Several weeks ago, Lockton published a study demonstrating that nationwide 67% of claims initially denied wind up being accepted within 12 months. Just as important in their findings is that these claims cost 55% more than those claims that are accepted from the outset. This news seems to have been a shock to many. I would surmise that the biggest surprise in these findings is that it was a surprise at all.
I’ve been saying that for years. So have others in the industry. True, our evidence was anecdotal rather than scientific, but you frankly had to have your head in the sand not to see the reality of that situation.
In 2016 we conducted the Workers’ Compensation Summit, which was also referred to as the “National Conversation” on workers’ comp. While that series of meetings with participants from every side of workers’ comp produced 29 “Imperative Issues,” three were designated as being most important. Those three were Benefit Adequacy, Regulatory Complexity and Delays in Treatment of Compensable Claims. Of that group, the former and the latter are primary drivers of increased cost in workers’ comp.
Unnecessary delays in treatment of compensable claims is a primary driver of litigation, and it is clear that litigation drives costs upward. It is unfortunate that those delays are often a result of denials that must be contested. And as Lockton’s study corroborated, 67% of those denials end up being processed through the workers’ comp system.
While the study found that actual denial of claims was under 10 percent of total claims, it also found that the trend for denials was moving upward; increasing 20% over the reviewed period.
The study found that the top 10 most common reasons given for claim denial were:
- No medical evidence of injury.
- No injury per statutory definition.
- Reservation of rights.
- Pre-existing condition.
- Idiopathic condition.
- Intoxication or drug-related violation.
- Stress non-work related.
- Failure to report accident timely.
- Doesn’t meet statutory definition of employee.
- Misrepresentation.
It also outlined the percentages with which each type of denial converts to an accepted claim.
- Misrepresentation 90.3%
- Willful intent to injure oneself 88.9%
- Reservation of rights 87.5%
- No jurisdiction 80.6%
- Intoxication or drug-related violation 76.9%
- No injury per statutory definition 71.6%
- Recreational or social activity 71.4%
- Elected other coverage, i.e., opted out 70.3%
- No medical evidence of injury 69.2%
- Pre-existing condition 68.9%
Clearly denying a claim for misrepresentation is not a statistically sound position. Neither is claiming willful intent to injure. Only about 1 in 10 of those denials actually appears to stick. However, we should not use this study to figure out the best way to deny a claim. We should instead ask ourselves about 1) the legitimacy of the initial denials, and 2) the advisability of proceeding with some claims, even when questionable.
Some states make this more difficult, as the regulatory structure makes it easier to first deny a claim in order that it be investigated further. There should be a mechanism in those states that allows a carrier to provisionally accept a claim pending further investigation. Absent that, the potential litigation clock starts the moment that denial is issued, and that serves the best interest of neither the injured worker or their employer in the process.
The fact that so many claims initially denied are eventually accepted, and that the cost for those claims is dramatically higher should not be a surprise for anyone. What should be a surprise is that we have not yet figured out a smarter way to manage these processes.