Workers’ Compensation:
National Trends
Promoting Your Company
Impact of Formula Change on Experience Mods
S. Guenther, ALCM, ARM, CIC, CRM
Sr. Vice President, Willis of Colorado
New Orleans, LA, September 12, 2013
Work Comp Cost Drivers: Rates
State
2012
2013
AK
+2.7%
AL
Misc.
Source:NCCI Regula./Legis. Trends Workshop: May, 2013
State
2012
2013
Misc.
-3.6%
MD
+1.4%
+3.8%
St. Fund Chg
-9.3%
+4.8%
ME
-3.2%
-1.8%
+3.9% in ‘13
AR
-4.1%
-7.4%
MO
-3.0%
+2.1%
St. Fund Chg
AZ
+5.2%
+4.0%
MS
+9.9%
+4.1%
CA
+37%
Refrms
MT
N/C
-5.4%
CO
+3.7%
+5.2%
2014 +3.7%
NC
N/C
.5%
CT
+4.5%
+7.1%
Sandy Hk.
NE
+4.9%
+ .3%
DC
+ .4%
38.0%
Reforms
NH
+6.7%
+ .6%
+6.1%
Legis./Case
Reserves =
>5% prem.
NM
+7.4%
+5.1%
NV
+1.0%
+2.6%
OK
- 1.7%
+ .4%
OR
+1.9%
+1.7%
RI
+5.3%
+8.0%
SC
+3.0%
+1.1%
SD
- .3%
- 3.2%
DE
FL
+8.9%
-22% in ‘11
Can Opt Out
GA
+2.9%
-2.4%
Bene. Caps
HI
+3.6%
+5.2%
Drug Caps
IA
+4.4%
+7.9%
2 inc. in ‘13
ID
+2.9%
+3.9%
IL
+3.5%
-3.8%
IN
+2.6%
+5.0%
TN
+ .4%
+2.3%
-5.1% ‘12 law
KS
- .5%
+2.3%
TX
- .3%
-3.8%
30% Opt Out
KY
-7.9%
-7.5%
UT
-1.6%
LA
+6.0%
+2.5%
VA
+10.5%
WV
- 7.6%
’11 +1.5%
- 5.7%
‘11 -7.6%
Come up
and see
me if you
want to
see how
your state
stacks up
for most
or least
expensive
in the
nation for
workers’
comp.
rates.
Cost Drivers: Avg. Wage Benefit vs Days to Heal
State
Days w/
Wage
Benefits
Days
to Heal
(MMI)
State
Days w/
Wage
Benefits
Days to
Heal
(MMI)
State
Days w/
Wage
Benefits
Days
to Heal
(MMI)
AK
67
203
MA
107
303
SC
167
132
AL
87
195
MD
99
161
SD
61
99
AR
73
175
ME
90
318
TN
89
176
AZ
78
146
MI
108
241
TX
71
213
CA
80
267
MO
73
81
UT
51
128
CO
80
177
MS
110
182
VA
108
178
CT
60
149
MT
72
177
VT
90
187
DC
110
163
NC
188
137
WI
38
102
DE
81
236
NE
59
120
FL
56
97
GA
173
175
NH
79
230
NJ
70
140
NM
86
218
HI
53
215
IA
47
125
ID
47
136
NV
80
135
IL
125
145
NY
116
138
IN
70
132
OK
143
183
KS
91
117
OR
46
134
KY
106
159
PA
132
318
LA
178
354
RI
72
162
Longest Duration by Age Group
to Heal: 41-50 = 130 days
Shortest Duration by Age Group
to Heal: 31 and under – 83 days
Source:NCCI: TTD Duration Brief Aug,
2013 Based on 2009 Injuries at a 36
month analysis (2012)
Work Comp Cost Drivers and National Trends
Increased Use of Pain Killers
Rx drugs make up 18% of total WC med. costs
Top Drugs Prescribed (Source:NCCI Regula./Legis. Trends Workshop: May, 2013)
Oxycontin/Oxycodone HCL (47% of narcotic costs),
Lydoderm, Lyrica, Celebrex, Gabapentin, Cymbalta
Opana HCL/ER, Meloxicam, Tramadol HCL,
Two are anti-inflammatories
One is for depression
All the rest are for PAIN
Opiate-derivatives/developed for cancer patients
Controls: blood tests, pill-counting,
Docs Rx less-addictive meds
Work Comp Cost Drivers and National Trends
Physician Repackaging of Prescription Medicines
Purchase in volume
Repackaging allows for set own price on meds
Outside the Average Wholesale Price
States have enacted legislation to regulate
States have banned the practice, completely
States have limited costs of drugs through state
workers’ comp. fee schedules
NCCI: National Council on Compensation Insurance
One of Several Rating Bureaus
Independent Bureaus: CA, DE, HI*, IN*, MI, MN*, NC*,
NJ, NY*, PA, TX*
* State shares data with NCCI
Monopolistic States: “NOWW” ND, OH, WA, WY
NCCI: State Administrator for Work. Comp. in 37
States/Jurisdictions
Gather statistical data
Detailed claims data
Detailed payroll data
>700 insurance carriers report to NCCI
The Experience Modification Factor
Introduced in the 1970’s
All Employers Paid Same Premium Rate for WC
Some employers had > injuries than others
Needed a Remedy to Reduce Socialization of Costs
Employers with Injuries < Avg= Credit Modifier
< 1.00 – produces a premium credit
Employers with Injuries > Avg= Debit Modifier
> 1.00- produces a premium debit
Designed to Properly Assess/Apply WC Premiums
Was never intended to reflect safety
The Experience Modification Factor - Formulas
NCCI’s Formula Changes to the Mod Factor
The Out of Balance Theory
NAIC
The Importance of 1.00 Avg. State Mod
Experience Rating Adjustment Plan (1997)
22 States for 16 Years
Removes 70% of $ for all med-only clms.
These $ eliminated from mod calculation
Split Point Formula Change
Initiated in 2013
Adopted Different Dates in Each State
Impact to Interstate Businesses
The Experience Modification Factor
What is the Split Point?
Every Injury/Claim USED in the Mod Factor Has Two
Components
Primary Portion (Prior to 2013: was $5k)
Excess Portion (Prior to 2013: all $ > $5k)
Primary Losses Weighted Heaviest in Mod Calculation
Go right to the “bottom line” of the mod factor
Smaller, “frequency” losses
Theory: Frequent losses = severe losses
Five claims at $5k > impact to mod factor than
one claim at $25k.
The Experience Modification Factor
What is the Split Point?
Excess Losses – Have weights/ballasts placed against
it in mod factor calculation
Dollars are lowered in the mod calculation
Excess loss portion receives less weighting
“Cushions the impact” of larger, more severe
or catastrophic losses on the experience mod
factor
This is the “Split Point” – Amt. of Primary vs Excess
Loss Dollars Used in the Mod Calculation
For 20 Years $5,000 Was the Split Point
The Experience Modification Factor
Why Did the Split Point Change?
NCCI:
►The Cost of Workers’ Compensation Claims Have
Tripled in the Past 20 Years
► Mods Will Be More Responsive to Loss
► Mod factors Will Be More Credible
► Employers Will Have More Incentive to Operate
Safely
But Will They Report Their Injuries?
Fines and Penalties for Failure to Report
Beware of Paying Your Own Claims
Be sure your state permits it
The Experience Modification Factor
How Did the Split Point Change?
In 2013:
Split Point Will Be Changed as Each State
Completes its Annual Filing with NCCI
Example: Your Policy Renewed on Jan. 1, 2013
Oregon: Jan. 1, 2013 $10k of Each Claim
Colorado: Jan. 1, 2013 $10k of Each Claim
Idaho: Jan. 1, 2013 $10k of Each Claim
Nevada: Mar. 1, 2013 $5k of Each Claim
Louisiana: May. 1, 2013 $5k of Each Claim
The Experience Modification Factor
How is the Split Point Being Adopted?
2013: Split Point Doubled from the First $5k of
Each Claim to the First $10k of Each Claim
2014: NCCI Proposing a Split Point of $13,500
2015: NCCI Projects a Split Point of $15k+ Index
2016: Split Point Will be Indexed, Annually by NCCI
CA: Indep. Rating Bureau 2011 - $5k to $7k Only
MO: Change Will Begin in 2014 - $5k to $7k
The EMR Split Point Formula Change Impact
NCCI is Offsetting the Impact with ELR & D Factors
If They Did Not, Estimates Show the Average Mod Factor
Increasing by +11 Points
NCCI Estimates:
.1% of Employers= Change of >15% to EMR
11.9% of Employers= Change of 5% to 15% to EMR
76% of Employers= +/- 5% to EMR
11.3% of Employers = + 5% to +15% Change to EMR
.7% of Employers = Increase of > 15% to EMR
Source: NCCI Annual Symposium exhibit page 59
What Creates a Debit Mod?
Increased Injuries/Severity
Culture? Aging Workforce?
Comorbidities?
Poor Management of Claims
Wrap Up Projects
Contingent Mods
Shift Payroll to Cheaper Classes
Mod Factors With Errors
Shifting Policy Period Eff. Dates > 90 Days
Reduction of Payrolls/Shifting Payrolls to Jt. Ventures
Buying a Company with a Debit Mod
Other Ways to Influence an EMR
Small Deductible Plans
Fourteen (14) States Have “Net Reporting”
All dollars under the deductible are removed
from the mod factor calculation
Net Reporting States (* States with $10k Ded. Max.)
Alabama
Kansas*
Colorado*
Kentucky*
Florida
Maine
Georgia
Missouri
Hawaii
New Mexico*
Idaho
Oklahoma
Iowa
Oregon
Source: NCCI Basic Manual, 2012
Claims Management and the Mod Impact
Embrace Injuries and Communicate
Learn from, talk about, train from your injuries
Fraud and Strategic Surveillance/Holidays
Subrogation- Veh. NAF Acc=4 Employees Injured
Engage Carrier and Agent Partners
Choose Quality Medical Provider (Where an Option)
Invoke Statutes and Penalties
Know State Laws/Culture Before You Bid
Crucial Periods for Claim Reviews
8 mos. pre-renl. (stats to NCCI @ 6 mos)
3 mos. pre-renl
Credit EMR Through Return-to-Work
Keeps $ Out of the Experience Mod
Pay employee wages once – taxable
Wages in mod – impacts prems. for 3 yrs!
Keeps Employee Productive
Makes a contribution
Avoids muscle atrophy
Could lower their permanency rating
Social interaction helps avoid depression
Light Duty is NOT for everyone!
Positive Drug Tests or Threats to Co-Workers
Temporary Progressive Be Committed
The Most Common Errors in the Experience Modsheet
Not the Employee of the Policyholder
Not Net of Deductibles (in net reporting states)
Claims Reported in the Wrong State
Dollars Never Removed With 3rd Party Recovery
Data is for Wrong Employer
Data blended for unrelated employers
Payrolls are Estimated
Payrolls/Policy Years Missing Completely (contingent)
Payrolls in Wrong Class Code
Work with Agent/Carrier to Correct Stats
NCCI will revise within days
customer_service@ncci.com
Debit Mod Factors – A Poor Gauge of Safety
State Rate Changes
Ann. Change in ELR & D Factors
Mod Formula Changes
Split Point Change
Avg. mod is +11 pts. unless ELR/D adjust.
Experience Rating Adjustment Plan
Removes 70% of all $ for med-only clms.
Out of Balance Theory – State Administrators
Employee Injured by Third Party’s Negligence
Maximum Caps on Severe Claims
Data Has High Error Ratio / Contingent Mods
Debit Mod Factors – A Poor Gauge of Safety
EMR’s (Experience Mod Rates/Factors) Used in
Bidding Process
Energy and construction industries
Disqualified for >1.00, >.90, >80 mods
Discourage this practice
Larger payroll = lower mods
Small/mid-sized employers
= higher mods
Pre-Qual letters from agent/carrier
Reliability/credibility of mod factors
Some Pre-Qual. Requirements Are Changing
Generals/Owners/Energy Companies Are Listening
Moving to 1.10 EMR to Bid
Asking to Review the NCCI Modsheet
Asking to Review Safety Policies/Procedures
Asking for Actual Work. Comp. Loss
Documents/Loss Runs
Less Weighting Assigned to the EMR in
the Pre-Qual. Assessment Factors
Meeting with Subs. Who Have Debit EMRs
Change the Focus Away from a Number
Recent State/Industry/Association Safety
Awards
Compliance/Disciplinary Programs in Place
Compare Incident Rate to Industry
DART Rates
Lowered Lost-Time Injuries
Letters from External Loss Prevention
Specialists – Carrier/Agent
Reduced Frequency of Losses
# of Days Without An Injury
Pre-Hire Integrity Testing
Mod Impacted by 3rd Party Negligence?
New Safety Programs Implemented in the past
year
Frequency of Safety Training
Buddy Systems for New Hires
Frequency of JSA’s
Post Accident Investigations
Return to Work Commitment
Near-Miss Investigations
Full-Time Loss Prevention Specialist(s)
Certifications by Employees
Certifications/Designations of LP Spec(s)
Safety Committees
Engage Outside Firms in Loss Prevention
Drug/Alcohol Policies
Train from Your Injuries?
Pre-Employment Fit-For-Duty Physicals
Behavioral Modeling Programs
Citation Free?
Standards for Inj Reporting 8hr/12hr/Same Shift