A Disturbing Trend From Workers Comp Insurance Carriers

We have noticed a very disturbing trend from Workers Comp insurance carriers. Often, after accepting a new policyholder, the insurance carrier will send out what is considered to be a Loss Control Consultant. Do not take this appointment as just Loss Prevention or Loss Control. Many times, and in one very particular instance, we have found the appointment to be a Premium Audit of sorts. Please see our post tomorrow for more information. I am having trouble with the hotel wireless system I am on as of now.

North Dakota Brings In Yet Another Auditor

North Dakota has now brought in another auditor. This time the auditor, from Maine, is supposed to come up with reasons why there is a surplus. There are two reasons for a surplus in a Workers Comp fund. They are:

1. Overcharging the fund members for their premiums
2. Denying benefits to claimants

The first one is obvious. You get a surplus because you have had your fund members pay out more money in premiums than were paid out in benefits. How do you fix this problem? You may reduce premium increases or add to the premium decreases to your members. Another way to remedy the situation is to return the premiums to the members as dividends.

One area that usually causes premium overcharges is the over-reserving of the Workers Comp claims. If the file has a huge reserve and only a small portion of the reserves are paid out in benefits, then the fund takes in too much $.

The second one was supposed to be addressed in a round of audits by a provider earlier this year to see if too many claims were denied. Unfortunately, to date, no actual data was produced by the auditing company on how many files were legitimately denied.

I do hope that the current auditor hired by North Dakota realizes the two very obvious reasons for a fund to have an excess in reserves. We shall see.

On a side note, did anyone notice that another one of their prior auditors is now refusing to talk to them or turn over data? Who is making the final decisions on what auditors to use? I will revisit North Dakota when the auditor produces some results.

North Dakota-A WSI Employee Sues

One of the WSI's (Workforce Safety and Insurance) Employees Sues North Dakota.
When reading the articles months ago about the WSI's wholesale firing of some of their employees, one knew there would soon be lawsuits. Todd Flanagan, a former fraud investigator, filed his lawsuit in Bismarck asking for reinstatement and back pay.

There will be more lawsuits in the future, especially from the whistle blowers that pointed out many inequities in WSI's way of doing business.

I will have another post tomorrow on North Dakota trying to figure out why they were in a crisis in Workers Comp ten years ago and now have a huge surplus. The answer is simple, but they are going to pay an auditor many thousands of dollars for the obvious answer.

North Dakota is one of the few states where a monopolistic State Fund runs the Workers Comp system. These monopolistic funds have run into great problems with some of the states such as West Virginia and Nevada privatizing their Workers Comp programs.

Up Next - Why Does North Dakota Have Such a Large Surplus in Their Workers Comp Fund?

Blog Reader Question On California Workers Comp Reform

What do you see for the future of the California Workers Comp System?
I think the applicants' attorneys are going to try to penetrate some of the new laws enacted with Senate Bill 899 by numerous appeals. I am not sure they will be successful. They will give quite an effort to have the courts change some of the interpretations of the laws in SB899. This could turn out negatively for employers.

There will be a huge influx of new carriers, and the old Workers Comp carriers will expand their business greatly. As I said in my last posts, the barriers to market entry have been lowered extensively. The Workers Comp market in CA is one of the largest in the world. This could turn out positively for the employers, as increased competition will always lower the price and increase the service level for any type of product.

The Medical Provider Networks (MPN's) will become even more popular as employers, carriers, and the MPN's themselves become acquainted with the workings of and the savings with using an MPN. This will be a big positive development for CA employers.

Next Up - Fraud

California Fixes Its Workers Comp Crisis Part III

A New Insurance Commissioner – when Commissioner Steve Poizner came into office, immediate changes occurred in the California Workers Compensation arena. The following are some of the changes he enacted:

• The cleaning up of the California State Fund (SCIF) – There was a large amount of conflicts of interest and lack of accountability in SCIF. Commissioner Poizner made SCIF more accountable in all areas. He also eliminated all the conflicts of interest that existed in SCIF. The conflicts of interest centered on officials and Board of Directors referring work to companies that they privately owned.
  
• More control exerted on the California Workers Comp Insurance Rating Bureau (WCIRB) – Commissioner Poizner made the WCIRB more accountable for their increases and decreases in the pure premium rates. He immediately overruled a rate increase. The figures that he predicted have seemed to be accurate.

More Workers Comp insurance carriers entering the market – this is the final positive and the most important result of the California Workers Compensation reform. With all the reforms in place now in California, the market became more competitive. The barriers to entry to the Workers Comp insurance carriers were removed. The more carriers in the marketplace, the more healthy the competition. Now that Workers Comp insurance carriers can now forecast a profit, there are more carriers writing policies which will reduce the Workers Comp premiums that they charge.

Up Next - A Question from One of Our Readers on the CA Workers Comp Reform

How California Fixed Its Workers Comp Crisis Part II

The Governor - The fix(es) to the failing Workers Comp system in California, in my opinion, began when Governor Schwarzenegger took office. He made Workers Comp reform part of his main platform in his campaign. The quickest way to fix a Workers Comp program is the buy-in of higher management of the need to fix the current situation. The buy-in is very crucial whether the organization is a governmental entity or an employer. The Governor was not going to take no for an answer.


Senate Bill 899 - This Bill brought in a Workers Comp theory of law that was already established in other states. Quite a large portion of the bill had worked in the State of Florida during Florida's Workers Comp reforms. The main part of the bill that cut the Workers Comp Cost for employers was the establishment of Medical Provider Networks. (MPN's)


MPN's - The real application of MPN's was to enable California employers to control who the employee treated with medically, and removed doctor-shopping by employees. Controlling the medical treatment by the employer is one of my Five Secrets to Controlling Workers Comp Costs. Medical control leads to the control of most of the Workers Comp claim. Please see my previous posts on the Five Keys to Cutting Workers Comp Costs.

Up Next - California Fixes its Workers Comp Crisis Part III

Another Question From One Of Our Blog Readers

Workers Comp Crisis - What happened to it and what settled everything down in the state with the worst Workers Comp environment?

The California Workers Comp Crisis was in my opinion almost eliminated due to seven things occurring over the last four years.

• The Governor becoming very involved with Workers Comp
• Senate Bill 899
• The emergence of Medical Provider Networks (MPN's)
• A new Insurance Commissioner
• More Workers Comp insurance carriers entering the market
• The cleaning up of the State Fund
• More control exerted on the California Workers Comp Insurance Rating Bureau (WCIRB)

I will go over these terms over the next few days. If there are any that I should add to the list, please email me at jmoore@cutcompcosts.com

Next Up - California Fixes its Workers Comp Crisis Part II

A Blog Reader Question On The Last Three Posts

Could you go through the math on how Primary Losses and Excess Losses affect Workers Comp premiums?

Yes, no problem, as this is a very critical subject with a company's Workers Comp premiums. Let us go back to the last example. You may want to get out your State Rating Bureau or NCCI Experience Rating Sheets.

An adjuster sets the Total Incurred on a file as $25,000. If we break down the loss into the two basic components:

• Primary Loss = $5,000
• Excess Loss = $20,000

To distill down the complicated rating formula, we should use the basic formula.

Look at the bottom left of the Experience Rating (E-Mod) Sheets. There is a factor there that is figured (discounts) the Excess Loss. We will use 20% as the factor to make the calculations easier.

The Primary Loss affects the Workers Comp Premiums dollar-for-dollar. The Excess Loss is Multiplied by 20%. So, the Primary Loss and Excess Loss in TRUE PREMIUM DOLLARS is:

• Primary Loss = $5,000
• Excess Loss = $20,000 * 20% = $4,000

In the first posting, if you have five $5,000 claims versus one $25,000 claim, they would look like the same effect on premiums, but due to the discount factor, the $25,000 claim affects the Workers Comp premium by $9,000 but five $5,000 claims affect the premiums by $25,000.

Why does this happen? The insurance rating system is designed to heavily penalize multiple accidents, not one larger ones.

In the second posting about there being no such thing as a small claim, every claim affects the Workers Comp premiums in full up to $5,000. We often hear "Oh, well that was only a $3,000 claim." The claim is not small as the premiums are being affected 5 times more heavily in the first $5,000 than the part of the claim above $5,000.

This can be confusing. Email or call with questions.

There Is No Such Thing As a Small Workers Comp Claim

Please see the last two days of postings. It may be best to read them before this post. This mini-analysis is similar to yesterday's post.

We often hear when reviewing a loss run that a claim or a group of claims are only small claims. However, due to the structure of how a Workers Comp E-Mod is calculated, there is no such thing as a small claim.

The way that E-Mods are calculated is that the first $5000 is the primary loss. After $5,000, there is a discount factor that reduces the amount that the Workers Comp E-Mod and premiums are affected.

Looking at a claim for say $5,000 - the employer is charged the full amount against their E-Mod. Remember that is the full Primary Loss. How much of an amount above $5,000 equates to the first $5,000? If you look at the last posting, there is a discount of 80%. So, an insured would pay the same for the next $20,000 of Excess Loss as they did for the first $5,000.

Think of it this way - for a $25,000 claim - the first $5,000 is as expensive as the next $20,000.

The bottom line is that there is no such thing as a small claim. In the example above, the Primary Loss portion of the claim is 400% more costly than the Excess Loss after $5,000.

Next Up - How Do the Last Three Posts Relate to a Workers Comp Claims Loss Run?

Many Small Workers Comp Claims-No Major Ones

The Other Side of the Coin - many small Workers Comp claims, but no major ones. This is one of those dangerous Workers Comp budget busters. As I said in my last post, there is a built-in safety net for a business that has one serious claim but few other claims.


The other side of the coin is that an employer is penalized very heavily for many small Workers Comp claims. I do not mean medical only claims, but instead lost time claims. You can have one $100,000 claim or 10 $5,000 claims. One would think the $100,000 claim would cost the employer twice as much. This is far from true.


There is a built in factor that would reduce the $100,000 claim to a $25,000 claim. The 10 $5,000 claims would not be reduced. So a claim that looks twice as expensive as a group of claims is actually only going to cost 1/2 the premium of the group of smaller claims.



Workers Comp E-Mods are constructed to penalize an employer that has a high number of Workers Comp accidents, as the more accidents that occur, the higher the likelihood that one of the many claims could turn serious. I do not necessarily agree with the assumption, but it is the structure that is in place today for E-Mods.



Next Up - There is no such thing as a small Workers Comp claim

Reader Question-Will One Claim Wreck My Premiums?

My company has had a great Workers Comp safety record over the past eight years. We had one serious injury two years ago. I know that it will start to hit my E-Mod this year. The Total Incurred of the claim is $75,890. Other than a few medical benefits only claims, this is the only claim we have had for many years. Is this one claim going to wreck my E-Mod and Workers Comp premiums?

Actually, this one claim is going to negatively affect your E-mod, but it is not going to wreck it. The way that Workers Comp E-Mods are calculated diminishes the effect of one bad claim.

Your claim of $75,890 is split into two figures:

1. The first $5,000 is called a Primary Loss. This part of the claim is charged against your E-Mod and premiums at full cost, so to speak.
2. The other $70,890 is reduced by some factor like 80%. This part is called an Excess Loss.

As you are a medium sized business, you will have a claim here or there that may be more than minor. The Workers Comp E-Mod system shelters employers from the full brunt of one bad claim.

Next Up - The Other Side of the Coin - many small Workers Comp claims, but no major ones.

Two Days from Now - Warning - There is no such thing as a small Workers Comp claim.

Reader Question-When Will Our Rates Go Down?

My business had three bad years and then we had a much better year with our Workers Comp accidents. Now that we have had a better year, will our Workers Comp rates go down?

Actually, your good Workers Comp accident year will not have any effect on your upcoming E-mod. Workers Comp experience rating runs on a delayed system. If your Workers Comp policy period is 1/1/08 - 1/1/09 then the polices that will affect your E-mod are:

• 1/1/04 -1/1/05
• 1/1/05 - 1/1/06
• 1/1/06 - 1/1/07.

Your great year for 1/1/07 - 1/1/08 will affect your E-Mods for:

• 1/1/09 - 1/1/10
• 1/1/10 - 1/1/11
• 1/1/11 - 1/1/12.

If you keep having great Workers Comp accident years, the E-Mod will decrease in a stair-step fashion.

You had said that you had bad/great Workers Comp years. Check out the next post for exactly what may look like a good or bad year, but may have the total opposite effect on your E-mod. Workers Comp E-mods sometimes may not be what you had expected to happen.

Our main website is www.cutcompcosts.com

Follow-up To Tennesseean Article

Please see my last post on the article about The Tennessee Restaurant Workers Compensation Fund Failure.

In my opinion, while there are accusations of mishandling of funds by the head of the Tennessee Restaurant Association, that is not the reason for the failure of their Workers Comp fund. Actually, he likely did not even mismanage the funds. What happened is the usual result of having a self insurance pool for homogeneous employers.

As I have posted in the past, the Law of Large Numbers is the same as the old saying - "there is safety in numbers." You cannot expect statistically over a long period of time for a group of safe employers (restaurants) to keep subsidizing unsafe restaurants by paying more than their fair share. For homogeneous employers, a group larger than just the restaurants is required to spread the risk.

As being in the Tennessee Restaurant Association Workers Comp Fund is voluntarily, the restaurants that tend to be bad risks will stay in the pool. The restaurants that are better risks would look for Workers Comp insurance coverage elsewhere as insurance carriers would write them more easily than the bad risks.

I have seen association-based Workers Comp Funds for trucking, construction, manufacturers, and others fail due to the inability to spread the risk amongst enough members. In fact, there have been a few that never even got off the ground.

What do you do as an employer? Explore all the options by getting quotes from different insurance carriers and agents. There is nothing wrong with shopping your account out to the Workers Comp insurance market.

Article From The Tennesseean

The Article Below Appeared in the Tennesseean. Check my post for tomorrow to see my opinion on what really happened and what happens when you violate the Law of Large Numbers.

The head of the Tennessee Restaurant Association stepped down from his position on Monday, following heated allegations of mismanaging a worker's compensation fund for restaurants.
Ronnie Hart, the group's chief executive officer and president, sent a proposal for early retirement to board members who were attending the association's quarterly meeting on Monday. It was later modified and approved, said Randy Rayburn, a member of the association's board of directors and local restaurateur, who declined to discuss details of the agreement.

Hart originally was scheduled to complete his term on Dec. 31 and will stay on as a consultant, said Michael King, another board member and owner of Monell's Dining & Catering. The association's chairman, Jeff Messinger, will create a transition committee that will determine strategic goals and start looking for job candidates, King added.

"I believe it was appropriate for the Tennessee Restaurant Association to move in a new direction in order to regain the confidence of our members — past, present and future," Rayburn said.

The state's Department of Commerce and Insurance sued Hart last year alleging he dipped into the reserves of the workers' compensation fund without proper approval and his company was paid double the contracted rate for managing the fund.

The state told 500 member restaurants they would have to pay $1.5 million to cover worker insurance liabilities and could be forced to pay as much as an additional $4.8 million. That infuriated some restaurant owners, though Hart said at the time he did nothing wrong while managing the fund.

Rayburn said the litigation against Hart regarding the worker's compensation trust "cast a shadow upon the restaurant association and its members."

NC Mid State Safety Council Yearly Conference

Presentation - I will be doing a presentation on Workers Compensation at the North Carolina Mid State Safety Council's Yearly Conference. The conference is on 6/10/08 at the Dennis Wicker Center in Sanford, NC. The conference covers many different areas on safety. The conference begins at 8:30 AM and lasts until 3 PM. I will be presenting at 1:30 PM.

If you would like to be a vendor at or be a participant, please email me at jmoore@cutcompcosts.com

The main subject that I will be presenting is that Safety Directors are just as responsible as anyone in a company for the claims process after a Workers Compensation accident has occurred. I like to call it Workers Comp Post Accident Safety.

A Blog Reader Question On Our Presentations

A Question I see that you do quite a few presentations on Workers Comp. What is the subject that you talk about most and what subject causes the most questions?

The subject that I speak on Workers Comp about really depends on the audience. I spend a large amount of prep time tailoring my speech to the attendees. Workers Compensation is not the most exciting subject.

The subject that seems to be the most popular is the Workers Comp claims that have gone from a minor claim to a much more serious claim for no reason. The other main concern by employers is when employees will not return to work.

The main subject that I present is what can be done by employers to control Workers Comp costs TODAY. I will mention the Five Keys to Cutting Workers Comp Costs. There are prior posts that cover them in more detail. They are:

1. Immediate injury reporting
2. Medical Treatment Networks
3. Return to Work Programs
4. How the employee was treated
5. Adoption of management to cutting Workers Comp costs

I have spoken about these five for well over twenty years. It is amazing how many of the employers' questions can be answered by these five topics.

If you are in the Raleigh, NC area on 6/10/08, I will be presenting on Workers Comp. See the next post for more information.

A Word Of WARNING

There are two main situations where we have seen Workers Comp cause the premature demise of a business, especially small businesses. They are:

1. Not being familiar with the laws concerning the number of employees that require a Workers Comp policy. You may not have to have Workers Comp insurance with up to five employees in a certain state while other states require a policy with one employee. This is a quick way to hear from the Insurance Commissioner with a cease and desist injunction order.
   
2. Similar to #1, an employer that hires subcontractors may be on the hook for a claim if a subcontractor is injured. Make sure your contractors show you a certificate of insurance.

Let's say that you do not have enough employees to require your company to have Workers Comp insurance. You have contracted with a company that has seven employees but does not have Workers Comp insurance. The term that I have coined - The Ladder of Insurance(c) will apply.

The Workers Comp courts will start with the sub and move their way up the ladder of companies until there is Workers Comp insurance or the deepest pockets. What will happen in this case is that the court will rule against you for benefits. So, you do not have Workers Comp insurance? Well, you will need to dig deep and pay cash or sell everything in the business and pay the claim.

Let's say that you do have Workers Comp insurance but the same situation applies. The Workers Comp courts will find you liable as the sub did not have their own insurance. You turn the claim into your Workers Comp insurer and THEY DENY COVERAGE. Remember, you did not pay premiums to cover the sub. Once again, it is time to pay straight cash.

Free list of definitions at http://www.cutcompcosts.com/definitions.html

Article On Ohio Workers Compensation

Below is an article about Ohio Workers Compensation. Ohio is one of the states that has a state-run Workers Compensation system. I have predicted that all monopolistic Workers Comp systems will eventually fail and/or open up to a free-market system. Ohio's Workers Comp system basically failed, but was propped up by the state government. It is great to see Ohio adapt a great cost saver for employers.

Nearly 280,000 employers participating in the Ohio Bureau of Workers' Compensation (BWC) system have the opportunity to select the managed care organization (MCO) that will manage their workers' comp claims for the next two years. MCO open enrollment is underway and runs through May 30, 2008.

BWC's mission is to protect injured workers and employers from loss as a result of a workplace accident, and to enhance the general health and well-being of Ohioans and the Ohio economy. A network of 24 MCOs support this mission, serving as a primary link between injured workers, medical providers, employers and BWC.

MCOs assist Ohio's employer community regarding medical management and return-to-work initiatives for their injured employees. They partner with employers to ensure prompt filing of claims, timely treatment for injured workers and swift implementation of recovery programs.
“As Ohio businesses compete in today's global economy, one of any employer's most important assets is a safe and healthy work force,” said BWC Administrator Marsha Ryan. “When an unfortunate incident occurs in the workplace, the goal of a safe and timely return to work is paramount. MCOs are an important component in ensuring rapid and adequate treatment for the injured worker.”

Every two years, BWC holds an open enrollment period that allows Ohio's public and private state-fund employers the opportunity to evaluate each MCO's customer service and medical management performance. It is the employers' decision to remain with its current MCO or to choose another MCO to medically manage workers' compensation claims.

BWC provides MCO services to Ohio employers as part of their workers' compensation premium payment. These services are available at no additional cost.

To assist Ohio employers in choosing their MCO during this open enrollment period, BWC offers educational resources including the MCO Selection Guide and MCO Report Card. These tools can be found by visiting ohiobwc.com, or more information may be provided by phone at 1-800-OHIOBWC.

Next up - A Question from one of our readers

What Is The UNISTAT Date?

Why is the UNISTAT Date the most critical date of any Workers Compensation policy?

The UNISTAT date is the actual date that the reserves/total incurred is used to calculate your E-Mods. It is not the policy renewal date. We have seen agents, adjusters, and even some underwriters become so very concerned about an employer's Workers Comp policy during the last month of the policy. Other than marketing the insurance company, the last month of a Workers Comp policy is a useless time to do anything in regards to reducing the reserves on a file.

The UNISTAT report is filed by your insurance carrier with the State Rating Bureau or NCCI to calculate your Experience Mod. The UNISTAT report is one of those kind of "hidden" factors that figures into your Workers Comp policy.

When is your UNISTAT Date? Email us at info@cutcompcosts.com to see when your UNISTAT occurs. As I said in the last paragraph, it is not and never will be your policy renewal date.

Answer to What Is The Most Important Date

OK, so what is the all-important Workers Compensation date? Not one employer has emailed us the correct answer.

We have posted on this subject before in this blog. We usually hear the following answers:

• The Workers Comp policy renewal date
• The Workers Comp policy expiration date
• The date that the NCCI or State Rating Bureau calculates the E-Mod
• The Workers Comp audit billing date
• The day the Insurance Carrier's Workers Comp auditor visits

None of the above are correct - the last one is important, but not as important as the UNISTAT Date. Check the next blog for an explanation of the UNISTAT Date

Quick Question-What Is The Most Important Date

This is one question that I have asked about in a post previous to this one.

If you said the renewal date, you are throwing Workers Comp $ down the drain. Check with this blog tomorrow to find out that very important date.

Why do I keep bringing up this very important Workers Comp date? Over 99% of the employers we have asked this question to has said the renewal date. When only .6% of the employers know the answer, we become very concerned.

Email me at jmoore@cutcompcosts.com if you think you know the answer, or if you would like to know before tomorrow's post.

One Thing We Are Unable To Do

We are very assertive/aggressive in dealing with Workers Comp insurance carriers, NCCI, State Rating Bureaus, and other parties. We owe that to our clients.

The one thing that we have been asked to do that WE WILL NOT DO is to intentionally aid in the misrepresentation of classification codes and other insurance data to cut Workers Comp costs. Trying to cheat insurance carriers will only cost more in the end. Quite a few states are now pursuing employers that intentionally lower payroll info, pay claims under the table, or misclassify their employees. As we have advised in the past, it is best to pay your fair share.

This situation does not come up often, but we do have to address the situation now and then.

We also will never try to cut Workers Comp costs by taking " a roll of the dice" on a long shot to see if any cost reduction might occur for our clients. This often will backfire and end up costing our clients even more of their Workers Compensation budget. We only make recommendations on statistically significant data and results.

Bottom Line - you should pay what you owe, but not one penny more.

Will You Get A Refund on 2003 Corrected Loss Run

You corrected a problem on your year 2003 Workers Comp claims loss run. Can you expect a refund of premiums? Under most circumstances, there would be no refund as it was too far into the past. In fact, the ONLY loss run that can be corrected is the most current one.

We have been asked very often to try to dispute an old loss run. Over 95% of the time, we are unable to assist due to the NCCI or State Rating Bureau rules. We cannot correct a file that was seriously over-reserved on old Workers Comp loss runs.

How does your company or any employer keep from over-paying due to incorrect loss runs with mistakes such as over-reserving, claims from a different employer, double entry of the same claim, etc?

As I have posted in the past - please check my old posts - follow the files with online claims access, or obtain a Workers Comp loss run monthly or at least quarterly. Review and monitor the loss run like a financial statement. If you see something that looks odd, question it immediately.

If you ever feel that you need assistance, please call in a Workers Comp claims loss run expert.

Up Next - A Controversial Workers Comp Definition

The Experience Mod or E-Mod

Your business's nightmare credit report is the Experience Mod or E-Mod. How does a credit report compare to the E-Mod or X-Mod?

The main difference between a credit report and a Workers Comp E-Mod is how fast each can be corrected. Let's say that you have your business's E-Mod and your credit report sitting in front of you. If you find a way to correct something in the credit report, the results are immediate. If you want to try to improve your E-Mod and take steps to improve it, the results will take many months or years to show for your efforts.

Another major difference is that if you find an old error on your credit report, you can fix the old error immediately. For instance, if you find an error from 2000 on your credit report, you can fix the error and improve your credit score. You cannot correct a Workers Comp reserving error from the year 2000. It just does not work that way.

Check out my next blog to see why correcting an error on your loss run from the year 2000 will not help your E-Mod.