If you own a business in construction, manufacturing, or transportation, the following scenario is likely a familiar one: An employee comes to you in excruciating pain after what he or she says was an accident involving a heavy piece of machinery. Following protocol, you call for emergency medical attention and provide the employee with a DWC-1 claim form so he or she can file a workers’ compensation claim. After sending the form to your claims administrator, you have a choice: approve the claim, or deny it. While the financially smart decision seems like it would be to deny responsibility for the worker’s injury, the exact opposite is actually true.
Many employers assume denying a workers’ comp claim will save them money in the long run by keeping their insurance costs low. However, new research from Lockton Analytics shows that not only do 67 percent of denied claims turn into paid claims within a year, but the amount of money awarded to a converted claim is an average of 55 percent more than a claim that is accepted from the start. According to the report, the average value of a claim that is accepted and paid out is $10,153, while the average value of a claim that is denied, converted, and then paid out is $15,694.
THE COSTS OF DENIED WORKERS’ COMP CLAIMS
In workers’ compensation, there is a medical fee schedule that lists the maximum amounts reimbursable to doctors and other providers. When an employer denies a workers’ comp claim, he or she loses the right to tell an employee how to seek medical care and therefore, those fee reductions don’t apply. In denied workers’ comp claims that are eventually paid, employers are on the hook for those medical payments. According to the Lockton Analytics report, employers average a $548 decrease in medical payments for denied claims. However, in California, where medical expenses are high compared to the rest of the country, medical costs could be significantly higher.
In terms of indemnity, or payments made to injured employees to make up for lost wages, non-denied claims cost employers an average of $3,979 while denied claims cost employers $6,564; that’s roughly $2,585 more. And, the overall cost of a denied claim is nearly three times as much as an accepted claim. Denying workers’ compensation claims may also foster feelings of mistrust between employees and employers. This can lead to lowered productivity and costs that are not necessarily quantifiable.
There are also litigation costs to consider. 70 percent of workers who have their claims denied hire a workers’ compensation lawyer to guide them through the appeals process. Unsurprisingly, these employees are granted more compensation than employees who do not hire an attorney. To be precise, non-denied and non-litigated claims result in an average net compensation of $7,489, while litigated claims result in an average net compensation of $36,991.
YOU’RE LOSING MONEY BY DENYING WORKERS’ COMP CLAIMS
As an employer, you’re constantly striving to strike a balance between accepting legitimate workers’ comp claims and denying ones without merit. If your denial rates are higher than average, it might be time to work with your claims department and figure out why. Given the demonstrated costs of denying a workers’ compensation claim, it makes sense to look extensively at each claim and all of the supporting evidence before making a final decision.