A Massachusetts budget amendment to explore the designation of a third party administrator (TPA) to manage part of the state’s workers’ compensation assigned risk pool could compromise the services received by injured workers, according to an industry trade association.
“In light of the absence of any compelling public need for this proposal, and with the Legislature facing more pressing issues with the budget, this amendment is troublesome and highly unusual,” said Frank O’Brien, vice president, regional manager and counsel for the Property Casualty Insurers Association of America (PCI).
In a May 17 letter to the Senate Ways & Means Committee, PCI and other insurance trade associations explained why an amendment to S.B. 2400, the 2005 budget bill, could increase workers’ comp premiums and jeopardize claims services received by injured workers.
Insurers participating in the assigned risk pool provide all services, including claims administration, underwriting and loss control, a system which helps keep costs down. Separating these functions by introducing a TPA to provide some services could result in higher workers’ comp costs and rates for all Massachusetts employers, which would be especially burdensome for small businesses.
Use of a TPA could also compromise claims services for injured workers. Because TPAs are not subject to the licensing, examination or audit programs, or even the fair claims settlement laws, injured employees receiving poor claims services would reportedly have no legal recourse to address the problem.
“Insurers in the assigned risk pool have powerful financial incentives to perform well,” said O’Brien. “The worse they perform as servicing carriers, the larger the amount they must absorb in pool assessments. Additionally, fees they receive for servicing pool business can be reduced for poor performance. TPAs would have no such financial stake in the outcome of their work, but would be paid on the same basis as insurers.”
Finally, because only one TPA firm may qualify for providing the services under this proposal, the amendment “creates an unhealthy appearance and a terrible precedent,” added O’Brien.