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