Reserving 101 For Workers Compensation Claims

Reserving workers compensation claim files is the art of predicating the financial cost of the claim and setting aside monetary values to cover payments until closing. Unlike other types of casualty losses, many factors are known very early in the workers compensation claim handling process.

Known Factor Examples:

The benefit payments are set by statute and state mandate with minimum and maximum values. These are published and adjusted annually. For example a temporary total benefit might be a minimum of $400 weekly and a maximum benefit might be $900.

Most formulas are based on 66 2/3 % of the employee’s average weekly wage. Hence as soon as the wage is known the benefit rate can be calculated. Even if the state does not require them, all files should require mandatory wage statements from the employer. Failure to obtain wage statements allows for benefit calculations using like employee or projection of the employees daily wage at present.

These instances allow for excessive benefits. For casual employees, the new employees or the employees who lack sufficient wage data, and where allowed, it might be a good process to ask for the employee’s 1040 tax form in order to establish a fair benefit.

Temporary Total Disability time frames are common or standard in many injuries. Fractured bones usually require 6 weeks for knit and 3 to 4 weeks of physical therapy to strengthen and reestablish full use from casting.

Medical costs may be governed by a state fee schedule. In jurisdictions where usual and customary fees apply ,the local adjuster becomes aware of these values. This makes reasonable assessment possible.

Permanent Partial, Permanent Total, Wage Losses and Death Benefits can all be reasonably reserved as soon as they are encountered. Once again the workers compensation act and state insurance department will set the benefit minimum and maximum benefits to be paid.

Life time medical reserving is a bit more difficult to establish as inflation, new techniques of care and life expectancy varies greatly for each individual.  It may be necessary to have a professional actuarial set the reserve.

Reserve calculation sheets or formats: 

Every claim unit should develop a paper form or a computer generated format that requires the adjuster’s use. There are many sample forms that can be found on line or from other claim departments. The main items should be a synopsis of the loss and injury (Only necessary on first entry), the ages, the benefit rates and time frames. There should be separate sections for calculating each type of benefit payment. (TTD, TPD, PPD, PT, and Death)

A medical section needs to apply costs for hospital, doctor, drug, prosthetics, nursing care, rehabilitation and specialized care.

There may be need for a Vocational Rehabilitation section. This needs to be tailored to type, length, and devices that may be needed. If counselors are necessary to find employment, their fees and expense items need to be incorporated.

A section for legal and, private investigator costs will be necessary. Obtain cost estimates from the defense counselor and private investigator.

All reserve sheets and/or computer formats should be reviewed annually by management to keep them abreast of changes in the compensation act or handling procedures.  Parts might be ignored or adjusted as needed during the claims life.  

Initial, 14, 30, 60, and 90 day Reserve Adjustments:

Files should have reserve diary dates separate from handling diary dates. (All reserve diaries should have some type of control to keep the adjuster from by passing or ignoring them)

As soon as it becomes apparent that some type of payment will be made on the claim it is necessary to establish a level of reserves. Until the file is triaged or has had three-point contact investigation the funds may be minimal.

Triage or three-point investigations are usually required to be completed  shortly after the file is established. By the fourteenth day there is usually enough investigative information and known facts to establish and post a more meaningful reserve. At this point the first reserve sheet org format needs to be completed.

Reset a 30 day diary ahead  solely to analyze reserves.  During this analysis the adjuster may need to determine if the file will continue on determined course. All facts should be reviewed by the adjuster to see if the file is heading off track. The reserve sheet or format should be recalculated. All changes documented with explanation for the change.  If no changes are necessary the file still needs to be noted that reserves were considered.

Reset a 60 day diary. By this point most files should be in position for final reserve values. Many files may even be ready to close. Medical only care cases are a prime example. Death and permeant disability files should be able to be actuarially reserved. Long term cases may now qualify be reset every 90 day for reserve analysis. As long as any file is open it should be reviewed every 90 days.

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