WORKERS' COMP THOUGHT LEADERSHIP SERIES
Presented by Plethy Recupe
Simple Ideas for a Complex System
Claims Throughput vs Claims Caseloads
by Bill Zachry, SCIF Board Member
The “Optimum” throughput of claims always results in the lowest total cost of claims. Instead of focusing on caseloads the industry should focus on the throughput of claims to measure productivity and staffing needs
Optimum throughput of clams is; When claims are immediately reported, where compensability is promptly determined, when prompt appropriate medical care is provided, when early return to work is achieved, where indemnity benefits are accurately and timely provided, where disability is minimized and any resulting Permanent Disability is promptly and accurately paid, when the issues are all resolved and the file is closed quickly. These outcomes, are in the best interest of the injured worker and result in the lowest total costs.
The workers’ compensation industry primarily focuses on claims caseloads as a method of determining the appropriate claims staffing. Most of the TPA pricing and insurance claims departments’ budgets are based on measuring a static claims load for each examiner. The “Ideal caseload” is a worker’s compensation issue that is (at times) not well understood by the employer (insured) community and (at times) is not appropriately managed by the insurance or claims adjusting community.
Clams’ caseloads are a useful metric for analysis, but it is a metric that tends to take the focus away from achieving the total lowest cost for the employer or insurance carrier.
The focus should be on maximizing the prompt throughput of claims.
We are at the tipping point and the development of technology (AI is one example) that we all invested in to provide efficiencies and improve effectiveness. The industry needs to let the investment be realized by focusing on outcomes (throughput) and not static inventory. The latest technology has been designed to perform two functions. The first is to increase the claims focus on the fewer high- value claims. The second is to efficiently process the lower-valued claims with less touch.
The “right” claims caseload is an ethereal fungible number based on the claims examiner’s experience, the (insured) employer’s handling of the claim, the support staff (assistants, attorneys, and medical professionals) the claims’ system capabilities and management’s claims handling philosophy. Imposing a static caseload on examiners is usually not accretive to maximizing claims outcomes.
When high claims loads are used by employers or clams’ administrators, as an attempt to manage claims administration expenses, it does not result in optimum claims throughput or outcomes. It usually results in higher claims costs and unhappy claims examiners.
The increased use of AI and other technology will help solve some of the examiner shortages but will not fully alleviate the problem.
The “great resignation” combined with the mass baby boomer retirement in the insurance industry, overlayed by an inadequate pipeline of new examiners, has resulted in a claims examiner shortage which is driving up claims caseloads.
The current lack of quality claims examiners has resulted in a shortage which creates high caseloads that are impairing the optimum throughput of claims which, in turn, is driving up unnecessary claim costs.
Even though there has been a (nationwide) general reduction in claims frequency over the past forty years, the need for quality claims adjusters has not correspondingly gone down. The lack of a reduction in the demand for quality examiners is partially due to the increased complexity of claims administration, regular changes in the laws rules, and regulations in the system, the trend of lengthening the life of the claims, and particularly the expansion of complex litigation in many jurisdictions.
Higher caseloads in turn drive up the claim’s costs. For the past few years, many of the claims’ administrators ran high caseloads as a method to control their ULAE expenses. This was partially because they did not know how the pandemic would impact claims their frequency, and they did not want to have a high overhead while the revenue might be impaired.
Some TPA’s caseloads have been high because their competitors
were bidding for the business at rates that were lower than the direct cost of claims administration with lower caseloads. This was done with their competition attempting to make up lost revenue through churning the bill review and other ancillary administrative services.
Other TPAs were forced by their customers to run claims operations with high caseloads because their customers were primarily focused on controlling the contracted claims expenses, and not focused on total claims outcomes.
There has also been a trend for national worker’s compensation insurance carriers to outsource their claims administration to TPAs. One unintended consequence of outsourcing is that these companies which used to hire and develop many of the trained examiners for the industry are no longer performing that function.
Nationwide these circumstances have created a shortage of qualified and quality claims adjusters in the worker’s compensation industry.
There is no ideal caseload (There is an ideal throughput of claims).
With all the variables that impact claims outcomes, it is incumbent on the claims managers to achieve the ideal caseload for each examiner by optimizing the throughput of claims.
A national claims management research paper published in 2019 included data concerning the average caseload for workers’ compensation claims adjusters. The data included both TPAs, Self- Administered, and Insurance Company caseloads.
In the study, the caseloads (for an average adjuster) ranged from a low of eighty indemnity claims to a high exceeding three hundred indemnity claims. Both numbers were outliers. For most claims administrators the survey was between 110 and 140 per claims adjuster.
To my knowledge, there is no definitive study that provides a conclusion concerning the ideal caseload (which will produce the fastest throughput of claims, the best compliance scores, and the lowest loss dollars.
There is an informal consensus among many claims professionals that a caseload under one hundred twenty-five, will result in improved case closures and lower loss costs, and that caseloads over one hundred twenty-five will not achieve the best claims results.
My personal experience is that the actual number significantly varied by the jurisdiction and skill set of the examiner. My belief is that in the complex jurisdictions with high litigated rates that ninety claims as a static caseload produced the fastest throughput of clams and was far more productive for the examiners than if they had a higher caseload. With the lower claims loads, the results of my claims (total claims loss dollars) were usually about 40% lower than the industry average for the same authority and industry exposure.
ULAE vs. Loss Dollars
Rather than focusing on attempting to reduce loss dollars, many employers (their brokers) and insurance companies have focused their cost-cutting attempts by reducing the headcount of the number of examiners handling their claims.
ULAE is an Unallocated Loss Adjustment Expense that covers the overhead for the examiners, their support staff, and the systems that they use. Usually, the ULAE figure only runs about 10% of the loss dollars.
The assumption by many employers and some senior insurance executives seems to be since the benefits are “fixed”, and “statutory” that the benefits costs cannot be reduced or mitigated by the claim’s handler. This assumption is patently wrong.
When insurance companies hold their senior claims executives accountable for their ULAE budget and not accountable for loss dollars their company usually has a much higher total loss ratio than their competitors who focus the entire organization on reducing the loss drivers.
I have seen CFO and public agency procurement committees doing everything they can do to lower the claims administration costs by taking the lowest claims administration bid (based on higher caseloads) and at the same time ignoring the impact their decisions had on the loss of dollars. In doing so they demonstrated that they do not understand or appreciate the bottom-line impact that a well spent ULAE dollar may have on the ultimate total cost of the claim.
Companies or public agencies that attempt to control their expense by seeking or accepting the lowest bid for claims administration rather than seeking a company that will achieve the lowest total outcomes are doing themselves a great disservice.
When self-administered, self-insured companies have economic challenges or when they merge with other companies claims staffing (and headcount) can become a target for cost savings when the corporation is looking to cut expenses. Being able to explain and prove productivity should help create a safety net to mitigate this problem.
The difficulty of calculating the ideal throughput of claims has become more complex with the advent of Covid-19 and remote work. In the space of a few months, most of the industry went from mandating all claims examiners work in the office to 100% working from home. As the Covid-19 pandemic ebbs and flows the claims process has yet to be fully returned to the office.
There are a myriad of factors resulting from the Covid-19 pandemic that impacted the productivity of the claims examiners:
- Adequate internet access from home.
- Adequate space and privacy to manage claims at home.
- Children and other responsibilities at home interrupt the daily work.
- Ability to print and mail from home vs. from the office. Timely access to incoming hard copy mail.
- Timely access to new claims reports.
- System support from the claims administration software to avoid missed diaries and legal timelines.
- Changes in presumptions associated with the Covid-19 pandemic.
- Most of these issues have been adequately managed and current data suggests that for most examiners working from home is as productive as working in an office.
Factors that impact claims examiner productivity: AI
The proper use of data and AI will significantly change the claims examiners’ productivity. The primary focus of AI will initially be on eliminating routine activity and focusing the examiner on those claims where the interaction with the injured worker will maximize claims outcomes. This is an evolving process that will profoundly change the nature of the job and methods of working.
The claims system and current technology can have an impact on claims outcomes. An automated claims system has a direct impact on the productivity of the examiner and the resulting caseloads. The more rote steps and activities that the system does for the examiner the more the examiners can focus on their interaction with the injured workers, negotiate settlements, and manage complex litigation issues. How much of the benefit notice system is automated? How automated is the diary process? Is there an internal automated audit system? Is there an automated payment function for the examiners to use? If so, what system checks are built into the system to make sure that no payments are missed, and no overpayments are made? All of these have a direct impact on the effectiveness of the examiner and will determine the appropriate caseload.
The claims settlement philosophy has a direct impact on claims caseloads and closure patterns. Many claims operations have a philosophy of stipulating to provide future medical care if the employee is still employed at the same employer and if the employer is still “on risk.” This results in artificially high caseloads. In some jurisdictions, the “future medical” claims are as actively litigated and as complex as any claim in the inventory while some Future Medical claims in some jurisdictions are relatively inactive and are just padding to the measurement of a pending inventory. The settlement philosophy impacts litigation rates which are a major factor in determining caseloads. However, stipulations usually require less time and lower claims skills to achieve.
State laws, rules, and regulations have a direct impact on the caseloads. Jurisdictions that have few changes can have a higher caseload for examiners than in jurisdictions such as California or Florida, which have seen massive changes to the law’s rules and regulations since 2004. To ensure appropriate outcomes, in jurisdictions where there have been many changes to the labor code over the past few years one can either segregate the claims by accident year or lower the caseloads for the examiner.
Examiner Skill and training
The most important determinant of an examiner’s caseload is the skill and experience of the individual examiner. Senior examiners who are efficient with their time, who can prioritize well, and who know their cases can efficiently manage more claims than inexperienced examiners. With the Covid-19 pandemic training of new claims examiners can be problematic.
The employer (insured) Service Requests
Factors that impact claims throughput include the nature and extent of light and modified duties which are offered by the employer and the prompt accurate reporting of the claims. TPA’s have the extra challenge of customers who do not promptly provide adequate settlement authority or demand extra services which all impact the claims examiner’s productivity and also delay settlements. These “employer service” programs include the frequency and selection of claims for file reviews and the intervention of brokers on the reserves of the claim. File reviews are important for employers to understand the benefits that are being provided as well as be comfortable with the quality of claims administration, but frequent or onerous file review programs can take the examiner away from their day-to-day work. The major factor that impacts throughput is a lack of a quality employer/employee relationship. It is interesting to note that most self-administered self-insured companies do not have the same level of “service requests” as self-insureds with TPAs.
Claims complexity is a significant factor in determining the throughput of claims. Complex litigated claims or subrogation claims take much more examiner time and skill than a simple non-litigated indemnity claim. The claims mix is a key factor to consider when measuring the throughput of claims by the examiner.
Ratio of medical-only claims to indemnity claims in the examiner’s caseload
Some claims operations have medical claims segregated from the indemnity claims and managed by a “MO Examiner.” Handling both MO and Lost time claims may not be the most efficient use of a senior examiner’s time and skills. In many jurisdictions, Medical Only claims account for 82% of the claims and only 10% of the loss dollars. With a good, automated process to identify outliers and appropriate medical controls and oversight, it may be an innovative idea not to spend significant examiner time and minimize the ULAE expense on the administration of these claims.
Level of claims support and supervision
How many examiners are supported by how many claims assistants? Is it a ratio of 1 to 2 or 1 to 4? How experienced are the assistants and supervisors? Does the claims supervisor handle a caseload as well as supervise? Serving two masters is difficult. A supervisor who is responsible for the unit’s results, the training and development of their examiners managing the relationship with the employer, and who also has a full caseload is not in an optimum situation to achieve outstanding claims results for the employer.
Medical Case Management
Are the examiners responsible for managing the medical care of the claim? Do the examiners make any medical decisions? Are all medical decisions made by nurses and other medical professionals? Many of the examiners still approve of medical treatment and still spend a significant part of their day approving bills (“because they have always done so”). Most examiners have little formal medical training and possess no true insight into evidence-based medicine guidelines, what an ICD-10 is, or even have access to established disability guidelines. Studies have shown that examiners approving medical treatment usually does not result in injured workers’ getting the best evidence- based medicine on a timely basis. Requiring examiners to approve the payment of medical bills is a waste of examiners’ time and only results in delayed payments to the medical providers.
Litigation should be the greatest determinant of an examiner’s caseload and is the greatest determinant for the throughput of clams. I once managed a claims department that had two offices with fourteen examiners (each) in Northern California and Southern California.
Throughout the year, we averaged 125 indemnity claims per examiner.
In one year, we had over one thousand more claims opened and closed in the Northern CA office. This was because the litigation rate was much lower in Northern California than in Southern California. The expectations of the examiners to handle litigation issues should also be factored into the caseload question. Is the examiner qualified and experienced enough to do the deposition? Few are. Can the examiner do the medical legal cover letter to the doctor? Is the lega support in-house or outside counsel? (in-house attorneys tend to do fewer claims adjusting on behalf of the examiners than outside counsel).
The defense attorney’s duties responsibilities and skills (in- house vs. outside counsel)
When I was a claims examiner at a TPA and the caseload became overwhelming, I would assign all my litigated claims to a defense attorney. That way I had a safety net to make sure that nothing was missed. This significantly increased the ALAE expenses on the file. When I worked at an insurance company with in-house counsel that trick did not work because the in-house attorneys would not do the claims examiner’s work.
Number of claims transferred between examiners
Transferring claims to an office usually results in a significant deterioration of claims results. I expected a 20% increase in claims
loss for every indemnity file transferred. Getting to know the new claim takes an examiner hour of reading and discussions with the treating doctor and defense counsel. Transferring claims also eliminates any positive relationship that might have existed with the injured worker; even with the best possible “soft” handoff.
Metrics and issues for employers and claims offices to consider when creating the ideal throughput or ideal caseload:
- Throughput of claims on a monthly and annual basis.
- Average life of a claim. MO, IND, Catastrophic claims.
- Litigation rate.
- Percent or number of claims identified with subrogation potential within the first 30 days.
- The number and size of reserve changes by examiner per day, week, month, and year.
- Number of reopened claims or claims where benefits are paid on closed claims.
- The static caseload of the claim’s examiners and assistants.
- The ratio of litigated claims assigned to defense counsel is another indicator of the right focus on throughput.
- A high litigation rate (this analysis should be taken into consideration when in the life of the claim it was litigated) is a soft indicator of improper caseloads.
- The % of claims assigned to defense attorneys is a soft indicator of improper caseloads.
- Average number of lost time days per closed indemnity file.
- Number of claims delayed as compared to accepted or denied by week, month, and year.
- The average length of time an employer takes to report claims.
- Average length of time between notice and delay accepts or denial of the claim.
- Number (percentage) of denied claims which go to trial, or which are settled.
- Number of claims which have light or modified duties provided.
- Length of time between the date of injury and the first report of injury from the treating physician.
- Turnover of the examiners.
- Retention rate of new examiners.
- Number of indemnity files transferred within the claim’s operations by month.
The focus of the claim’s organization should be on maximizing the throughput of claims. The necessary staffing will flow from focusing on having the right resources to achieve the throughput of claims.
Focusing on claims throughput and claims closure ultimately reduces the total headcount needed to achieve optimum results.
The ideal throughput of claims will result in the optimum number of TD days per lost-time claim and help maintain a low average length of the file is open.
The productivity of the claim’s examiners should be adjusted to accommodate the skill level of the examiner, the exposure, and the other factors listed above.
Employers who focus only on claims loads and their ULAE costs would achieve better results if they pivoted and focused on what they could do to prevent injuries and support the examiners with getting the claims closed as quickly as possible.
The industry needs to step up and train the next generation of quality claims examiners.