Managing Long-Tail Workers’ Compensation Claims
Among the issues to watch for in Workers’ Compensation for 2017 is the impact of the U.S. election on OSHA regulations and ADA accommodations for workplace injuries, state legislative bills, and marijuana in the workplace as more states in 2016 have passed laws making recreational use legal. Also among the Workers’ Comp issues to keep an eye on is the ongoing challenge that both insurers and employers face: the long-tail nature of claims.
“Long tail” means that premiums collected today must cover losses for years to come. The claims tail is an issue to watch because of the impact it has on both carriers and employers in terms of cost of insurance today and future reserves. When an injury occurs, the insurance company sets aside “reserves” to cover the estimated cost of the injury until the case is closed. In many situations, a case can go on for years. The more long-tail claims an employer has, the higher the premiums.
The NCCI estimated a few years ago that 10% of Workers’ Comp medical costs are for claims more than 20 years old. Diseases are the largest contributor to costs, followed by complications from medical care. Drugs (38%), home health, implants/orthotics/prosthetics and other supplies make up 58% of costs, compared to 16% of costs for claims less than 20 years after injury. In fact, the biggest driver today of increasing claims-tail costs are advancements in medical science. Medical advancement translates into a longer life expectancy, which in turn increases the exposures for lifetime indemnity and medical benefits. Moreover, new drugs and treatments most of the time cost more than what they are replacing, especially when you consider the cost difference between brand-name drugs and generic medication. The use of prosthetics is also much more advanced today than a decade ago, but they also cost significantly more.
Managing these long-tail claims is necessary for helping to drive Workers’ Comp premium down. Following are several suggestions to review with clients:
- Track and review all claims regularly, not just the “current” employees or “open” claims. Have a plan for each of the long-tail claims.
- Take control. Insist on a real strategy and plan for every claim – a plan that should include closing out future medical exposure.
- Ensure claims accountability from the claims examiner and third-party administrator (TPA) managing the claims.
- Focus on medical or settlement solutions to close out claims.
Of course, the best way to manage long-tail claims is through loss prevention and safety programs to help stem injuries and illnesses in the first place.
About Caitlin Morgan
Caitlin Morgan, a leading MGA and wholesaler, offers Workers’ Compensation insurance solutions for a broad spectrum of clients and can assist you with providing safety programs, OSHA compliance, fraud prevention and claims management. To learn more about our solutions, contact us at 877.226.1027.