Experts deviate on which of changes in workers’ compensation will have the most impact, but most agree on one thing: Workers’ compensation insurance is going to be insane in 2014.
In many states, rates will increase as the amount of money the insurance companies charge for workers’ compensation continues to rise. However, this is not universal. In some states, there actually will be slight decreases.
But don’t get too excited; even in these outlier states the insurance companies are being much more selective about the companies they choose to insure. What these rate increases mean is that you will be writing a bigger check for workers’ compensation insurance in 2014, even if your business hasn’t grown substantially.
In 36 states, the National Council on Compensation Insurance (NCCI) is the rating bureau that determines the rules for workers’ compensation and calculates the experience mods. Beginning in 2013, a substantial change to the experience mod calculation occurred. In 1991, the split point between primary and excess losses was set at $5,000. In 2013 it ballooned to $10,000. In 2014 it’s going up to $13,500. And just to disprove the theory that what goes up must come down, in 2015 it’s predicted to go above $15,000.
The reason this amount keeps rising is simple; the cost of employee injuries dramatically has increased. Back in 1991, the average employee injury cost the insurance company around $3,000. In 2011, that amount was almost $9,000. Because of this dramatic change, the experience mod needed adjusting.
Adjustments to the Experience Mod
The experience mod calculation splits injuries into two areas: primary loss and excess loss. The primary loss, which has been at $5,000, is counted 100 percent in the mod calculation. Everything above that is excess loss and it’s discounted depending on the size of your business. This means that the first dollars in the claim are the most important. So, if you have suffered 10 injuries at $5,000 your experience mod will be impacted more than if you recorded one, $50,000 injury.
As the cost of employee injuries has increased, the impact that those injuries have on the experience mod has decreased. It’s important to remember that the purpose of the experience mod is to adjust what you pay for workers’ compensation based on whether or not you are better or worse than the average business similar to yours.
NCCI has changed the split point in accordance with how the cost of employee injuries has changed, thus making the experience mod much more responsive. This will cause a change in your experience mod, and not necessarily a good one. It’s impossible to know – without looking at a specific experience mod – whether or not the change will positively or negatively impact your mod. But what we can say is that businesses that are substantially worse than average will see a higher experience mod, while businesses that are better than average likely will see a decrease in their experience mod.
The key thing to know about this change is that it will in all cases reduce your minimum mod to the lowest experience mod that you can have, and because of this your business now has more control than ever in reducing your experience mod and controlling what you pay for workers’ compensation.
Managing the Experience Mod
There are several steps involved in managing and controlling your experience mod:
Hiring – It is critical that you hire employees who are fit to do the job that you’re hiring them for. The best way to hire new employees is to offer them the job using a conditional offer of employment form. This form explains what the job is, asks the employee if they have any conditions that may prevent them from safely doing the job and contains a very important paragraph stating you are conditionally offering this job contingent upon receiving a medical opinion that the job applicant is mentally and physically able to perform all of the duties which the position requires.
The next step is to have a physician complete a medical history questionnaire and perform a thorough physical exam on the applicant. The medical history questionnaire will delve deeply into the applicant’s medical history, by which the doctor will be able to ascertain an informed opinion on what, if any, restrictions the applicant may have in performing his or her duties.
Hiring in this way allows you to prevent employees from working at your business who are unable to safely do the job. The goal is not to prevent employees from getting the job; the goal is to prevent employees who are unable to do the work from getting hurt on the job. When someone gets injured, it’s bad for them and it’s bad for your business because every single dollar that the insurance company spends on your employee injuries impacts what you pay for workers’ compensation.
Training – Once you have employees on the job, you have to make sure that they perform their work safely. It’s critical to train employees how to use the equipment that they use at work. It’s important to have safety training and to build a safety culture in the workplace that makes it crystal clear that doing a job in an unsafe manner isn’t acceptable. When employees aren’t following safety protocol, their fellow employees need to call them out it. The safety manager should not have to be on the job site for things to happen in a safe manner.
It also is suggested that you visit www.osha.gov and examine other safety resources including talking with your insurance agent and your insurance company about how to make sure your workplace is safe.
Return-to-work – Having a safe workplace will prevent the vast majority of employee injuries, but occasionally an employee injury will occur and when that happens, it’s very important that you have a return-to-work or transitional-duty program in place for employees to get back on the job as quickly as possible. This is important for several reasons.
When employees are out of work and sitting at home, they are more likely to contact an attorney. Having an attorney involved in a workers’ compensation claim is the most reliable way to dramatically increase the cost of that employee’s injury.
When employees are back at work, it’s been proven that they get better faster because they’re moving around and actively recovering from their injuries. A study from the RAND Corp. found that companies with a written return-to-work program returned their employees to full duty 46 percent faster than companies without a written program.
In many states, if an employee isn’t out of work long enough to trigger lost wage payments from the insurance company you receive a 70 percent discount for those injuries.
Communication – When someone is out of work for any period of time, it is critical to communicate with the injured employee as much as possible. Send your injured employees get well cards, call and check on him and see how he’s feeling and ask if he needs anything.
Make injured employees feel like they are a crucial part of the business and you are anxious for their return. The No. 1 reason that employees retain attorneys when they get injured is that they don’t feel like anybody cares about them – until the attorney on television tells them that they care and that they will get them what they’re owed.
Knowledgeable health care providers – The number one thing that impacts your ability to return employees to work is having your employees treated by a doctor who understands your business. It’s very important to build a relationship with a doctor in your area who works primarily with workers’ compensation. Unless your state law allows it, you don’t want employees choosing the doctor they go to.
You should seek out medical professionals that specialize in workers’ compensation. They have facilities to diagnose and treat injured employees, where you or your insurance agent can meet with them and discuss your return to work program.
Understanding how the experience mod works – Also critical in managing your experience mod is understanding how the experience mod actually works. This is something you should discuss in detail with your insurance agent so you better can understand how employee injuries impact your experience mod and how much higher your costs are because of each individual employee injury.
A substantial part of the experience mod calculation is the classifications of your employees. In NCCI states, there are nearly 700 employee classifications and knowing that your employees are classified correctly is crucial in ensuring that the check you write is the correct amount and not more than it should be.
Prepare your premium audit – Another challenging part of workers’ compensation is the premium audit, which occurs at the end of every workers’ compensation policy. This is the time when the insurance company examines your payroll records and determines exactly how much you owed for the previous year. Make sure your employees are classified properly before the auditor arrives. You should review with your insurance agent the classifications that are applied to your policy and determine whether or not they are correct.
Another item that impacts your premium audit and therefore the check you write for workers’ compensation is excluded remuneration. Not everything that you pay your employees is included in the workers’ compensation calculation.
There are at least 16 items that fit the definition of excluded remuneration, with the most common being overtime payments. The extra pay that employees receive for overtime is excluded from the premium audit. For example, if an employee makes $10 per hour straight time and work overtime at time and a half, that $5 per hour of additional wage is excluded from the calculation. However, if your records don’t accurately show the overtime payment, then the premium auditor will include the full wage and you will be overcharged.
To ensure that you’re not overcharged on your audit, it’s necessary to prepare your premium audit before the auditor arrives. This involves working closely with your agent to break down your payroll records in order to figure out exactly what should be included on your workers’ compensation policy. Doing so gives the premium auditor an all-important starting point in making sure that you don’t have any overcharges and what you pay for your workers’ comp is exactly what it should be.
Achieve Zero Workers’ Comp Injuries
It’s important to understand that the old adage “accidents will happen” isn’t true. It is possible to record zero employee injuries in your business by training them how to do the work safely, making sure they are fit for the job and creating a safety culture in your workplace. By doing this you successfully can prevent employee injuries and achieve zero workers’ compensation injuries in your business.
However, if “accidents will happen” is a myth, then “accidents can happen” is reality. When a worker does get injured, you need to make sure that she reports that injury as soon as it happens. Sometimes an employee will get hurt and she’ll think, “It’s not that big a deal.” Don’t let her make that decision. Have her immediately report the injury and seek treatment.
With rate increases occurring in many states, the split-point change happening in 36 states and workers’ compensation becoming consistently more challenging for employers to understand and manage, insurance insanity is ruling the workers’ compensation world. But the good news is you can take control of your worker’s compensation costs by hiring the right employees, having a safe workplace, building relationships with physicians versed in occupational medicine, creating a return-to-work program that brings injured employees back to the job as quickly as possible and making sure that your business is classified correctly. Only then will you be able to maintain your sanity in the quickly changing world of workers’ compensation.
Abut the Author: Kevin Ring is the director of community growth for the Institute of WorkComp Professionals, which trains insurance agents to help employers reduce workers’ compensation expenses. A licensed property and casualty insurance agent, he is the co-developer of a new workers’ comp software suite that will help insurance professionals in working with employers. He can be contacted at 828-274-0959 or [email protected].