Nearly 70 Percent of Denied Workers’ Comp Claims Are Converted and Paid, Says Lockton Study
Carriers and employers that think they are saving money by denying workers’ comp claims are actually doing the opposite.
According to new research from Lockton, 67 percent of claims originally denied are converted to paid claims within a year. Just as striking, the amount of money awarded for a converted claim is on average 55 percent higher than the original claim.
The report offers the following example: “Lockton found that the average net incurred value of a claim that is accepted and pays out is $10,153. However, the average for a claim that is denied, and then pays out, is $15,694.”
The report found that denials are also associated with lower productivity and decreased employee loyalty and trust. Yet still, carriers and self-insured employers increasingly are denying claims.
“Once a claim has been denied, employers lose the right to direct an employee as to how and where to seek coverage.” — Kelly Flannery, risk analyst for Lockton Companies
Denial rates for workers’ comp claims increased by 20 percent during the five-year period of 2013 to 2017, according to Lockton Analytics’ new benchmarking study of 273,000 claims. Here is a list of the top 10 reasons for claims denials.
“We think much of the increase is occurring because employers and claims adjusters have access to more data than ever before,” said Kelly Flannery, risk analyst, Lockton Companies, LLC.
“They are using this data to drive their decision-making about which claims to accept and which to deny.”
While saving money through claims denial may look like a cost-reducing measure at first glance, employers would do well to consider the bigger picture.
Real Costs Incurred
The study also examines three “buckets” of related costs: indemnity, medical and overall expense. In two of the three buckets, the costs were significantly higher for denied claims. The overall expense of a denied claim is nearly triple that of accepted claims, and the indemnity cost on denied claims was on average about $2,585 more than accepted claims.
In the third bucket — medical — employers did see a cost savings, but a minimal one, with an average decrease of $548.
Even a lesser percentage of converted claims or a lesser payout amount differential would be causes for concern from any savvy employer, but these exorbitant differences are a loud and clear wake-up call for all risk managers, claims managers and their enterprise-wide business partners.
Industry and Geography Considerations
Lockton’s study also examined the costs of denied claims by industry and found some differences. However, in every industry Lockton examined, converted denials cost more than claims that were accepted.
Denial conversions also varied from state to state. California has a higher conversion rate, while Texas and Florida have lower conversion rates when compared to the national average. This is another statistic employers should consider including when analyzing their claims costs.
“Since medical costs vary across the country, if the claim eventually gets paid, then the costs may be higher in certain areas than if the claim was paid out when originally filed.” — Kelly Flannery, risk analyst for Lockton Companies
“There are multiple factors at work in how geography impacts claim outcomes,” said Flannery.
“For starters, states set their own legislation to determine benefits for workers’ comp coverage, and these benefits can vary vastly from state to state. This means that a specific type of injury in one state may pay out very differently than if that same injury happened in a different state.
“Once a claim has been denied, employers lose the right to direct an employee as to how and where to seek coverage. Since medical costs vary across the country, if the claim eventually gets paid, then the costs may be higher in certain areas than if the claim was paid out when originally filed. States that have higher litigation rates will have higher average expenses per claim than those where litigation is less likely,” Flannery added.
Lockton’s benchmarking report indicated that 27.5 percent of non-denied claims are litigated, while 70.6 percent of denied claims are litigated. That significant statistic is astounding on its own. But consider this: Non-litigated, non-denied claims resulted in average net claim compensation of $7,489. Denied litigated claims resulted in average net claim compensation of $36,991.
The authors of the study recommend that companies work with their claims department to review claims management practices, costs and how the company’s numbers compare to Lockton’s benchmarking results. Closely examining the real cost of converted denials will help companies make better claims decisions. &