April 27, 2015
Solution to High-Cost Indemnity Payments?
by Dave Stair
As firms struggle to manage costs for indemnity payments in workers' comp, card-based systems can make the process more efficient.
We’ve all experienced it – the jigsaw puzzle scattered across the kitchen table. Each time we walk by, we’re tempted by the loose pieces. The family rivalry of who will solve the puzzle continues, as weeks go by trying to complete the 1,000-piece brain buster.
For payers, solving the indemnity payment puzzle in the quickly changing landscape of workers’ compensation has become the ultimate brain buster.
Today, indemnity payments represent a significant portion of workers’ compensation spending – anywhere from 40% to 60% of claim costs. While they don’t receive much attention, increasing administrative burdens and processing fees associated with traditional payment methods are thwarting payers’ abilities to manage total claim costs.
So, what are these changing pieces? How can payers find the most appropriate payment solution to solve the indemnity payment puzzle and reduce their total costs per claim?
New Workforce Dynamics Means Added Complexity to Payment Processing
While most of us still head to the office, factory or job site daily, this number continues to decline, as an increasing number of employees opt to work from their homes, on the road or in a remote location.
In fact, the Census Bureau states from 2005 to 2012, the number of remote workers increased by 79%. Further, 25 million Americans are currently unbanked or underbanked, according to the FDIC.
Should these individuals become injured on the job and eligible to receive indemnity payments, sending a check may prove to be a challenge. No convenient or stable access to a bank or lack of a permanent address could result in escheatment issues or lost and stolen payments.
Claim Severity and Duration Equals Harder-to-Manage Payments
Claim severity is on the rise. Thus, the more severe the injury, the more likely that an injured worker will receive indemnity and for a longer duration. For example, an Aon study found that in the healthcare industry alone, indemnity payments average more than $18,000 per worker each year.
This increase in total indemnity payments results in a greater threat of missed, duplicate or incorrect payments.
Changing Business Climate Drives Additional Look at Revenue Cycle Processes
Traditionally, indemnity payments have been issued via checks. However, as the cost of writing and managing checks continues to rise in tandem with data breaches and corporate fraud making daily headlines, it’s imperative to place more stringent controls on workers’ compensation payments. As businesses look to streamline costs, it’s safe to say these traditional processes are no longer our answer.
While EFT is increasing in popularity as a viable option, streamlining difficulties still occur as this error-prone solution requires a bank account number and can create delays in reaching bank accounts in a timely manner.
So how does the payer solve the indemnity payment puzzle?
Just as workers’ compensation claims have increased in complexity since the first lost wages legislation was passed in 1911, transaction methods have also changed. According to a Federal Reserve study, card payments increased by $17.8 billion while non-card payments decreased by as much as $3.1 billion between 2009 and 2012.
Consumers are increasingly more comfortable using a card-based solution, thanks to its bank neutrality, no need for a permanent address and convenience in receiving faster and more efficient payments.
In addition, card-based solutions help payers navigate today’s complex landscape by lowering operational expenses, reducing errors, decreasing escheatment, ensuring accurate and timely payments for all workers, mitigating internal and external fraud, letting adjusters focus on critical priorities and protecting the payer from payment liabilities.
As you explore a card-based solution look for a bank neutral partner that will manage injured worker calls about lost or stolen payments, offers protection through a card issuer like MasterCard and maintains its technology and processes in-house.
Outsourcing indemnity payments will enable you to focus on more important priorities, such as helping the injured workers get the care they need while reducing total claim costs. After all, there’s no better feeling than putting the final piece of the puzzle into place.