Studies: Getting a handle on two comp cost drivers: motor vehicle accidents and claim denials

Limiting motor vehicle accident costs

In its 2018 Driver Safety Risk Report, Motus, a Boston-based vehicle management and reimbursement platform, estimates that about 40 percent of vehicle accidents are work-related, while 53 percent of vehicle crash injuries cause employees to miss work, costing employers $56.7 billion in 2017. The costs include medical care, property damage, legal expenses, lost wages, increased insurance, and lost productivity. When an employee has an on-the-job crash that results in an injury, the average cost is $74,000 to the employer.

While the figures are daunting, the company offers these solutions for reducing collision rates by as much as 35%:

1. Expand driver risk management approach beyond basic Motor Vehicle Record (MVR) checks

   MVRs aren't always a good indicator that a person is a safe and competent driver. If a person lives in a city and doesn't drive much, the chances are they have a stellar driving record. Yet, their road experience is very limited. Employers need to drill down to evaluate the record.

2. Mandate driver safety programs for all drivers, including those in mileage reimbursement programs

   Only 42.6 percent of companies currently mandate driver safety programs for employees in company-owned vehicle programs. That number drops to just 19.5 percent for employees in mileage reimbursement programs. With mobility increasing, driver distraction at an all-time high, and new technology emerging in vehicles every day, training takes on increased importance and should be a top priority for your business.

3. Consider a fixed and variable rate (FAVR) reimbursement program

   Unlike the one-size-fits-all car allowance or cents-per-mile reimbursement programs, fixed and variable rate (FAVR) programs reimburse employees for their individualized fixed and variable costs. Fixed costs are constant, but vary from employee to employee and include insurance premiums, license and registration fees, and taxes and depreciation. The variable costs are based on the number of business miles driven and include gas, oil, maintenance and tire wear.

   Such an approach ensures that the employer can verify that the driver is complying with the insurance coverage requirements and that they are limiting mileage to work-related trips only, "thereby mitigating exposure to costs associated with off-hour accidents."

Managing claim denials for cost control

While a study by Lockton Cos. L.L.C. found that the number of claim denials for injured workers is increasing, rising from 5.8% in 2013 to 6.9% in 2017, 67% of those initial denials were paid within 12 months. What's even more disconcerting is the increased cost of the denied claims that were eventually accepted. Based on an examination of 273,000 claims from 150 Lockton clients between 2013 and 2017, denied claims cost 55% more on average at the 60-month mark: $15,694 instead of $10,154 for an accepted claim.

This increased cost is understandable because a worker with a denied claim usually will seek medical care from the primary care physician and the costs will not be subject to a negotiated workers' comp fee schedule. The authors are not suggesting that companies deny fewer claims but are urging companies to look closely at what is being denied and the process.

"Take a closer look at your company's converted denial rate, and whether savings from indemnity and medical costs are enough to offset increased expense on denied claims that end up paying out," note the authors. Look at the claims that were denied and overturned and see if there are common threads. Is it an internal decision or a decision on the part of the carrier? Are they concentrated in one division? Has there been an increase in denial rates and, if so, why? Pressure to reduce costs or increased focus on fraud?

The study revealed the top 10 reasons for claims denials: no medical evidence; no injury per statutory definition; reservation of rights; pre-existing condition; idiopathic condition; intoxication or drug-related violation; non-work-related stress; failure to report accident timely; doesn't meet statutory definition of employee; and misrepresentation. The rate at which denial was converted to paid varied with the reason. For example, when "willful intent to injure oneself" was the reason for denial, 89% of the claims were converted to paid. For "pre-existing condition," the conversion rate was 69%.

In every industry, converted denials cost more than non-denied claims, but some industries vary significantly from the overall averages. Healthcare experiences lower average differences, but Administrative and Support and Waste Management and Remediation Services, and Manufacturing incur higher claim costs than the national average.

There were variations by state also. California has a very high conversion rate compared to the national average, whereas Florida and Texas have lower rates. Litigation is also a major factor. According to the study, 70.6 percent of denied lost-time claims will be litigated, which is more than twice the 27.5 percent litigation rate for non-denied lost time claims.