Construction companies and engineering firms determined to hold down costs by rejecting workers’ compensation claims may be in for a rude surprise.
The denial rate for workers’ comp claims for all industries jumped by roughly a fifth between 2013 to 2017, to nearly 7% overall, according a new study by Lockton, the big insurance brokerage and risk advisor.
But instead of lowering costs, the rise in rejections only increased them, Lockton found.
About two out of three of rejected claims were eventually paid within the year. And when it came time to ante up, the cost for all businesses, including construction and engineering, was 55% higher, according to the study.
The average cost of accepted claims was $10,153. For those initially rejected but later paid, the cost rose to $15,694.
The cost of claims to an employer depends on the design of the workers' comp policy and whether it includes any self-insured retentions or deductibles. The key for companies and insurers is to take a careful, case-by-case look and avoid sweeping judgments or efforts to control costs that won’t later stand up in court.
“If there is an approach either broadly denying or accepting claims, that is certainly not the way to go,” says Paul Primavera, executive vice president and claims advisory practice leader for Lockton. “It could come back to cost you more money even though you could be perceived as aggressive.”
Contractors and other companies in California wind up paying some of the biggest increased costs when it comes to claims that were initially denied, only to be reversed. Accepted claims in California averaged $16,833, compared to $27,419 for claims that were later accepted, according to Lockton. In Florida, the comparable numbers were $7,226 for accepted claims and $9,264 for rejected claims later paid.
Legal Expenses Are Key
Legal expenses are the most obvious reason companies end up paying down the line for a claim after initially rejecting it.
The average cost of rejected claims that wound up in court was even higher than the already high average for claims paid after an initial rejection, with total costs averaging nearly $37,000, according to the Lockton study.
But another factor is the loss of control over the medical treatment a worker receives—once the claim is rejected, the company effectively loses the ability to pick the doctors and treatment facilities, Primavera says. That, in turn, can lead to more expensive care.
“You lose some manageability in terms of the medical network,” Primavera notes.
In order to avoid denials that later come back to bite them, construction firms, contractors and other companies need to investigate thoroughly, he advises.
Some cases will involve gray areas that need to be thoroughly explored, even if on the surface they seem to support a denial. These might include the potential for a preexisting injury or an injury for which there was no other witness than the employee.
In such cases, the company or its consultants should research the decision of the local workers’ comp board to see how they have ruled in similar situations, Primavera says.
Other seemingly clear-cut denials are later overturned or paid out, according to Lockton. These include denials based on “no injury by statutory definition,” which end up being paid out 71.6% of the time; “willfull intent to injure oneself,” which has a 88.9% payment rate; claims that a recreational or social activity was the cause of the injury, eventually paid out more than 71% of the time; that a preexisting condition was to blame, paid out 68.9%.
More In-Depth Analysis Needed
“There has to be more in-depth analysis,” Primavera said.
Even seemingly straightforward cases involving what appears to be a worker injured on the job while under the influence of drugs or alcohol can be tricky, says J. Carin Burford, a shareholder at Birmingham, Ala.-based Ogletree Deakins, which helps defend companies against workers’ comp claims.
Many companies will initially reject claims if the employee tests positive for alcohol or drugs. But urther investigation may reveal that drugs or alcohol was not a factor in the accident, or at least can’t be proved, she notes.
In fact, 76.9% of workers’ comp claims that were initially rejected based on drug or alcohol use were later paid out, according to Lockton.
“A lot of times when something looks a little fishy, where there is a possibility of denial, the claims manager will recommend denial right out of the gate,” Burford says. That could be a mistake because more investigation may be needed.