Reserving Issues for Workers Compensation Managed Care

Managed care is becoming an integral part of workers compensation claims management. Some techniques are being implemented internally by insurers, whereas other services are being provided by outside vendors. As part of the introduction of managed care, insurers are beginning to use compensation arrangements with medical providers and managed care networks other than the traditional fee-for-service basis of reimbursement. One such alternative is capitation under which the insurer pays a fixed fee to a provider or provider network in exchange for defined medical services. Under some agreements, only selected types of medical services are covered; under other arrangements, medical services provided in specified time periods are covered. In essence, the insurer is "reinsuring" the covered medical services with the provider group. The widespread use of managed care techniques is expected to affect claim costs and payment patterns. In addition, because many managed care contracts are financed by a single up-front payment and the insurer may not receive detailed medical payment data, traditional actuarial methods of projecting ultimate medical losses must be adapted. In this paper, the reserving issues that result from managed care and from the various financial arrangements will be identified and approaches for addressing them will be presented. Keywords: Cost Containment