One area of particular difficulty is getting proper, timely income replacement payments to injured workers, who typically face serious, unexpected hardships. Mainly, efficiently getting payment to claimants has proven cumbersome (and expensive) due to the traditional check-based delivery process
It’s pretty clear. If any industry is ripe for modernization, it is workers compensation. Further fueling the pressure in workers’ comp, carriers are responding to rising loss ratios and pressures to keep premiums down. Of course, there also is a need for increased customer satisfaction and improved customer service.
Add it all up, and it’s trouble. But it doesn’t have to be.
Robert Mendte, who has more than 30 years’ experience as an insurance operations executive and management consultant, says when it comes to paying injured workers, a better way already exists. Simply, it’s transforming the paper-based system into one that takes advantage of today’s growing card-based transaction world.
“We are in the post-check age,” says Mendte, president of InsurCard (insurcard.com),
a wholly owned subsidiary of Service Network Design, a management consulting firm with corporate financial clients in both the insurance and prepaid card industries.
“Old-fashioned, written bank checks are costly, cumbersome and time-consuming.
Conversely, debit cards have now become widely accepted and are much easier to use.
“Injured workers need their money as soon as possible. They want it in a form that they can use quickly and easily,” he adds.
It’s such a simple, practical and economical concept, Mendte says, that people often wonder why it has taken so long to arrive in workers’ compensation. Why such rough sledding for a process that seems perfect for workers’ compensation? Mendte and
Roy Schwartz, vice president of operations, analyzed the marketplace and found one problem is the ‘If it is not broke, don’t fix it’ mindset. But it is broke, they say, from the standpoint of being effective and efficient for all parties involved in a claim. Yes, the old way has worked, but paying by check today no longer makes sense.
Another problem has been the aforementioned hodgepodge of state laws regulating workers’ compensation, a long-time hurdle in getting true uniformity on claim handling. To overcome that hurdle, Mendte and Schwartz spent two years listening to state regulators, unions and other stake holders, explaining the InsurCard concept and understanding regulatory and technology issues.
For example, one FDA letter concluded that a medical food did not meet the official definition because it was intended for an audience who could fulfill the nutrient requirements by modifying their diet, making the product unnecessary. Another FDA letter concluded that the labeling on a medical food failed to bear adequate directions for the safe, intended use of the products.
Medical foods in workers’ compensation are on the rise. For example, the California
Workers Compensation Institute (CWCI) , in a report called “The Cost and Utilization of Compound Drugs, Convenience Packs and Medical Foods in California Workers’
Compensation,” documented the rise in spend on medical foods, repackaged drugs, and compound drugs from 2006-2009. The CWCI found that those three categories accounted for almost 12 percent of drug spend in California in the first quarter of 2009, with medical food reimbursement at $233 per prescription in that quarter.
“It isn’t simply a case of launching a debit card solution,” Mendte explains. “Insurers want to be assured that the solution is legal in each of their states. You need to produce a letter from state regulators that grants you permission to use cards for payment in workers compensation claims. We worked hard to get those letters, and are the only company who can offer that assurance.”
Today, a Mendte note, InsurCard is accepted in 40 states including New York, Texas, California and Florida. And because many industries – i.e. retail and the Federal government – have moved to prepaid cards, cards have become routinely accepted.
“We were able to develop the proper system because we understood the insurance industry, had system knowledge and included banking partners,” says Schwartz,, noting that both Visa and the Bancorp Payment Solutions Group, a leading issuer of network branded prepaid are InsurCard’s partners.
With an InsurCard Visa prepaid card – designed specifically for workers compensation insurance claim payments – a claims adjuster enters a claim into the system indicating the injured worker should be paid by InsurCard. An electronic payment file is sent from the insurer to the bank that issues the InsurCard. The bank mails the injured worker their card and loads the value of the payment to the card account.
The claimant receives their InsurCard and, as with any Visa card, they dial up a toll-free number to activate it. At that point, they can use the card much like a debit card at ATMs, banks or merchants; wherever Visa is accepted. Even more, the card holder can call InsurCard’s call center or check the website for customer service or inquiries on balances. The bank provides audit trails, financial activity, & reconciliation reports to the insurer.
Mendte explains that the InsurCard approach has other advantages. For one, it provides significant benefits for lower-income workers, since there are no check-cashing fees or delays while waiting for a check to clear. For the insurer, it lowers payment processing costs and improves cash control and fraud protection. It also protects customer privacy, as injured workers do not need to maintain a bank account or reveal a bank account number.
“It’s a safe, efficient way to pay claims,” Mendte says. “Now, we’re able to make it work because all the pieces are in place.
Insurers agree the time is right to switch from paying claims with checks to paying them with prepaid cards.”
Other benefits include:
• In workers compensation (and disability) wage replacement claims, where multiple payments are made to a single claimant, one card can be reloaded repeatedly, ensuring timely payment at significant cost savings.
• No check-cashing fees and all the benefits of a Prepaid Visa card, as the cards can be used anywhere Visa debit cards are accepted, and at over 400,000 ATMs nationwide.
• InsurCard can significantly lower payment processing costs, improve cash control, enhance fraud protection and boost customer service, as well as save up to 85 percent of the cost of issuing checks. Mendte says studies estimate the issuance and post-issuance cost to an insurer for paper checks at somewhere between $10-$15 per check.
Mendte explains that state workers compensation boards are very specific about how you can do anything, and one of the things they are most focused on is how you can make a payment to an individual. Plus, the makeup of those boards changes frequently, so there is a high level of turnover. Mendte and Schwartz received advice on the legality of using prepaid cards in the workers compensation arena, and took it out to the large insurers to make their case. They realized early on that getting the InsurCard strategy in place required much planning and legwork.
“We put a lot of things on hold and went out and used our knowledge of industry,” says Schwartz. “We got in front of the boards, including in states where people said it was impossible. And finally, we got approval. When we went back to insurers, they were shocked.”
Of course, Mendte and Schwartz continue to work on all the remaining states.
“We’re getting very positive responses,” Mendte says. “The odd thing is, in some of these states, they issue prepaid cards for everything else but workers compensation payments.”
Mendte emphasizes that 25 percent of the American population has no bank account, and workers injured at work in lower paid jobs often fall in to that category. They also are victims of high-cost fees at check cashing outlets, something they can ill afford.
Prepaid cards eliminate those two stumbling blocks, and many other issues that occur when payment is made by check.
“When you put the money on to a prepaid card, it’s protected,” Mendte says.
So far, InsurCard has signed a Top 5 insurer and four third party administrators that have begun to issue cards.
“It’s taken time to get started mainly because we had to secure the backing of the states,” Mendte says, adding that InsurCard has been endorsed by the National Association of Mutual Insurance Companies (NAMIC). “Now, the lid has been taken off. People have interest in this. It’s still a shock and they ask where we are, and when we tell them, they say that’s impossible. But it’s no longer impossible.”
InsurCard’s process is turnkey, offering everything from instruction manuals and flow charts on how it works between the insurance system and the banking system, and how-to videos detailing every step of the way for carriers and payers, including how adjustors can get the best out of the system.
“We have built InsurCard as if we were inside the carrier,” Mendte says. “It is an entire turnkey process, and it covers every base and can work in unison with any internal systems, new or legacy.
“Most of all, it takes the stress off the families of injured workers and, at the same time, is a cost savings strategy for the workers’ compensation payer,” he adds. “Everyone wins.”
For more information, visit insurcard.com.