The News You Need for Sept. 11
How do captives apply specifically to workers' compensation? What should you know about intellectual property? And how can you get your study on when it comes to MSP compliance?
Captives 101: Captives in Workers’ Compensation?
Our previous article explored best practices for managing and optimizing a captive insurance program. We now focus on a specific and essential application of captives: workers' compensation risk management. Workers' compensation is a significant concern for many businesses, particularly those in high-risk industries. Captive insurance offers a unique and effective way to manage these risks, providing businesses with greater control, flexibility, and cost savings. This article will examine how captives can be effectively used in the workers' compensation market based on real-world examples and insights.?
The Application of Captives to Workers' Compensation?
Workers' compensation is a mandatory insurance program that covers employee medical expenses and lost wages due to work-related injuries or illnesses. Managing these claims can be complex and costly for businesses, especially in industries with high injury rates. Traditional workers' compensation insurance often comes with high premiums and limited flexibility, making it difficult for organizations to manage their risks effectively.?
Captive insurance offers an alternative approach, allowing businesses to create a workers' compensation program tailored to their risk profile and business objectives. Companies can control workers' compensation programs by creating a captive, including underwriting, claims management, and loss control initiatives. This control allows for a more personalized approach to managing workers' compensation risks, such as implementing targeted safety programs, return-to-work initiatives, and medical management strategies. Captives are particularly useful for managing high-frequency, low-severity claims, which are common in workers' compensation. By aggregating these risks within a captive, companies can minimize the financial impact of claims over time, reducing volatility and stabilizing costs.?
Workers' Compensation Captive Case Study?
To illustrate the benefits of using captives for workers' compensation, let's look at some real-world examples.?
Case Study 1: Manufacturing Company?
A large manufacturing company with a high frequency of workplace injuries decided to form a single-parent captive to manage its workers' compensation risks. The captive enabled the company to implement a proactive approach to loss control, significantly reducing the number of claims over time. By taking control of claim management, the company was able to accelerate claim resolution, leading to better outcomes for injured employees and substantial cost savings. The captive also provided the flexibility to customize coverage and implement targeted safety programs, further enhancing the company's risk management efforts.?
Case Study 2: Construction Industry Group Captive?
In the construction industry, where injury risks are high, a group of mid-sized construction companies formed a group captive for their workers' compensation insurance. These companies could negotiate better terms and reduce insurance costs by pooling their risks. The group captive also allowed them to share best practices in injury prevention and claim management, leading to better safety outcomes. Ideas are shared through risk control workshops, where roundtables encourage innovative thinking to promote and enhance safety programming. The success of this captive group has demonstrated the power of collaboration in effectively and efficiently managing workplace accident risks.?
Unique Benefits and Challenges Related to Workers' Compensation?
The use of captives for workers' compensation offers several unique advantages. One of the main benefits is the ability to gain greater control over claims management. Traditional workers' compensation insurance often involves a one-size-fits-all approach, with the insurer directing the claims process. In contrast, captives allow companies to manage claims consistent with their business goals, leading to faster claim resolution, better outcomes for injured workers, and ultimately reduced costs.?
Another benefit is personalizing coverage and implementing targeted risk management strategies. For example, companies can design loss control programs tailored to their specific occupational hazards, such as ergonomics training in an office environment or fall protection in construction. This level of customization is often not possible with traditional insurance policies, making captives an attractive option for businesses with unique risk profiles.?
Using captives for workers' compensation also has challenges. One of the biggest challenges is regulatory compliance. Workers' compensation is heavily regulated, and businesses must ensure their captive complies with all applicable laws and regulations. This compliance can require specialist expertise and constant monitoring. Additionally, managing workers' compensation risks through a captive requires a thorough understanding of the claims process and the ability to manage claims effectively.?
How Captives Help Manage Workers' Compensation Claims and Costs?
One of the main benefits of using captives for workers' compensation is the ability to manage and reduce costs. Captives allow businesses to implement loss control measures such as safety training and ergonomic evaluations, which can help prevent injuries and reduce claims frequency. Additionally, captives enable more responsive claim management, allowing companies to manage claims more efficiently and reduce the overall cost of workers' compensation. Captives also provide the opportunity to implement return-to-work programs, which can help injured employees return to work more quickly, reducing the time and cost of claims. By managing workers' compensation risks more effectively, captives can save significant costs and improve employees' safety and well-being.?
Captive insurance is a powerful tool for managing workers' compensation risks, giving businesses more control, flexibility, and cost savings. By leveraging captives, companies can take a more proactive approach to managing their workers' compensation programs, leading to better outcomes for the company and its employees. As we've seen from real-world examples, captives can be a valuable part of a company's risk management strategy, especially in high-risk industries.?
In the next segment of our Captives 101 series, we'll explore the regulatory and legal considerations involved in forming and operating a captive. Understanding the regulatory landscape is essential to ensuring the success and compliance of your captive insurance program. Stay tuned as we continue to explore the world of captive insurance.?
Part I: General Patent Challenges in the Insurance and Workers’ Compensation Industry
The United States Patent and Trademark Office (USPTO) has its early origins at the beginnings of the U.S. government. It was established by the Patent Act of 1790 and was signed into law by President George Washington on April 10, 1790. The act structured a system and process for granting patents and set up a then three-person committee, including the secretary of state (Thomas Jefferson), the secretary of war (Henry Knox), and the attorney general (Edmund Randolph), to review patent applications. This group was known as the “Commissioners for the Promotion of Useful Arts.”??
Understanding Patent Rights and Benefits?
A patent is a legal right granted by the government that provides an “inventor” exclusive control over their “invention” for a specific period, typically 20 years from the date of filing. This legal right prevents others from making, using, selling, or distributing the patented invention without the inventor’s permission. The purpose of patents is to encourage innovation by providing inventors with the assurance that their time and resources will be protected and provide benefit from their creative work. For professionals in the insurance industry, patents might seem like a? vague legal concept typically reserved for hi-tech companies or complicated manufacturing processes. However, as many industries increasingly integrate AI and other advanced technologies, understanding patents becomes crucial for protecting intellectual property, maintaining a competitive edge, and understanding opportunity for further advancement of efficiency and utility in the insurance sector.?
Approving Patents with? the USPTO??
The USPTO is the federal agency responsible for reviewing patent applications and deciding whether an invention qualifies for patent protection. The process of securing a patent involves several steps, beginning with the invention itself. The idea must be new, non-obvious, and useful to be considered for a patent. In the insurance field, this might involve developing a new software tool to streamline workers’ compensation claims processing or an algorithm to improve the accuracy of impairment ratings. Once the invention is clearly defined, it is advisable to conduct a thorough patent search to determine whether similar inventions already exist. If a comparable tool or method is already patented, any invention must offer something significantly different or improved to be considered for a patent.?
Once the invention is found to be novel, the next step is to file a patent application. This application must detail the invention thoroughly, explaining how it works, the specific problem it solves, and how it differs from existing solutions or “prior art.” The USPTO assigns an examiner who will review the application to ensure that the invention meets the legal requirements of novelty, non-obviousness, and utility. If the examiner determines that the invention meets these criteria, the patent will be granted. If not, the application may be rejected. However, applicants have the opportunity to appeal the decision or amend the application to address the issues raised by the examiner.?
Characteristics of a Patentable Invention?
Any invention being submitted to the USPTO for patent approval must demonstrate the following characteristics:??
Novelty?
A key question for any patent application is whether the invention is truly patentable. For an invention to qualify as a patent, it must meet several critical legal standards. One of the most important is “novelty.” To be considered novel, an invention must be new—something that has not been previously known, used, or patented by others practiced in the art. For example, if a company in the insurance industry develops a software tool that integrates workers’ compensation data with impairment rating models in a novel way, it may be eligible for a patent. However, if similar tools already exist, this new version must offer substantial improvements, benefits, or differences to meet the novelty requirement.?
Non-Obviousness?
It is important to understand the standard for “non-obviousness,” in the eyes of the USPTO. An invention cannot simply be an obvious improvement on an existing technology or practice; it must involve some degree of innovation that would not be readily apparent to someone skilled in the field. This is often a subjective determination, and disputes over what is or isn’t “obvious” frequently arise in patent applications. For example, if an invention is a software tool that automates a workers' compensation claims process that adjusters have been manually performing for years, it might be considered obvious. However, if the tool uses a novel algorithm that analyzes claims data in a unique way to predict outcomes or describe claim conditions more accurately, it may pass this non-obviousness test.?
Utility?
The final key requirement for patentability is utility. An invention must have some practical use or provide a benefit in the field to be considered for a patent. This is also referred to as “utility.” In the context of the insurance industry, this could mean developing a tool that improves efficiency, accuracy, or decision-making in claims processing. For instance, a software system that can predict when a workers' compensation claimant will reach Maximum Medical Improvement (MMI) could offer substantial utility by helping adjusters manage claims more effectively, set reserves, and create management timelines to substantially reduce settlement times, while bringing a new level of standardization to the process.?
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Even when an invention meets these basic criteria, there are still significant legal challenges that may need to be addressed. One of the most important ones, particularly for software-related inventions, is the issue of abstract ideas. In the landmark Supreme Court case Alice Corp. v. CLS Bank International [573 U.S. 208 (2014)], the court ruled that abstract ideas including basic economic principles or generic algorithms, are not patentable unless they are applied in a novel and non-obvious way. This ruling has continued to carry important implications for injury-pricing innovations in the insurance industry, which often involve processes or calculations that could be considered abstract.?
Uniqueness?
For example, if you develop a piece of software that automates a claims process that is already well-established in the industry, the courts may consider this an abstract idea and reject the patent application. However, if the software introduces a unique approach—such as a new algorithm that predicts claim reserves based on a complex set of inputs and resultant action items—it may have an improved chance of passing the abstract idea test. The distinction between an abstract idea and a patentable invention often depends on how the idea is implemented and whether it offers a novel technological solution that addresses a recognized industry-specific or larger societal problem.?
Challenges Patenting Algorithms?
There are other challenges around the patentability of algorithms. Algorithms serve at the core of software innovations in the insurance industry. Courts have generally ruled that mathematical algorithms alone are abstract ideas and not patentable. This means that for an algorithm to be eligible for a patent, it must be applied to solve a specific technical problem and/or a unique solution to a challenge in the field. For example, an algorithm that calculates impairment ratings based on workers’ compensation data might not be patentable on its own. But if the algorithm applies the data in a novel way, such as data matching and augmentation that significantly improves the accuracy of impairment ratings or streamlines claims processing, it may be considered patentable.?
Seeking Legal Advice?
Given the complexity of the patent process and the legal challenges that arise, it is essential to seek professional guidance when navigating this landscape and approaching idea design. Patent law is highly technical and specific, particularly in industries like insurance and workers’ compensation where innovation often involves software and relies heavily on data analysis. A patent attorney group with experience in these areas can help determine whether an idea is likely to be considered novel, non-obvious, and useful enough to qualify for patent protection.?
Patent attorneys require both a technical and/or a scientific background and legal training. They typically hold an undergraduate degree in majors like engineering, biology, chemistry, or computer science, which is required to sit for the USPTO Patent Bar Exam. After completing a technical degree, they go on to earn a Juris Doctor (JD) from law school, where they focus on intellectual property law. Once they pass both the state and patent bar exams, they are qualified to practice patent law, helping to guide development and protect intellectual property rights for inventors and companies.?
Protecting IP in an AI World?
In conclusion, patents offer major opportunities for innovation in the insurance industry and workers’ compensation, particularly as new technologies like artificial intelligence and data analytics become more integrated into workers' compensation and impairment rating processes. As noted in this article, the path to obtaining a patent is not always straightforward, and navigating the legal standards for patentability is critical. In this first part of a two-part series, the concept of the basic patents process of obtaining invention protection through the USPTO is discussed.??
Part II will examine how emerging technologies, particularly AI, complicate the patent process and add a new layer of nuance and complexity to securing patents for innovations in the insurance field. By understanding the foundational principles and the more advanced challenges, insurance professionals can better understand the value of the patent process and better design and protect new intellectual property in an increasingly competitive industry arena.??
About the Authors?
John Alchemy, M.D., QME, DABFP, has 30 years of clinical and legal experience in California Workers' Compensation. He is the founder of Impairment Ratings Specialists, A Medical Corporation, and Alchemy Logic Systems, operating as RateFast, an industry-leading software and data analytics platform for workers' compensation. Dr. Alchemy holds eight USPTO patents in the fields of insurance, impairment rating, and database validation and design, with additional patents pending.?
Avery Steffen, J.D., graduated from UCLA Law School in 2023 and is actively practicing in Sacramento, Calif. He has experience in the California workers' compensation administrative system. Mr. Steffen has authored educational articles for the California Medical Unit's continuing education program with the retired judge Hon. Steve Siemers, focusing on impairment rating for qualified medical evaluators.?
WorkCompCollege.com Study Hall?
Curriculum: Medicare Secondary Payer Accreditation (MSPA)?
Faculty: Heather Schwartz Sanderson, Esq.?
Sanderson Firm PLLC
Heather Schwartz Sanderson is a nationally recognized legal expert in Medicare Secondary Payer (MSP) Compliance. With over 15 years of experience, she provides cutting-edge legal expertise, practical analysis, and expert technical guidance to the Property & Casualty Insurance market and legal communities. In 2021, Heather founded Sanderson Firm PLLC, committed to MSP compliance solutions and service excellence. Previously, she served as Chief Legal Officer for Franco Signor and contributed to MSP legislative reform in Washington D.C.?
(1) Why did you choose this subject matter to teach??
As of April 2024, there are more than 67 million individuals across the United States enrolled in traditional Medicare (Medicare Parts A & B), Medicare Advantage (Medicare Part C), and Medicare Prescription Drug (Medicare Part D) plans. When these individuals file workers’ compensation, general liability, and/or no-fault insurance claims, multiple Medicare Secondary Payer (MSP) legal obligations may be triggered affecting the injured claimant, insurance carrier, employer (if workers’ compensation claim), and attorneys. Despite the incredibly large population of Medicare beneficiaries and well-established MSP legal obligations, there are very few resources available covering all aspects of MSP compliance – namely, Medicare conditional payment obligations, Medicare Set-Aside obligations, and Medicare Section 111 reporting obligations. MSPA serves industry stakeholders by being the only fully on-demand, virtual MSP training course covering all areas of MSP compliance taught by experts currently in the field. MSPA is a “one-stop shop” for all conceivable MSP issues.?
(2) Why is this subject matter important to Work Comp stakeholders??
The Centers for Medicare & Medicaid Services (CMS), the federal agency tasked with administering the Medicare program, continues to advance Medicare Secondary payer policies, regulations, and rulemaking year-over-year. Beginning in October 2024, Non-Group Health Plan (NGHP) Responsible Reporting Entities (RREs) will be subject to civil money penalties of up to $365,000.00 (plus inflation) for each untimely reported Medicare beneficiary record as required by the Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007. Additionally, for the first time ever, NGHP RREs will be required to report Workers’ Compensation Medicare Set-Aside information to CMS through Section 111 reporting beginning in April 2025. All signs point to continued increase in CMS enforcement and penalties for noncompliance with MSP mandates. Workers’ compensation stakeholders will exit the MSPA course confident in their abilities to successfully navigate the complex MSP landscape and avoid costly penalties and potential litigation from the federal government and private insurance companies.?
(3) How does your content help further a workers’ recovery mindset??
Competent resolution of all MSP issues (Medicare conditional payment reimbursement, Medicare Set-Aside funding, and Section 111 mandatory insurer reporting) will ensure that all parties to the workers’ compensation settlement (including the injured worker) are protected against governmental claims post-settlement and potential termination or interruption of the injured worker’s Medicare benefits. This will alleviate concerns outside the scope of recovery and physical healing as the injured worker exits the work comp system. Furthermore, a Medicare Set-Aside allows the injured worker to set-aside an appropriate amount of funds for their future medical care while also allowing the insurance carrier to efficiently close out the future medical component of the workers’ compensation claim. This provides peace of mind that future care will not be impeded by finances. For insurance claims professionals, the MSPA course will equip them with the appropriate knowledge to identify a Medicare beneficiary or reasonable expectation claimant and allow the claims professional to satisfy Medicare’s interests in the workers’ compensation settlement.?
(4) What are five takeaways / action items for students??
1) Understand foundational Medicare Secondary Payer principles, case law, and why compliance is necessary?
2) Identify, negotiate, and resolve Medicare conditional payment liens disputes?
3) Assess the appropriateness of a Medicare Set-Aside, including submission and non-submission to CMS?
4) Monitor compliance with Section 111 reporting obligations considering the potential for $1,000 in civil money penalties per day for each mishandled Medicare beneficiary record?
5) Understand the importance of continued MSP compliance education in this ever-evolving landscape
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