Is Your Third Party Administrator Double Dipping?

When you decided to take your workmen’s compensation insurance into a self insured plan you knew you couldn’t run the whole show yourself and you looked around for help. Maybe you shopped around for that help or maybe you just accepted the recommendation of your risk management department. At any rate, you wound up with a Third Party Administrator (TPA) and now you’re starting to wonder just how effective a job they are doing.

The preventative plans that you put in place are working. The number of claims is down and the workplace is much safer than it was before. So why are the costs still going up?

Part of the increase in the cost per claim has been medical care and up until now you have rationalized that medical expenses will always be going up and it should be no shocker. However a closer analysis shows the real cost driver is not so much the medical expense, but the time lost claims. And then you start to wonder why it’s taking so long to get a worker back to the job. You made sure that you had light duty and alternative duty positions identified in order to bring the employee back to work and recover fully on the job. So why aren’t you seeing a drop in time lost claims rather than an increase?

If you think about it for a moment the sad truth will become clear. Who benefits from a quick return to work? Actually there are only two parties that gain from a rapid return and that’s you and the injured worker. Everyone else in the process, the medical providers, TBA, claim adjuster even the broker stands to lose money the shorter the process.

But the TPA is supposed to represent your best interest isn’t it?

Let’s take a moment and discuss how this organization is compensated. Typically they will have separate fees for medical only, incident only and lost time claims. By far the largest fee is for lost time claims. Not only is their a financial incentive to make a claim a lost time claim, but the very definition of just what a lost time claim is may be in question as there is no standard in the industry.

But that’s not all. If your TPA holds itself out as a full service organization, that is they provide all of the services, dig a little deeper and you’ll probably discover that they in fact don’t offer the services they contract it out and receive a commission for referring the business. That commission may be as much as 30% of the cost of the claim.

If they don’t provide the services, but recommended services like medical providers or medical case management firms, dig deep and you’ll find similar referral commissions.

So not only are they collecting their fee for every claim, they are collecting commissions from vendors that they refer the claim to.

Is that in your best interest?

Short of replacing the TPA, and there are professional TPA organizations that actually rely just on their services for revenue, what can you do? For starters you contract directly with the providers yourself. This will create an administrative burden but you should see a reduction in cost equal to the commissions that were being paid to the TPA.

Secondly, in those contracts establish benchmarks for performance and clearly state your aggressive return to work policy and that continued service will be contingent on meeting the benchmarks.

What do you have to gain from taking on these additional tasks? You can expect a minimum 10% reduction in total work comp cost. How much does a ten percent savings mean to you? Is that a significant enough dollar amount to get you to take action?

If you’re still a bit confused on just how this TPA double dip works, and it’s commonplace in the insurance industry, consider contacting the risk management consulting firm CXO7. This group of professionals has been performing audits for Fortune 500 companies and others and their clients consistently experience 10% to 15% reductions in work comp costs.

If you’d like to learn more about the cost cutting tactics your vendors don’t want you to know, sign up for the video series http://riskmanagementcompetitiveintelligence.com/