Reducing Administrative Costs in Workers’ Compensation: A Strategic Risk Management Advocacy Approach
Introduction
The workers’ compensation system is plagued by inefficiencies, excessive administrative costs, and outdated processes that continue to burden employers, insurance carriers, and third-party administrators (TPAs). These costs accumulate over time, especially when claims are not resolved early, leading to significant financial strain and unnecessary employer resource expenditure.
As a workers’ compensation subject matter expert with over 20 years of industry experience, I have codified and refined a proven strategy to close claim files efficiently while mitigating both current and future employer risks on current and legacy claim files. By implementing innovative approaches that focus on early intervention or a stop the spend for legacy files and a risk management advocacy model, we can remove these costly claims from an employer’s liability balance sheet.
The key to reducing administrative costs starts with the approach. Instead of allowing claims to become legacy files, early resolution through strategic claims management must become the industry standard. Unfortunately, the current process does not allow for this proactive approach, leading to unnecessary legal expenses, drawn-out settlements, and inflated administrative costs.
The Cost of an Archaic Claims Management Model
The workers’ compensation industry has long relied on an outdated claims process that remains fundamentally unchanged. Insurance carriers and TPAs routinely overspend on claim resolutions through excessive legal fees, over utilization of surveillance, independent medical exams (IMEs), and redundant physician evaluations at times -all before considering the Total Cost of Risk (TCOR).
The result?
• Delayed settlements: Claims remain open for years, with some becoming legacy files while accumulating significant administrative expenses
• Inefficient cost management: The focus on reserve marks rather than overall cost efficiency of a claim leads to employer wasted financial capital resources.
• Mistrust among stakeholders: Claimants, adjusters, and legal teams often reach an impasse, a claimant break down occurs all playing vital roles as litigation increases further complicating claim resolution.
Take, for example, a disputed claim open for over two years with a set reserve of $30,000. The claimant and their attorney request a $60,000 indemnity settlement, including a Medicare Set-Aside (MSA) account. Rather than considering the long-term cost benefits of settlement, the carrier refuses to adjust their stance, leading to additional administrative costs—often way exceeding $60,000 in legal and administrative costs alone. In this scenario, the insurer may ultimately meet the reserve mark on files over time but at triple the overall expense and still having to pay a claimant at the end of the case.
This is a fundamentally flawed model. The industry needs to shift toward early intervention and risk mitigation strategies to prevent such unnecessary employers capital expenditures.
The Role of Early Intervention in Cost Reduction, Proactive vs. Reactive.
When claims are handled proactively, costs are significantly reduced. A strategic risk management advocacy approach allows for:
• Earlier settlements at a fraction of the long-term cost.
• Reduction in unnecessary litigation expenses.
• Increased efficiency in resolving disputes.
Delays in settlement result in skyrocketing administrative costs. A low initial settlement offer that gets rejected often leads to a prolonged legal battle. Eventually, the carrier increases their offer to eliminate future risk exposure, but by then, administrative costs have already spiraled out of control. A better approach would be to introduce an early resolution protocol that prioritizes cost-effective settlements upfront as the claimant approaches MMI. Don’t Delay Treatment.
Breaking the Cycle of Inefficiency
To fix this broken system, we must address the structural inefficiencies that perpetuate excessive administrative costs:
1. Redefining the Claims Process
• Claims should be handled with a focus on early resolution rather than litigation as the default strategy.
• Adjusters case loads must be reduced where applicable, trained in an advocacy approach rather than relying solely on legal counsel at times.
2. Restoring Trust Between Stakeholders
• A major issue in long-term claims is the breakdown of trust between the claimant, adjuster, and insurer.
• Using an advocacy-based approach, where claimants feel heard and respected, can lead to faster and more amicable settlements.
3. A Strategic Partner for Risk Mitigation
• Claims managers and risk professionals are often stretched thin, unable to give each file the attention it needs.
• A second set of eyes needs to be placed on these claim files to help identify and reduce the capital spend.
Having an independent, specialized strategic partner conduct claim performance reviews and provide customized settlement solutions unique to the merits of each claim ensures cost efficiency without disrupting the existing business model.
A Case for Change: The Impact of Proactive Claims Management
One clear example of inefficiency is a disputed claim where the claimant refused to resign. Six months passed before the claimant finally resigned, yet no settlement discussions took place. Claims like this fall through the cracks of our system each day. Instead, the claim proceeded to litigation, adding another year’s worth of unnecessary administrative and legal expenses to the employer. Had an early intervention protocol been in place, this claim could have been resolved promptly, saving tens of thousands of dollars.
Similarly, not all claims require legal intervention. A thorough case-by-case performance review should be conducted by a neutral third-party specialist, ensuring that only necessary claims proceed to litigation while others are settled efficiently. Some claims need to be fought in litigation, while others do not.
A Modern Approach to Claims Resolution
The future of workers’ compensation must move toward a risk management claims advocacy modelthat:
• Introduces early intervention protocols to prevent claims from becoming costly legacy files.
• Utilizes an independent strategic partner to provide oversight and open claim performance reviews for settlement opportunities.
• Implements an employer-first, cost-effective approach that focuses on reducing long-term financial exposure.
This method does not require upfront costs of additional employer capital or additional risk to insurers, TPAs, or employers. Instead, it serves as an added-value tool that leads to tangible cost savings and streamlined claim closures.
Conclusion: A Call to Action
Employers, TPAs, and insurance carriers need a smarter approach—one that prioritizes early resolution, strategic risk management, and cost reduction.
By paying for results, not promises, and partnering with experts who are true strategic partners investing in employers who understand every facet of the claims process, organizations can significantly reduce administrative costs directly impacting the bottom line while ensuring claims are handled fairly and efficiently.
Managing claim costs begins with the right approach. Now is the time to make the shift toward a cost-effective, resolution-focused workers’ compensation strategy.
Paul Gold
Founder & CEO
PG Resolutions Group