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Changes to comp programs, service providers can have unintended consequences

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Changes to comp programs, service providers can have unintended consequences

ORLANDO, Fla. — A surprise change in the transitional duty program for injured workers at Walt Disney World Resort in 2014 skewed actuarial data and led to higher estimated costs.

Michele Adams, Orlando, Florida-based vice president of risk management services for Walt Disney World Resort, told this story Monday in a session tackling what panelists called the unavoidable intersection of workers comp claims management and risk finance at the Workers’ Compensation Institute’s annual educational conference in Orlando.

It helped illustrate what David Stills, Bentonville, Arkansas-based vice president for global risk management at Walmart Inc., touted as a well-understood adage in insurance circles: “What happens in claims management does not stay in claims management.”

For Walt Disney World, the “blip” was more lost-time claims in workers compensation, which then drove actuaries to estimate higher overall claims costs — raising eyebrows in risk management.

“That was one of those hit-the-brake moments,” Ms. Adams said, adding that it took some digging to find out that the workers compensation department had made the change in transitional duty, a change that was corrected within a month but caused ripples nonetheless.

“This is why you don’t just change something without having all your programs on the table,” she said.

With any changes in a company’s program, one needs to “watch out for unintended consequences” and realize it can be likened to a game of “whack-a-mole,” where one problem gets solved but another is created, Mr. Stills said.

Where workers comp meets risk finance “no good deed goes unpunished,” he said.

One of the biggest changes can be switching to a new third-party administrator, which includes the shift to an in-house program, or changing actuaries, according to panelists, who agreed that change could be bad for business — even if an outsourced TPA is underperforming.

Publix Super Markets Inc. changed TPAs twice, said its vice president for risk management, Marc Salm. He told attendees that “everybody underestimated how difficult this was.” Publix has also been with the same actuarial firm for 25 years, he said.

Companies unhappy with service providers ought to first investigate the perceived problem, said Michael P. Fenlon, Atlanta-based senior director of global risk management for United Parcel Service Inc.

“I am always a fan of trying to remediate,” Ms. Fenlon told attendees. “When you start digging deeper it’s not always the TPA.”

Panelists stressed the importance of keeping programs and relationships intact and that “switching costs” are often underestimated.

“Long-term relationships and consistency are very important to us in our program,” Mr. Fenlon said, adding that changing providers should be a “last resort if you are not able to fix things.”

Another issue in workers comp that often affects risk finance is litigation and its rising costs, and companies often have to examine whether fighting every case is worth it, said Mr. Stills.

Mr. Salm, a former workers comp defense attorney, said the costs of litigation can surpass those of settling the claim.

“No matter what an attorney says, when you scorch the earth on your entire book of claims, the costs are going to go up and it is going to be permanent” in risk finance, Mr. Salm said. Litigation “can reduce indemnity costs, but the reduction in indemnity cost never offsets the cost” of litigation, he said.

Tactics such as conflict resolution and claims conferences are often better approaches, he said.

Another side effect of constant litigation is a company being seen in a courtroom multiple times, which could lead workers comp judges to think the company’s claim denials lack merit, Ms. Adams said.

She encountered such a judge at a social function once who told her “if I see your attorneys in my court, I know a case has merit,” she said.

Mr. Stills said this is one of those “whack-a-mole” instances, when a judge sees a company too often in the courtroom fighting a comp claim: “This is the place where unintended consequences … hits you in the face.”

 

 

 

 

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