Workers’ Compensation: The New “Split Point” EMR Formula Change for 2013

Sonja J. Guenther, ALCM, ARM, CIC, CRM

Sr. Vice President, Willis of Colorado

NCCI• The National Council on Compensation Insurance - Administrator for 39 States/400 Carriers - Collects Statistical Data - Provides Actuarial Formulation for Advisory Rates - Produce Experience Modification Factors - House Industry Classification Expertise - Administer Rules/Regulations on: - ownership - experience rating - premium audit rules

The “Split Point” Change to the Experience Mod Factor/Rate (EMR) Formula

•CURRENTLY:• The first $5,000 of each loss/injury is the “PRIMARY” portion

of the loss in the experience modification calculation• That first $5k is weighted the heaviest in this mod factor

formula• Goes right to the “bottom line” of your EMR

• All dollars over $5k are considered the “EXCESS” portion of the loss.• These dollars have weights/ballasts placed against them to

lessen the dollars and “cushion the impact of a large claim• $5,000 has been the split point for about 20 years

Why is NCCI Changing the Split Point?

•NCCI States:• Medical Costs have tripled over the past 20 years• The current experience mod formula is not responsive to

these medical loss costs• Makes the mod factor (EMR) less reliable/credible

• Employers will increase their attention to safety/claims management with this change.

How will NCCI Implement this Change?January 1, 2013

NCCI will DOUBLE the split point dollars from $5,000 per injury to $10,000 per injury will be considered “primary” loss dollars (weighted the heaviest in the mod calculation).

January 1, 2014

NCCI will again increase the split point primary dollars from $10,000 per injury to $13,500.

January 1, 2015

NCCI will make a final adjustment to primary losses up to as high as $15,000 per injury.

NCCI will index the split point, annually, after that.

How Will This Change Impact My Mod Factor?

If NCCI tripled the primary loss dollars in every claim, without making any other actuarial adjustments to the formula, the average mod factor could have increased +11 points. (Based on Willis of Colorado limited samplings projected January-July, 2012 ).

NCCI will adjust the Expected Loss Rate (ELR) and Developed Ratios (D Ratios) along with weights and ballasts to offset the impact of the new formula.

These adjustments will vary widely, by state and industry class results.

How Will This Change Impact My Mod Factor? (cont.)

Results we are confident of: (source: NCCI notifications to policyholders, August, 2012)

EMRs Hovering Close to 1.00

+5-point to -5 point adjustment

Ex: Those mods at 1.03 could see +2 to +5 point increase with formula change alone.

Ex: Those mods at .96 could see a -2 to -5 point decrease with formula change alone.

How Will This Change Impact My Mod Factor? (cont.)

With the new formula change:

The further from 1.00 your EMR is, the greater the swing in the formula adjustment

Ex: 1.36 mod could see a +8 point impact with formula change

Ex: .76 credit mod could see a -8 point impact with formula change

These are estimate only and the impact will vary by state and industry class.

GOT ANYTHING TO DO WITH SAFETY?This is an actuarial formula change

Designed for insurance industry

Created for underwriting/premium assessment

No change was made for the past 20 years

Discourage the Practice of EMRs in the Bidding Practice

Common Error Ratio of 30% on the EMR sheets

Common Errors: - Not the employee of the policyholder - Not net of deductibles – (net-reporting states) - Claims reported into the wrong state data - Dollars never credited for 3rd party recovery - Data is combined with another employer that is unrelated/ownershp - Payrolls are estimated - Payroll data missing completely - Payrolls reported for audits in dispute - Payrolls for incorrect class code

Ways to Achieve a Credit EMR SAFETY, SAFETY, SAFETY

Deductible Plans NCCI Net Reporting States:Alabama KansasColorado KentuckyFlorida MaineGeorgia MissouriHawaii New MexicoIdaho (claims <$1k only) OklahomaIowa South Carolina

Source: NCCI Basic Manual, 2010

Common EMR Trends and Ways to a Credit Mod

Verify Classifications with Your AgentBeware of Shifting to a Lower-Rated Class – EMRs Rise

Claims Management (Don’t Pay Them Yourself to Avoid the Mod) Communication: Carrier/Agent/Injured WorkerAdjust Reserves (8 mos./3 mos. pre-renl) Relationship with Designa. Med. Provider Invoke Statutes: Pos. Drug Test, Failure to Return to Work Return to Work: Temporary Progressive Be Committed!

When Acquiring Companies or Selling Divisions of Your Own

- .89 mod now uses $17,759 primary loss dollars

2013=$28,332 in primary loss dollars

2014= $35,332 in primary loss dollars

2015= $38,332 in primary loss dollars

What will these higher loss $ do to the mod factor?

Without D factor changes:

+11 pts.

Tell a better story than the EMRBrag on yourself

To Your Agent

To Your Carrier/Underwriter

On Your Website–Include Recent Safety Awards/State Awards –Compare Your Incident Rate to Industry–Show Your Lost-Time Injury Trends? (and DART rates)> Decreased by What % in the Past Year?> In the Past 3 Years? 5 Years?–Attach Carrier/Loss Control Letters About Safety Program–Involvement in Industry Associations, including leadership positions

Highlight what has happened in the past year!!!

The Rest of the Story You are more than an EMR

Established procedures–Return to Work Commitment–Claims Management Program–Compliance/Disciplinary Programs in Place and Utilized?–Team Accountability Programs

Employee selection and training–Drug/Alcohol Policies Pre/Post/Random–Pre-placement physicals –Buddy system for new hires–What are the topics you are training on?

–Do they match your injury trends?–Share the frequency of your safety training–Consider the Behavior Modeling Program (“STOP”)

Questions????

ANSWERS?