At the 2019 California Self-Insurer Association Annual Conference a panel discussed the costs of denied claims. The speakers were:
- Alex Swedlow – President, CWCI
- Bill Zachry – Senior Fellow, Sedgwick Institute
- Mark Priven – Director Specialty Actuarial, Bickmore
The genesis of this session was a report that was published by Lockton last year. You can view the Lockton study HERE
The study reviewed over 270,000 claims from 150 employers. Data was from 2013-2017. These were all claims that were initially denied and eventually converted to an accepted claim. The study found a 20% increase in denied claims during the five-year study period. It also showed that 67% of denials were eventually accepted within 12 months of the accident date.
According to the Lockton study, claims that were initially denied ended up costing more on average than the non-denied claims. You cannot automatically conclude that the claims costs more because they were denied, because it may be that the nature of those claims was more costly than the ones that were accepted. However, as would be expected, the expenses on the denied claims was significantly higher than the accepted claims.
Not surprisingly, the costs of claims in California was significantly higher than other states and also had longer development periods of the claims. Surprisingly, in Texas the costs were lower on denied claims than accepted claims.
California DWC PAR audits showed the denial rates on claims have increased at rates similar to what was seen in the Lockton studies. However, the PAR audits are not a random sample so drawing conclusions from their data is questionable.
According to California Labor Code, there are a wide variety of reasons why a claim can be denied. These include employment status, the employment being the proximate cause of the injury, not caused by intoxication, and other issues.
CWCI studied their database on denied claims for accident dates 2010-2017. There were 963,000 claims in their study.
Highlights of CWCI data:
- Their data showed just under 40% of denied claims were indemnity claims, and 60% medical only claims.
- Notification lag times for denied claims were significantly higher than accepted claims with the average notification lag on denied claims being over 100 days.
- Denied claims had attorney involvement on 93% of them vs non-denied claims with attorney involvement on around 50% of claims.
- 73% of denied claims are coming from Southern California. This aligns with prior CWCI data showing significantly higher rates of litigation in the LA basin including significantly more post-injury CT claims.
- Average medical payments on denied claims was 17% lower than on non-denied claims.
- Paid TD days and overall indemnity payments were around 50% higher than non-denied claims.
- ALAE payments were almost double those on non-denied claims. Factoring in everything, denied claims cost about 2% more than accepted claims, which is a much smaller spread than the Lockton study.
The question around denied claims is are we denying the right claims? If you are denying too many claims unnecessarily it will hurt your reputation before the judges. Chances are if you studied this data among different employers, TPAs, and carriers you would see very different results based on claims-handling philosophies.
California’s cumulative trauma (CT) claims lend themselves to a higher percentage of denials. Many of these claims are initially denied as employers must accept or deny within 90 days, yet it is impossible to gather medical information and obtain an AME to address medical causation within that period of time.