JODI MATHY
Senior Claims Consultant at HNI

Can you save money by paying small medical-only claims directly and not reporting them to your insurer? This is a question often asked by small to mid-sized clients trying to control their experience rating. There are several factors to factor when considering this practice:

1. Does the state in which the injury occurred have an approved Experience Rating Adjustment (ERA) in their experience modification formula? (Most states do!)

2. Does the employer have the expertise in paying according to the state fee or reasonable and customary schedule, or do they have access to discounted medical networks like insurers do? (The answer is usually no!)

3. Is it more appropriate to have a small deductible program (available in some states) to comply with state rules? (You want to be in compliance.

4. Does the company understand the state rules and penalties associated with this practice? (These may be bigger than you think.)

5. How does our risk change if all claims aren’t reported? (Can you predict which ones will blow up?)

The first factor is the most important in determining whether this practice would be beneficial. Many states have an approved Experience Rating Adjustment (ERA) in the experience modification formula, which reduces medical–only claims by 70% before they are utilized in the rating process.

Many feel that the ERA has eliminated the incentive for not reporting workers compensation claims. Here is a “what-if” scenario to illustrate how paying medical-only claims out of pocket versus submitting them to the insurance carrier could affect your organization.

An Example of Total Costs Paying Medical-Only Work Claim Directly:
No State Fee Schedule of Discounted Insurance Carrier Network Applied

• Premium savings due to reduction in experience modification for not reporting medical-only claims: $3,875.00

• Premium savings over 3 years due to the reduction in the experience modification for not reporting medical-only claims: $11,625.15

• The employer paid $13,981.00 out of pocket for medical bills to avoid reporting their small claims.

• In the end there was an additional cost to the employer for paying medical-only claims directly of $2,355.85 for a net loss.

In this example, the employer actually paid more over 3 years by paying small medical-only bills directly. This example doesn’t even account for the time spent doing this and how employees could have been used more productively within the organization.

Take a good hard look at your organization and its understanding of the state’s rules and laws, your staff’s ability to manage payment of medical bills, and review all of the advantages and disadvantages of this practice with your Relationship Manager before considering this practice. You just may find that it doesn’t pay in the long run.

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