds: Medical Aid, which pays for
medical care; Stay-at-Work, which partially reimburses employers for wages and other expenses from bringing injured workers back to light-duty or transitional jobs; and Supplemental Pension, which provides cost-of-living increases to workers with extended disabilities.
Employers are responsible for payment to L&I of the entire premium. For the three funds where employee contributions are allowed, the rate for each fund is split 50/50 between employers and employees. In 2014, the workers' share of premium was $343 million while employers paid $1,514 million. Worker-funded premiums are atypical among workers' compensation systems. Employers may collect the employee share through payroll deductions, based on a rate for each risk class assigned to a business and authorized by L&I. L&I reports that some employers choose not to make payroll deductions, but fund the premium without employee contributions.
Washington also provides for self-insurance, as set forth in RCW 51.14.010 and WAC 296-15-021. Approximately one-quarter of Washington employees work for approximately 360 self-insured employers.3
An employer that meets certain eligibility criteria, primarily involving financial stability and solvency, is able to apply to L&I for certification as a self-insured employer. Certified employers are required to post security to ensure that losses can be paid in case of insolvency. Typically, self-insured employers are larger employers with sophisticated business practices, such as well-developed benefits programs and multi-state operations. To qualify, employers must: ? Be in business for at least 3 years ? Possess total assets of at least $25 million as verified by fully audited financial statements ? Submit 3 years' worth of fully audited financial statements in the name of the applicant with the
application ? Meet all of the following financial standards
o A current liquidity ratio of at least 1.3 to 1 o Positive debt-to-net-worth ratio of not greater than 4 to 1
2 This structure is often referred to as a "monopolistic" or "exclusive" state-fund program. In contrast, many states utilize a state fund to provide workers' compensation insurance, but the funds either insure select groups of employers, such as state agencies or higher-risk, difficult-to-insure employers, or they compete with private insurers and are simply another option for securing workers' compensation insurance. 3 Fiscal Year 2014. From L&I Facts and Figures, available at .
o Positive earnings in the current year and in 2 of the last 3 years o Overall positive earnings for the period.
Additionally, self-insured employers must have an L&I-approved accident-prevention program. L&I can require the self-insurer to supply a surety bond of a sufficient amount to secure claims payment in the event of bankruptcy by the employer.
1.3 RETROSPECTIVE RATING PROGRAM
Three-quarters of Washington employees work for employers that purchase workers' compensation insurance from the State Fund, a significant portion of which elect to participate in L&I's Retrospective Rating Program (Retro).4 Retro employers are given financial incentives to reduce their workers' compensation claims and claim costs. They face the risk of paying more than standard premium if their losses are unusually high in exchange for potential premium savings if they have losses that are lower than the actuarial target for an employer of their size and risk classification. The following is an excerpt from the "Employers' Guide to Workers' Compensation Insurance in Washington State":
If you are committed to operating a safe workplace, preventing accidents and managing workers' compensation claims effectively, you may be interested in L&I's Retrospective Rating Program (Retro).
Retro is an optional financial incentive program offered by Labor & Industries to help qualifying employers reduce their workers' compensation costs. Employers can enroll on their own or in a group plan sponsored by a trade association or professional organization. Employers may receive premium refunds or they may be assessed additional premium based on their performance.
Enrollment in this program occurs four times each year. Coverage runs for one year, beginning January 1, April 1, July 1 or October 1.5
About one-quarter of Washington workers are employed by State Fund employers who are part of the Retro program; about one-half of Washington workers are employed by State Fund employers that are not part of the Retro program.6 Total premiums paid by Retro employers in 2013 was $725 million; for non-Retro employers total premium for the same period was $1,066 million.7
Premiums for any insured employer ? Retro or not ? are based on the risk class of the employment and on the particular experience of the insured employer. Premiums are based on actual hours worked, whereas most workers' compensation systems use payroll as the basis for insurance premiums. Rates for particular risk classes (e.g. clerical) are based on actuarial analysis of the entire risk class. Experience, on the other hand, is based on the individual losses (or not) of a particular employer. The Retro program makes the premiums paid by Retro participants in any given coverage year sensitive to the experience or losses incurred by participating employers. Within plan limits, premiums paid by Retro participants
4 Ibid. 5 See , p. 23. 6 Source: L&I actuarial report, based on total reported hours, used to determine premium, and derived using full-time employment hours of 1,920 annually (reporting that among State Fund workers, which comprise 75% of the total WA workforce covered by workers' compensation, 35% are with Retro employers and 65% are with non-retro employers). 7 See .
(after assessments for additional premium or refunds) are tied to the actual losses in the year of coverage. By contrast, premiums paid by non-Retro employers are fixed for the coverage year, though they will be adjusted in future years based on actual loss experience. Employers are able to participate in the Retro program either individually, or as a member of a Retro group. The following table highlights the distinction between the two:
Exhibit 1-1: Group vs. Individual Retro Participation
Group vs. Individual Retro Participation Group
Minimum There is no minimum annual premium for you to enroll in Retro premium as part of a group. amount
Your standard premium (accident and medical aid fund premium) must be at least $5,850.
You must be a member of the association that sponsors the
group, which will have membership dues.
Most groups also charge their members a fee in return for
administering the Retro group. This may be:
? A flat fee.
? A percentage of refunds.
? A percentage of premiums.
? A combination of these.
No extra fees.
Many groups offer services to improve the group's Retro performance. These also often help members' experience factor and rates improve over time. Services may include accident prevention training, and direct claim management help from the association or a third-party administrator.
No extra services.
Groups typically have better refund potential because they have a larger premium total. Retro is "premium sensitive," meaning the larger the premium, the greater the percentage refund for a given amount of risk. A large group risking 10% might realize a 20-40% refund.
If you're a small premium payer, your potential refund is lower than large groups. For example, if you are risking 10% on your own, you might realize a 3-15% refund.
The association managing the group selects the Retro plan type, You choose the plan type,
minimum and maximum loss ratios, and single loss limits. This minimum and maximum loss
means less control for you, but less to research and decide.
ratios, and single loss limits.
Risk is spread within the group. If you have a bad claim year, you Your refund or assessment is
might still get a refund if the group has done well overall.
based entirely on your own
However, if you have a good claim year, you may end up with an performance.
assessment (paying more premium) if the group didn't do well.
How to Contact an association that sponsors a group. enroll
Source: L&I, . Note that as indicated in the chart, there is no minimum premium for an employer to join a Retro group, but to be enrolled as a new group, the group itself is subject to a minimum: "The standard premiums for the group members for the four quarters prior to enrollment total at least one million five hundred thousand dollars." WAC 296-17B-220(6).
2 STRUCTURE OF THE L&I CLAIMS MANAGEMENT PROGRAM
In this section, we will address the State Fund claims management structure. In the next section we will address structural differences in how claims are processed for the State Fund (Retro and non-Retro) and self-insured employers.
As general context, claims of workers of employers with State Fund provided insurance are managed by claims managers (CMs) at L&I. For self-insured employers, claims are handled directly by the employer or, more commonly, by private third party administrators (TPAs), with administrative oversight and some specific decisions made by a separate section called the L&I Self-insurance Division. Claims of Retro participants are handled by L&I CMs in the same manner as all State Fund claims. Adjudication of disputes (protests) brought by employers & workers, regardless of State Fund or self-insured status, are initially handled by L&I and can be appealed (directly or after protest) to the Bureau of Industrial Insurance Appeals (BIIA).
2.1 STATE FUND CLAIM MANAGEMENT
In Washington, there are roughly 144,000 reported workplace accidents each year; about 22% involve lost time, and the rest involve only medical treatment.8 Of all reported claims, roughly 85% are accepted, or "allowed"; thus there are approximately 122,000 accepted claims each year. The vast majority of claims (over 95%) are categorized as "injury" claims, as opposed to "illness" claims, e.g. occupationaldisease claims.
Among the approximate 122,000 claims accepted annually, 85,000 involve State Fund employers, and 37,000 involve Self-Insured employers. Among State Fund allowed claims, the Retro/Non-Retro split is roughly 44%/56%. The 85,000 State Fund claims require hundreds of thousands of decisions and actions annually by the Department. The following graphic presents an approximate, conceptual representation of these volumes.
Exhibit 1-2: L&I Claim Volume by Type
Source: WorkComp Strategies
L&I has 28 units designated for managing State Fund claims. Each unit has between 9 and 14 staff members and supervisors; in 2013, units began being staffed with "claim processors," who provide support to CMs for claim management activities. The formal CM job title is "Workers' Compensation
8 These figures are general approximations, based on L&I data from 2010-2013, as of December 31, 2013. In 2010 there were 144,037 reported claims, 31,681 reported time-loss claims, 126,458 accepted claims (86,929 State Fund, 39,529 self-insured), and 121,170 accepted injury claims; statistics for other years are provided in Appendix 3 ? Methodology.
Adjudicator," or "WCA." CMs advance from an entry level (level 1) up to level 4. There is a formal apprentice program that lasts 22 months; after completion of the program, the CM reaches "Journey" level. A level 3 CM has on average 6.5 years of service. As of October 2014, there were a total of 408 staff members in the claims section, distributed as follows:
Exhibit 1-3: Claims Section Staffing Position Office Assistant 3 Office Assistant Lead Program Coordinator Data Complier Claim Processors WCA 1 WCA 2 Apprentice WCA 2 Option 2 Specialist (WCA 2) WCA 3 WCA 4 (includes trainers & coaches) Program Support Supervisor 2 Industrial Insurance Supervisor Management Analyst 3 Management Analyst 4 Administrative Assistant 3 Administrative Assistant 5 Senior Project Manager Business Project Manager Program Manager Operations Manager Chief of Claims Total
Source: L&I, October 2014
Staff Members 40 04 09 01 27 10 33 90 01 85 49 04 31 02 03 08 01 01 01 01 06 01 408
Note that the regulatory scope of L&I is much broader than claims management. Exhibit 1-4 is an organizational chart shows the many functions of L&I. The claims management function is within the Insurance Services Division.
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