Disputing a Workers Comp Audit

When an employer strongly disagrees with the results of a Workers Comp premium audit, there can be an understandable tendency to ascribe base motives to the auditor and to vent one's frustrations in unmistakable terms. But this can be a mistake, giving the insurance company a basis to dismiss legitimate objections.

Here are some thoughts and strategies regarding how to effectively dispute a Workers Compensation insurance premium audit.

"Tis The Season

...For Workers Comp audits, that is. Yes, now that the holidays are over and Santa has safely returned to the North Pole, employers whose Workers Comp policies expired in late December or early January can now anticipate a visit from someone else who makes regular rounds every year--the premium auditor.

An awful lot of Workers Comp policies expire with the calendar year, and so premium auditors everywhere are starting to reach out and schedule audits for those policies. Unlike Santa's annual trip however, these visits sometimes do not spread joy and happiness across the land. Sometimes, premium audits become occasions for dispute, distress, and despair--especially if the audit generates unexpectedly large amounts of additional premium charges.

Employers need to pay their fair and appropriate WC premiums, of course. But sometimes, due to poor communications and documentation, the audit process can become a bit of a nightmare for the insured employer. The insurance industry does not always do as good a job as it might in communicating in advance just how premiums will be calculated, and business owners and managers can receive very unpleasant shocks when those audit bills arrive.

A bit of preparation can help reduce audit friction and pain. For our suggestions, take a look at our website advice for employers.

Certificates of Insurance: Worth The Paper They're Printed On?

Interesting news item from California, about an insurance agent arrested for misappropriating Workers Comp insurance premiums and issuing bogus Certificates of Insurance.  And it reminded me of what a poor vehicle Certificates of Insurance really are for providing reliable information about insurance coverage.

A Certificate of Insurance is often issued by an insurance agent/broker on behalf of a client, to provide required evidence to some third party of insurance coverage being in place. But as this news story illustrates, an unscrupulous agent/broker can issue deceptive or fraudulent Certs that mislead the parties relying upon them. Even in less egregious cases, Certificates can mislead.

For one thing, the standard Certificate form says that the insurer will "endeavor" to inform certificate holders if the policy gets cancelled prior to the expiration date. "Endeavor" means, in this instance, "we'll sort of try to notify you, unless it's inconvenient for us, or if we just screw up, in which case you're S.O.L."  So if the policy runs until December 31st, but the policy gets cancelled August 5th for non-payment, the party relying on the Cert may or may not be informed that the insurance coverage has vanished.

And sometimes, the third party recipients of Certificates are demanding coverage details that are difficult or impossible to actually obtain in the real world. So some insurance agents/brokers will indicate on the Certificate that the policy complies with the unrealistic coverage requirement, even though the policies does not in fact so comply. And the fine print of the Certificate makes clear that if the Cert contradicts the actual policy, it is the policy that determines coverage, not the Cert.

For those interested in further reading on the subject, here's a White Paper prepared on Certificate of Insurance issues.

Oklahoma WC Changes Are OK, Says Court

The Oklahoma Supreme Court has ruled that recently-enacted changes to that state's Workers Compensation statutes are constitutional. The law, Senate Bill 1062, allows employers to opt out of the state administrative system, and create their own equivalent benefit plans for injured workers.

The OK law, modeled after a similar effort in Arkansas, eliminates the adversarial system for adjudicating Workers Compensation claims, and replaces it with an administrative system.

It will be interesting to watch this experiment unfold, to see if it truly improves outcomes for injured workers, as claimed, while also reducing costs for employers. Too often, it seems, one side of that equation suffers when the other improves.

Former Arizona WC State Fund Has A New Name

The former Arizona State Compensation Fund has operated as an independent entity for years, but the entity known as SCF Arizona will now be known as CopperPoint Mutual Insurance Company. The company will still have an A- rating from A.M. Best.

This is part of a continuing trend, for state Workers Comp funds to be morphed into mutual insurance companies, and would appear to be a good thing, as having Workers Comp reserves available for raiding by state politicians is just waaay too big a temptation.

New Study Suggests "Zero-Cost" WC Claims Paid by Health Plans

A study published in the December issue of The Journal of Occupational and Environmental Medicine concludes that so-called "Zero Cost" Workers Comp claims end up being paid under employer health insurance plans.

The report suggests that this reflects an inadequacy in Workers Compensation coverage, which doesn't ring true with me. If this study really holds up to analysis--that is, if genuine work-related injuries and illnesses are being fobbed off on health insurers, it would suggest to me that the problem would lie not in Workers Compensation coverage, exactly, but in the hurdles some insurers might be placing in the way of injured workers.

But some commentators have suggested that the authors of the study may be misunderstanding how Workers Compensation insurance works. It may be, these critics suggest, that claims that initially are put forward as being work related just don't pass muster when examined more carefully by claims adjusters. After all, it is not unheard of for a worker to try and pass off as work-related an injury that actually happened on the worker's own time. So it would be entirely appropriate for such claims to be handled instead by health insurance programs rather than Workers Compensation insurance.

After all, just because a claim is initially submitted as Workers Compensation, it doesn't mean that the facts of the situation will ultimately support such a claim. Even with the best of intentions, there can be misunderstandings about what is and is not genuinely work related, under the specific statutes of a given state. An injury in a parking lot, for example, before a worker has actually entered the workplace, could generate an initial claim under Workers Comp, only to be ultimately rejected by the WC insurer or a state's WC judges.

So it is not entirely clear to me that the methodology used here is as airtight as it might be. I'll try to get a copy of the actual report (rather than just relying on press reports) and offer a more detailed analysis at a later date.

Can An Insurance Company Commit Insurance Fraud?

Just about every day, Google News finds another story for me concerning Workers Compensation fraud (that's because I ask it to, of course, demented soul that I am.) And guess what? The guilty parties (or the accused parties, sometimes) are always workers who, according to the charges, falsified or exaggerated their injuries, or else they are employers who, according to the charges, avoided proper and legitimate Workers Compensation insurance premiums by various devious means.

Then I read this article. and something in it triggered a thought I have sometimes entertained: how come insurance companies are never prosecuted under the various Workers Compensation fraud statutes that states have enacted in recent years? As the mother of this injured young worker wrote:

Why isn’t there a place in the Virginia State Police Insurance Fraud Program to include and investigate this obvious type of abuse and misuse by law firms such as this one? This has been typical and repeated for the last 5 years!

“Insurance fraud is a crime that occurs when someone tries to make money from insurance transactions through deception” –This definition was copied from the State Police website.

Now, I don't know anything about this particular case. But this mother does raise a valid point, I think. How come insurance companies aren't held to the same standard as employers and workers? On a regular basis, in our consulting work, we find instances of insurance companies making errors that overcharge employers for Workers Compensation insurance. And we can usually get those corrected for our clients. But what about all the employers who don't hire someone like Advanced Insurance Management? The insurance regulatory system isn't proactive--it only requires insurers to reverse overcharges when someone knows enough to complain, and how to make that complaint in an effective manner. But in most states,  insurance department's aren't routinely double checking how insurance companies compute premium charges for employers--insurance companies are on the honor system, I guess.

I still believe that many, perhaps most, of the overcharges we find are indeed the result of honest mistakes. The insurance underwriters and auditors I have known over the years have been among the most ethical and honest business professionals I have ever met. And yet---and yet, one sometimes wonders, when one sees how certain insurance companies seem to have adopted aggressive audit tactics, or when one reads of lawsuits by one major insurer accusing another major insurer of deliberate and systemic deceptions regarding Workers Compensation insurance premiums, and one sees insurers time and time again "innocently" forgetting or misinterpreting insurance regulations meant to protect employers from excess premiums--sometimes one wonders.