Workers’ Compensation Rates An understanding of basic rates & controls 1 Copyright ERNWest all rights reserved 2012 L&I is expected to announce “proposed” base rates for 2013 on September 17, and they should be published by the end of the month. Copyright ERNWest all rights reserved 2012 2 Rates Overview • Your rates are determined by two things: – The “base” rate assigned business activities you perform – The extent of the losses you have • One you can control, one you can’t Key Concepts • • • • • • Experience Modification Factor “Special” Factor Calculation Limits Base Rate Financial Impact of High Rates Best Ways to Control Rates What your company pays in premium is a result of four things: Type of Work Performed Frequency of Claims Severity of Claims Labor Hours (exposure) Workers’ Compensation Rates Overly Simplified Premium Calculation Labor hours x (Experience Mod x (base rate)) 6 Risk Class Base Rate Stay at Work + Supplemental Pension + Medical Aid + Accident Fund Labor hours x (Experience Mod x (base rate)) 7 The Department of Labor and Industries uses past injury data to determine the cost to employers for base or “composite” rates that are developed by “risk classification”. 2012 Hourly Rates By Business Type & Risk Classification Code Class *Examples of Businesses within the Class AGRICULTURE 4803 Orchards 4805 Nurseries and Shellfish Farms FOOD PROCESSING AND MANUFACTURING 2104 Fruit and Vegetable Packing - Fresh 3304 Meat, Fish and Poultry Dealers - Wholesale 3702 Breweries, Wineries and Beverage Bottling 3902 Fruit/Vegetable Canneries/Food Product Mfg, NOC 3906 Bakeries and Confectionaries- Wholesale, NOC 4302 Custom Meat Cutting TRANSPORTATION AND WAREHOUSING 2102 Warehouses, NOC, Grocery Dist. & Recycle Centers 2105 Beer, Wine, and Soft Drink Distributors STORES 3303 Meat, Fish and Poultry Dealers - Retail 6309 Hardware, Auto Parts and Sporting Good Stores 6402 Supermarkets 6403 Convenience Grocery Stores - No Gas 6404 Florists 6406 Retail Stores, NOC TEMPORARY HELP 7107 Temp. Help - Food Services 7108 Temp. Help - Warehousing Services 2012 $ $ 0.7263 0.7499 $ $ $ $ $ $ 0.7790 1.2006 1.0650 1.0976 1.0845 1.6407 $ $ 1.3933 1.3069 $ $ $ $ $ $ 1.0628 0.5617 0.7028 0.4574 0.6694 0.3699 $ $ 0.6193 0.5470 RC 6402 Accident SAW $0.3556 $0.0074 Medical $0.2466 S. Pension $0.0932 Composite $0.7028 Deduction $0.1736 Experience Modification Factor An EMF is a multiplier used to adjust an industry-based risk classification base rate up or down based on common ownership experience. Good Experience Modifier Average Experience Modifier 1.50 1.00 Less 1.50 Claim Costs Expected Loss .50 1.00 .50 Poor Experience Modifier More 1.50 1.00 .50 9 Labor hours x (Experience Mod x (base rate)) Experience Modification (EMF) Exposure - Labor Hours - Risk Class Claim Severity - How much claims cost Claim Frequency - How often claims occur 10 When Does A Claim Effect An EMF? An employer’s experience period is simply the period of time during which labor hours and claim costs are captured to calculation one’s EMF 11 Claims with a date of injury between will impact rates for calendar years but will “drop out” of experience on 7/1/09 - 6/30/10 7/1/10 - 6/30/11 7/1/11 - 6/30/12 7/1/12 - 6/30/13 2012, 2013, 2014 2013, 2014, 2015 2014, 2015, 2016 2015, 2016, 2017 June 1st, 2013 June 1st, 2014 June 1st, 2015 June 1st, 2016 Labor hours x (Experience Mod x (base rate)) Experience Period An employer’s experience period is simply the period of time during which labor hours and claim costs are captured to calculation one’s EMF 12 Rates for the calendar year... Are determined by claims within the experience period of 2012 2013 2014 7/1/07 - 6/30/10 7/1/08 - 6/30/11 7/1/09 - 6/30/12 Labor hours x (Experience Mod x (base rate)) Labor hours x (Experience Mod x (base rate)) 13 The “Special Rate” Claims with a date of injury between 7/1/06 - 6/30/07 7/1/07 - 6/30/08 7/1/08 - 6/30/09 7/1/09 - 6/30/10 If an employer is able to prevent any time loss or permanent partial disability payments for the duration of their experience period, they can achieve a “special” rate that will decrease fairly dramatically. 14 Labor hours x (Experience Mod x (base rate)) Other “Special” Considerations • The most your EMF can increase in one year is 25% IN MOST CASES • Despite only being in your EMF for three years, if a claim causes your EMF to increase its maximum amount, your total rate increase will be 95% and it will take five years to work out of your factor, not three. • Exceptions to the rule – Rule of “one” • Above 1.33 and calculated to be below 1.00 • Below 0.67 and calculated to be above 1.00 – If you have the “special rate” your 25% increase starts at your prior year’s “calculated rate 15 Impact of High Rates Employer’s Incremental Cost of EMF Increase Supermarkets - 6402 EMF/FTE 25 50 75 100 300 500 0.5 $ (15,657) $ (31,314) $ (46,972) $ (62,629) $ (187,886) $ (313,144) 0.6 $ (12,526) $ (25,052) $ (37,577) $ (50,103) $ (150,309) $ (250,515) 0.7 $ (9,394) $ (18,789) $ (28,183) $ (37,577) $ (112,732) $ (187,886) 0.8 $ (6,263) $ (12,526) $ (18,789) $ (25,052) $ (75,155) $ (125,258) 0.9 $ (3,131) $ (9,394) $ (12,526) $ (37,577) $ (62,629) 1 $ (6,263) $ - $ - $ - $ - $ - $ - 1.1 $ 3,131 $ 6,263 $ 9,394 $ 12,526 $ 37,577 $ 62,629 1.2 $ 6,263 $ 12,526 $ 18,789 $ 25,052 $ 75,155 $ 125,258 1.3 $ 9,394 $ 18,789 $ 28,183 $ 37,577 $ 112,732 $ 187,886 1.4 $ 12,526 $ 25,052 $ 37,577 $ 50,103 $ 150,309 $ 250,515 1.5 $ 15,657 $ 31,314 $ 46,972 $ 62,629 $ 187,886 $ 313,144 • In the example above the 25 FTE company with a 3% profit margin and EMF of 1.30 must find $313,334 more in annual revenue than an average company to cover their WC cost. • Same example with the 500 FTE company with a 3% profit margin and EMF of 1.30 must find an additional $6,262,866 in annual revenue. 16 Controlling Rates • Safety, Safety, Safety – If you have no claims you need not worry about your rates • Kept On Salary – Impacts “Special” discount, keeps claims medical, maintains control over claim, avoids reserves • Modified Duty on a “reasonably continuous basis” – Avoids voc, avoids reserves, maintains control over claim • Immediate Investigation & Reporting – Report the incident to ERNWest within two business days and we can start applying our resources to help you, the faster and better reporting we get reduces the time and hassle you have on complex claims 17 Which is easier? • Driving millions of dollars in ADDITIONAL sales or……. • Paying attention to your workers’ compensation claims? 19 Contact Information Group Manager Curran Bower cbower@ernwest.com (800) 433-7601 ext. 823 Group Director John Meier jmeier@ernwest.com (800) 433-7601 ext. 827 20 21 A Premium Payment Calculation Risk Class Hours/Units Exp Mod Accident Fund Medical Fund Stay at Work Pension Composite Payment 4904 12,619 0.9100 $0.0336 $0.0223 $0.0007 $0.0932 $0.1448 $1,827 6402 309,347 0.9100 $0.3556 $0.2466 $0.0074 $0.0932 $0.6486 $200,643 6406 20,092 0.9100 $0.1556 $0.1179 $0.0032 $0.0932 $0.3453 $6,937 $209,407 Labor Hours *(Exp Mod *(AF + MA) + SAW + SPF) 309,347*(.9100 *($0.3556 + $0.2466) + $0.0074 + $0.0932) = $200,643