If medical expenses are paid out-of-pocket, employers need to remember to do one thing.
To pay or not to pay? That is the question. Some employers are tempted to pay “out-of-pocket” (i.e., themselves) for relatively small medical bills related to workplace injuries rather than filing a workers’ compensation claim. The upside to this strategy is perceived lower workers’ comp premiums, but the downside may be worse for the employer than initially considered.
If medical expenses are paid out-of-pocket, employers need to remember to do one thing. We will get to that, but first, here are 6 reasons why paying out-of-pocket for workers’ comp claims may be a bad idea:
- Paying for workers’ comp claims out-of-pocket may be illegal.
Some states, like Texas, allow employers to pay for minor medical expenses themselves rather than file a workers’ compensation claim, but other states prohibit this practice. Employers shouldn’t pay for injury-related medical expenses until applicable state laws are understood. Keep in mind that state bans on employers paying for medical expenses do not apply to first aid (bandages, ice, ointment application, etc.) . The definition of “first aid” could be different from state to state, so if clarification is needed, contact your workers’ compensation carrier or insurance agent. Also keep in mind that if the injured worker has any lost time whatsoever, state law may require the employer to report it to the insurance carrier (or other designated entity if the employer is a non-subscriber of workers’ compensation insurance).
- Employers may be paying for unnecessary claims.
Workers’ compensation insurance companies have expertise in determining whether or not claims are compensable under state law. If an employer pays for a claim out-of-pocket, the insurance company may not have an opportunity to properly advise the employer and the employer may end up paying for unnecessary medical costs. Examples of non-compensable medical costs may include mental illness cases (without associated physical injuries), ?alcohol/drug related injuries, and commute-related injuries.
- Employers may be paying too much for medical care.
For participating states, laws permit health care providers to use typical and customary costs to bill employers for the employee’s medical care. Health care costs are likely more substantial for employers as compared to health care costs paid by workers’ comp carriers. Insurance companies pay less for the same care employers pay for because most states have medical fee guidelines as established by each state’s law. Moreover, workers’ comp carriers in some states such as Texas can offer what is known as “In-network” participation. A “Network” is a collection of healthcare providers that have negotiated rates with the insurance carrier. If a policyholder elects to participate in the “In Network” coverage, premiums are typically significantly lower, and medical cost savings can be in the 25% range.
- Seemingly insignificant injuries can become worse –much worse.
Workers’ comp insurers have experience and expertise in preventing small claims from exploding into significant ones, while most employers do not have this expertise. A common example is an employee stepping on a nail while working. A medical provider may have disinfected and bandaged the wound and the employer may have paid a small fee for the service rather than filing a workers’ comp claim. Later, the employee experiences complications with the wound due to a diabetic condition and the once small injury is now an amputated foot or leg. If the employer decided to involve the insurance company later in the process, there is a strong possibility the employer would be left with the bills if the employer did not have proper documentation to justify the claim.
- Out-of-pocket costs may exceed premium savings.
If the employer pays a small medical bill, will the employer save money on the cost of the workers’ comp premium? Most of the time, the answer is “No.” For example, a $1,000 medical-only claim is unlikely to result in the policy premium increasing by $1,000. In states where Experience Rating Adjustments apply, this is especially true. For moderately large employers, these individual medical-only claims typically impact the experience modifier less than .01 per claim.
- Employers could be saddled with excessive administrative burdens and financial penalties.
Employers who pay for some claims out-of-pocket and workers’ comp carriers must report the Medicare beneficiary status of claimants to the Centers for Medicare & Medicaid Services (CMMS) on a quarterly basis for the life (or at least the employment life) of the injured worker, regardless of whether the injured worker becomes employed elsewhere. Why? Medicare does not usually cover medical expenses associated with on-the-job injuries. Those expenses should be covered by workers’ compensation insurance. To assure Medicare has not been billed for medical expenses associated with injured Medicare beneficiaries, the federal government requires insurers to file quarterly reports with the CMMS. What most employers do not know is that this obligation also applies to employers that pay injured workers’ medical costs out-of-pocket. Failure to make timely quarterly reports to the CMMS could carry financial penalties of $1,000 per case, per day.
Do This One Thing
If medical expenses will be paid by the employer for workers’ injuries, here is something businesses must do to adequately manage their risk: Inform the workers’ comp carrier from the moment the worker becomes injured. By notifying the workers’ comp carrier that medical expenses for an injured worker will be paid by the employer, the insurance company can file the incident as “Record Only” (write “Record Only” at the top of the claim form). This means there will be no funds set aside by the insurance company to handle the claim (and will not adversely affect the employer’s premium calculation), but the employer has the assurance that the insurance company will be of assistance if needed.
For example, if the employer is attempting to do something that isn’t legal, the insurance company will advise the employer of other options. Likewise, the insurance company can advise the employer if the claim isn’t compensable under state law, and therefore the employer wouldn’t be obligated to pay for the medical expenses in the first place. If the injury becomes worse and the medical expenses increase, the insurance company is there to handle coverage when needed.
Also, the administrative burden of filing quarterly paperwork to the CMMS would be handled by the workers’ comp insurance company because it would be the insurance company’s responsibility, not the employer’s.
Safety First Consulting is a contributor of SM Corridor News and helps businesses identify OSHA compliance issues in their workplaces, manage their safety programs, and we become accountable for the results. In addition to offering custom written safety programs for companies, Safety First Consulting provides required safety training, industrial hygiene sampling, noise sampling, and workplace inspections. You can read more from Robert Box under Business.