As a consultant to dozens of carriers, we see quite a bit of incorrect reporting. But subrogated recoveries is the most common incorrectly performed unit statistical reporting task we find. I've seen recoveries never reported, reported on only one level and improperly distributed between Indemnity and Medical.
So, how do we, the Stat Reporting community, overcome this? Understanding is key and it's not easy. You have to determine which unit levels to correct then you have to figure out how to allocate the recovery between Indemnity and Medical.
First, some definitions
Ind% - The percentage of the recovery that is allocated to Indemnity
Med% - The percentage of the recovery that is allocated to Medical
Total Incurred Loss - A report level's Incurred Indemnity + Incurred Medical
Net Incurred Loss - The latest total incurred minus the subrogation recovery less the subrogation expenses. Example: $1,000 Total Incurred, $500 Recovered, $250 Recovery Expenses. The Net Incurred Loss would be $1,000 - ($500 - $250) = $750.
Step 1: Decide which report levels to report on.
How many levels have been reported? Obviously, if the first report hasn't been reported yet, you simply follow the formulas in Step 2 for all reports.
If several levels have been reported, a comparison is needed. The rule is, if the Net Incurred Loss is less than the report level's Total Incurred Loss, then a correction to the report level is necessary following the formulas in Step 2. If the Net Incurred Loss is greater than the report level's Total Incurred Loss, then there is no correction required for that report level.
Net Incurred Loss < Total Incurred Loss Then UPDATE
Net Incurred Loss > Total Incurred Loss Then NO UPDATE
Report Level 1 for claim 1234 has Incurred Indemnity of $5,000 and Incurred Medical of $15,000
Report Level 2 for claim 1234 has Incurred Indemnity of $50,000 and Incurred Medical of $75,000
After Report Level 2, claim 1234 experiences a subrogated recovery of $75,000 with %20 allocated to Indemnity and %80 allocated to medical. The recovery expenses were $5,000.
Step 2: Determine your Formula
Indemnity Incurred: Incurred - (Ind% of recovery less Ind% of subrogation expenses)
Indemnity Paid: Paid - (Ind% of recovery less Ind% of subrogation expenses)
Medical Incurred: Incurred - (Med% of recovery less Med% of subrogation expenses)
Medical Paid: Paid - (Med% of recovery less Med% of subrogation expenses)
Step 3: Apply formulas to applicable levels
In Step 1, we found that only level 2 needs to be updated. So now, we'll apply the formulas from Step 2 to level 2.
50,000 - (20% of 75,000 - 20% of 5,000)
50,000 - (15,000 - 1,000) = 36,000
75,000 - (80% of 75,000 - 80% of 5,000)
75,000 - (60,000 - 4,000) = 19,000
35,500 - (20% of 75,000 - 20% of 5,000)
50,000 - (15,000 - 1,000) = 22,000
67,500 - (80% of 75,000 - 80% of 5,000)
75,000 - (60,000 - 4,000) = 11,500
That simple, right? Well, in most instances. This is the NCCI formula and rules. Each bureau has it's own process and each state, even NCCI states, can have exceptions. It's essential that a Stat Reporting Professional stay up-to-date with these rules and plan accordingly.
As overwhelming as it seems, it is obtainable and manageable with the right system and the right people.
LGC, of course, can help a carrier make sure every report is correct while improving grades and reducing frustration. We provide world-class outsourcing service as well as wcSYNC: a fully-featured SaaS platform designed to help a Carrier take NCCI & Bureau reporting inhouse while still reducing costs and risks.
Learn more about LGC's services here.
Learn more about wcSYNC here.