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Caring for Injured Workers: Providing Faster, Less Expensive Compensation Payments Through Modern Technologies

Traditionally, workers’ compensation payers disburse claims payments by using checks. However, checks are costly and prone to fraud, and can be inconvenient for injured workers who may not have access to a bank. As payment systems become more modern, workers’ compensation payers should consider a payment process that is affordable, delivers payments on time and provides flexibility for those for whom banking is not a viable option.

Written by Sean Cox, Senior Vice President, DataPath, Inc.

June 6, 2017

A whitepaper prepared by www.dpath.com  |  (800) 633-3841

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Introduction

Card-based account and payment solutions are used in several healthcare applications, including Flexible Spending Accounts, Health Savings Accounts, Health Reimbursement Arrangements and Medicare Set-Aside benefit accounts. It’s time to add workers’ compensation payments to this list. Typically, injured workers receive their workers’ compensation via mailed checks. This is an antiquated payment system, fraught with paperwork, errors and unnecessary costs. Upgrading to a reloadable card-based payment process makes it easier for injured workers to receive their funds, especially for those who are remote, mobile or unbanked. Not only does this system provide benefits to the injured workers, payers also reap the rewards in terms of saving time and money.

History

In 1908, the first workers’ compensation program was established by the federal government. There are now programs in all 50 states, as well as the District of Columbia, Puerto Rico and the U.S. Virgin Islands. In 2014 (the most recent available data), these programs covered 129.6 million employees, and over 62 billion dollars were paid in workers’ compensation benefits.[1] Yet, even in today’s technologically-advanced society, most workers’ compensation payments are made by checks mailed to the beneficiaries’ homes.

On the other hand, government agencies distribute benefits for many programs using prepaid cards or reloadable card-based payments. In fact, the July 2016 Report to the Congress on Government-Administered, General-Use Prepaid Cards, determined that government agencies distributed $150 billion by prepaid cards in 2015, accounting for 2.5 percent of the government’s total expenditures.[2] Some programs, such as the Supplemental Nutritional Assistance Program (SNAP), deliver their benefits using reloadable cards only.

Additionally, many states currently allow workers’ comp payments to be delivered through reloadable cards. Using reloadable card payment systems provides key advantages to both payees and payers, including easier and quicker access to benefits and reduced costs. Prepaid cards also are used for:

  • Women, Infants and Children (WIC) Supplemental Nutrition programs
  • Social Security benefits
  • Veterans Affairs programs
  • Child support programs
  • Unemployment benefits, and
  • Temporary Assistance for Needy Families

It’s time for the workers’ compensation benefits industry to adopt improved methods of dispersing compensation payments.

Issues for Injured Workers

Consider the plight of a person who is hurt on the job. It’s very stressful for anybody when their main source of income suddenly disappears, but even more so when they’re injured while working and cannot do their jobs while they are healing. In addition to dealing with the pain from their injuries, they now must go through the cumbersome filing process for workers’ compensation benefits.

Too often, injured workers are assured that they will receive their benefits by a specific day, but when the day comes, the check is not in the mail. After waiting another day or two, they contact their employer’s benefits representatives because they need to pay for their family’s living expenses, including rent, utilities, and groceries. They receive reassurance that the payment was mailed, but if it doesn’t arrive, then the injured worker must begin the process of applying for replacement checks. Meanwhile, the continued loss of income is putting their families in financial jeopardy.

There are also other pieces to the workers’ compensation puzzle. Workers may receive their benefits on time, but for any number of reasons, they do not have bank accounts. Others work remotely or live away from their homes due to their jobs’ distant locations and don’t have access to their hometown banks; some injured workers live in areas where banks aren’t easily accessible. There are also many workers whose incomes aren’t sufficient or regular enough to maintain bank accounts, or they mistrust the safety of financial institutions.

According to the 2015 FDIC National Survey of Unbanked and Underbanked Households, seven percent, or approximately nine million U.S. households, are unbanked, and an additional 19.9 percent, or about 24.5 million households, are underbanked.[3] (Underbanked means that even though the household has an account at an insured financial institution, they continue to use alternative providers for financial services such as check cashing and payday loans.) Without bank accounts, the unbanked must find other ways to cash their workers’ compensation checks. Depending on the injury sustained, both unbanked and underbanked worker-claimants may find it difficult to travel to a check cashing location. When they are finally able to cash their benefits checks, they face losing a portion of their already injury-reduced income due to high check-cashing fees.

Another issue faced by injured workers arises after their workers’ comp claims are filed. Due to the loss of income, injured workers may need to relocate because they are no longer able to afford their current residence. A worker who moves in a hurry may neglect to leave a forwarding address, resulting in lost checks. Even if injured workers report their new addresses to their employers, there may be additional delays in receiving the checks at their new dwelling.

Issues for Payers

Problems related to manual workers’ compensation checks also exist for payers and self-insured companies. It’s understandable that there are costs associated with paper checks. The median cost of producing a paper check is $3.00,[4] and can reach as high as $8.00.[5] In addition to the number of checks produced, the survey stated other factors that contribute to paper check costs, including printing, postage, check stock, wages and escheatment tracking. If a company issues 20,000 or more checks monthly, it could cost $60,000 per month or more.

Another drawback to paper checks is their propensity to disappear. When checks are lost, payers spend additional time and money trying to locate missing checks and speaking with upset claimants regarding the status of their payments. If the checks cannot be found, the payments must be reissued, which requires even more money.

Injured workers who are mobile, such as migrant workers, present additional challenges when they forget to update their mailing information or do not have a permanent mailing address. When workers’ compensation payments are stolen and cashed illegally, it leads to costly fraud investigations. In its 2017 study, the Association for Financial Professionals (AFP) determined that check payments continue to be the most frequently targeted method by someone committing fraud, with 75 percent of reporting organizations stating they had experienced check fraud attempts or attacks in 2016.[6] Additionally, escheatment may occur if the injured worker cannot be located. Escheatment happens when, after a period of time, the abandoned or unclaimed workers’ compensation benefits are turned over to the state, instead of being returned to the payers.

An alternative to paper checks is electronic transactions, known as Automatic Clearing House (ACH) payments. The 2015 AFP Payments Cost Benchmarking Survey calculated the price of these transactions to be less than $1.00 per transaction.[7] On average, using ACH to send workers’ compensation payments to a claimant’s bank account is about one-third the cost of a check. However, issues for payers still exist, including hidden processing fees, incorrect payment distribution, posting delays and payment duplication. Even more troublesome is that fraud incidents are increasing with ACH payments—up 30 percent in 2016.[8] Consider too, that in order to receive payment through ACH, workers have to submit their banking information; therefore sophisticated thieves who gain access to computer and payment files make ACH transactions risky for both the payer and the recipient. Finally, it’s important to remember that this solution is not viable for unbanked and underbanked injured workers.

Solutions

The most efficient solution to the issues that arise with manual check writing is the one used by many government agencies and health-related companies: reloadable card-based payments. The benefits of this payment system are especially applicable to remote, migrant and unbanked / underbanked injured workers.

Once injured workers receive their card, they are required to log on to a secure online portal. In the portal, they activate

the card through a registration process–no banking information required–increasing the security of this payment system. After registration is complete, the card can be used immediately and subsequent payments are reloaded electronically. Workers no longer need to wait for mail delivery because the payer can setup a reimbursement schedule, ensuring payments are made on time. Second, there are no check cashing or other related fees associated with using card-based payment options, which saves money for injured workers.

Finally, reloadable cards provide convenience for injured workers. They function just like debit cards and are accepted as payment almost anywhere, including online purchases. This means injured workers without bank accounts do not need to be concerned with carrying around large amounts of money after cashing their checks.

Yet, if desired, the cards can be used to withdraw cash from ATMs, as secure PINs are setup during registration. And because of the electronic reloading capabilities, injured workers do not need to notify payers if they move.

There are also several advantages to payers and self-insured companies that switch to reloadable card-based payments. First, since checks no longer get lost in the mail, payers will receive fewer calls from upset injured workers, thus reducing the time spent locating missing payments. Moreover, the time required in tracking remote and mobile injured workers is reduced since benefits are reloaded onto the cards electronically. Cost savings is another factor, as all check-writing expenses are removed, and the need for issuing replacement checks is eliminated; there are only minimal costs incurred with reloadable cards. Because checks are no longer being mailed, fraud and escheatment issues are alleviated.

With accurate, timely payments, decreased operational expenses, and reduced errors, a reloadable card-based payment system is the right solution for remote, mobile and unbanked/ underbanked injured workers and for workers’ compensation payers.

Conclusion

The workers’ compensation payment industry is behind the times in how benefits are paid to injured workers. While many federal and state programs have transitioned away from older forms of payment and switched to reloadable cards, most workers’ compensation payers are still issuing paper checks. This payment system is costly to maintain for both payers and injured workers. The answer is to use a reloadable card-based payment system which cuts costs for payers and assists injured workers with timely and easy-to-access funds.

Questions for Payers to Consider

Here are five questions to help workers’ compensation payers and self-insured companies evaluate their current payment processes.

  • How are the workers’ compensation payments made currently?
  • How much is it costing per payment? How much does it cost annually?
  • How many employees receiving benefits work remotely?
  • How many employees receiving benefits are unbanked or underbanked?
  • How much time do payers spend answering inquiries regarding payments?

 Payers may be surprised by the results of this evaluation, especially if their current workers’ compensation payment system is costly and inefficient to manage. The solution is to investigate other payment systems, including reloadable card payments, as viable alternatives.

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[1] https://www.ssa.gov/policy/docs/statcomps/supplement/2016/workerscomp.html
[2] https://www.federalreserve.gov/publications/other-reports/files/government-prepaid-report-201607.pdf
[3] https://www.economicinclusion.gov/surveys/2015household/documents/2015_FDIC_Unbanked_Underbanked_HH_Survey_ExecSumm.pdf
[4] https://www.bottomline.com/application/files/faster-cost-effective-afp-payments-cost-benchmark-survey-gen-us-srr-1510.pdf
[5] “2013 AP Automation Study,” The Institute of Financial Operations, July 2013
[6] https://commercial.jpmorganchase.com/jpmpdf/1320728778968.pdf
[7] https://www.bottomline.com/application/files/faster-cost-effective-afp-payments-cost-benchmark-survey-gen-us-srr-1510.pdf
[8] https://commercial.jpmorganchase.com/jpmpdf/1320728778968.pdf

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About the Author and Company:

Sean Cox is Senior Vice President at Little Rock-based DataPath, Inc. He holds a BBA in Accounting from Georgia Southern University, and an MBA from Colorado State University, and has almost 20 years of experience in Sales and Finance. DataPath’s insurance payment solutions offer secure, card-based indemnity payment processing. DataPath strives to improve healthcare with innovative technology and has been creating flexible financial and administrative solutions since 1984. Learn more at www.dpath.com or call (800) 633-3841.