A Very Important Rule Change By The NCCI

A Very Important Rule Change by the NCCI -

As I started to cover in the last post, late in 2003, the NCCI made a rule change that benefited Workers Comp insurance carriers greatly and ended up costing employers millions every year.

The old rule was that no Workers Comp policy may appear in an Experience Modification Factor (E-Mod) for a certain employer more than three times. That meant that multiple policies could not be piled into an employer's E-Mod. Now, there are no actual limits on the number of policies that can be calculated into an E-Mod for a Workers Comp policy.

To keep this post as concise as possible, there are three basic rules. They are:

1. The policy must have incepted (started) between 12 and 57 months prior to the policy.
2. The policy periods covered cannot exceed 45 months in total .
3. A policy can be used multiple times as long as rules #1 and #2 are not violated.

This rule can create very dangerous situation for employer that decides to shorten their policy period. You could end up stacking 4 or more years of policies into your E-Mod. This is especially true if one of the oldest polices had a very bad year for accidents. Under the old rule, the policy could not be used if it had been used three times in the past for an E-Mod. In the next example, which was from a real policy, I will show how this rule can be very dangerous.

The reason that the NCCI had instituted the new rule was that certain unscrupulous agents or employers were stacking short-term policies to manipulate the rules to cause a lower E-Mod. We have seen this a few times in our Workers Comp policy reviews.

One of the NCCI Rules That Is Unfair To Employers

One of the newer NCCI rules that applies to policy renewals and the way the E-Mod is calculated was a radical change. The change is the rule for how many times a Workers Comp policy can apply to an E-Mod went from three to an infinite number of times as long as the total number of months covered is 45 months or less.

The old rule was that a policy could only apply to an E-Mod a total of 3 times. We do not think it is fair to employers that a policy could apply to an employer's E-Mod so many times, as from what we have seen, this makes the E-Mod artificially higher than it should be in most cases.

We will cover this new rule in the next posting.

Blog Reader Question-Do PPO's Save Money

Do Workers Comp Preferred Provider Organizations (PPO's) really save money? Do PPO's diminish the level of care that our injured employees would receive vs. having no PPO?

Workers Comp PPO's have gone from a simple discount for certain providers to very complex systems. PPO's vary among each type of service offered. They can be a generalist PPO where all the providers are one large PPO, to specialist PPO's such as Pharmaceutical or Physical Therapy.

The PPO's pre-negotiate a discount from the medical providers. The providers sign on with PPO's to drive more business to their practices.

Do PPO's diminish any type of care? No, as in all the years I have been in Workers Comp, I have never seen an instance of where an injured employee in a PPO did not receive the same level of treatment that a non-PPO employee received to treat their injuries.

PPO's do save money if they are examined as to what they really are - a group of medical providers that were willing to take a discount. Quite often, the PPO's sign up as many medical providers as possible whether they are industrial-type providers or not. As the PPO makes their $ off the employee seeing one of their medical providers, the marketing department for PPO's will attempt to sign up all the medical providers in a certain area.

Our recommendation is to send the employees to the medical providers that you have an established working relationship with. Sometimes, saving 15% on a medical bill may not be worth it if, for example, the doctor did not know that you have a full Return to Work program in place and wrote an employee out of work with a 25lb weight lifting restriction.

California has proven that medical networks do work for the most part. CA's Medical Provider Networks (MPN's) have saved the employers in CA millions of $ over the last five years. In my opinion, this was the rule that turned the tide for California Workers Comp.

There are also EPO's such as Employers Choice Network out of Charlotte, NC. They are able to custom-build medical networks, even within the network that you already have in place. They provide the best of both worlds - a discount and industrial minded medical provider.

The 180 Day Window

The 180-day window can save your Workers Compensation Program a large amount of $. What is the 180-Day Window? It is the time that you have to correct your company’s reserves after the close of the policy year. THIS IS VERY IMPORTANT and one of the most confusing areas that employers will come across in their Workers Comp administration.

Please see our old posts on the Total Incurred part of your Experience Mod Rating (E-Mod or Ex-Mod). We will cover Total Incurred again later this week.

The 180-Day Window functions similar to this example.

• Policy Period 1/1/07 to 1/1/08
• Your Unistat Date is 06/30/08 – this means that no matter what happens after 06/30/08, your reserves and Total Incurred can never be changed again for the 1/1/09 - 01/01/10 policy period.
• The 180 Day Window is from 1/1/08 as that is when the policy period ends until 06/30/08, your Unistat date
• During the Window, you can negotiate reserves down, if possible.
• No more claims can be added to your policy, so you know the claims that will be on your 2009 – 2010 Experience Mod.
• To negotiate down the reserves, starting less than 90 days (after 4/1/08) before your Unistat date will make the task much more difficult.

How do you avoid having to be concerned with a short Window of Time to negotiate down your reserves?

• Review all reserves monthly and if something looks awry then contact your Workers Comp claims adjuster. Your insurance carrier should be providing you with a claims listing at least every quarter.
• Use email as the method of contact due to documentation concerns.
• Better yet, if you can obtain online access to your Workers Comp claims, then you can review your claims at your convenience.
• As I have posted previously, do not just call up the Workers Compensation claims staff and tell them your reserves are too high. Make sure you have a basis to question the reserves.

If you feel that you need assistance, please contact a Workers Comp claims expert (such as J&L). You can also look over my previous posts as an aid to negotiating reserves.

Blog Reader Question-When Do Accidents Affect MOD

Is it true that what happened in my last Work Comp policy year will not affect the Experience Mod for my current policy year? I had a much better year with accidents in 2007 and a terrible one in 2003.

You are correct. The basic rule is that all Workers Comp policies that started from four years and nine months ago (57 months) up to 24 months ago will affect your Workers Compensation Experience rating.

Your Workers Comp policies have always started on 10/01. So, your upcoming Experience Rating for 10/01/08 - 10/01/09 will be based on all polices that started from 1/1/03 through 10/01/06.

Therefore, your policy for 10/01/08 will be affected by the policy years:

• 10/01/03 - 10/01/04
• 10/01/04 - 10/01/05
• 10/01/06 - 10/01/07

The NCCI has published revised rules on the months that the Experience Period covers. There are many intricacies to the Experience Rating Period. The revised rules make the Experience Rating Period ever more complicated.

The bad year you had will drop off on the 2009 - 2010 policy year.

A question we receive very often will be answered in the next posting that has to do with Experience Rating and Workers Comp reserves.

Blog Reader Question- What is a Bad E-Mod

We are renewing our Workers Comp policy in October. Our E-Mod has increased quite significantly from .8 to 1.29 over two years' time. Our agent has said that if our E-Mod increases much more, certain insurance carriers may not write us and we may even have to go into the Risk Pool. We are a multi-state restaurant corporation based out of California.

Is an E-Mod of 1.29 a bad Experience Rating?


Answer - An Experience Mod of 1.29 may not necessarily be that bad. Your Workers Comp carriers and other insurance companies may be looking at the large increase from .8 to 1.29. This means that your company has become basically 50%+ more risky to underwrite than in the past. You desperately need to have an expert review your Workers Comp claims loss run now to see if your files are over-reserved. Did you recently change carriers? Watch out for the Unistat date for your policy. That is when you need to have your Workers Comp reserves in line.

The overall insurance market in California has experienced a reduction in premium rates over the past few years. However, there is a 16%+ overall premium rate increase pending. I have seen where a group of trucking companies had to go into a risk pool and their E-Mods were basically about 1.0! This was due to a lack of Worker Comp insurance companies that will underwrite a certain Classification Code.

As your E-Mod (Ex-Mod in CA) increases, the likelihood that a conservatively priced insurance carrier will underwrite your company decreases. Remember, all carriers can file Classification Rate rate exceptions to the state-supplied rates.

Next Up - Another Question on E-Mod/Ex-Mods.

E-Mod Or Ex-Mod Calculations

The experience modification is determined by comparing actual losses to expected losses for the experience period based upon the employer’s industry. In other words, clerical employees are compared only to other clerical employees; a restaurant is compared only to other restaurants.

The number of man-hours worked is used to indicate the employer’s audited premium dollars, since an employer with 200 employees would be expected to have more claims than an employer with two employees. For example, a restaurant is only compared to other restaurants with approximately the same gross premium amount.

The formula adjusts the actual losses used so that frequency is given greater weight than the severity of an injury or illness. For example, six claims that occur over a three-year period totaling $20,000 have a greater impact against the experience mod than one claim in three years totaling $20,000. Again, both industry and business size are considered. Claims with zero costs are not included in the experience modification calculation.

Bottom Line - why does this sound so hard? The harder it is, the less you can check behind the insurer to make sure there were no mistakes in your policy or premium/payroll audit.

More on the E-Mod/X-Mod next time

Mystery - The Experience Modification Factor

We have received quite a large number of questions regarding the Workers Comp Experience Modification Factor over the past few weeks.

The Experience Modification Factor also goes by Experience Modification Rating, and Experience Modifier. The E-Mod has many acronyms such as:

• Ex-Mod (California)
• X-Mod (California)
• Mod (National)
• E-Mod (National)
• EMR
• ExMod, XMod, and EMod.

The definition of an E-Mod is: A multiplier applied to the premium of a qualifying policy and provides an incentive for loss prevention. The mod represents either a credit or debit that is applied to the premium before discounts. If your company’s loss experience is more costly on average than other companies' loss experiences in your industry, the result is a debit mod, or surcharge, on premiums. If your company’s experience is less costly than the industry average, you will receive a credit mod, or discount, on your premium.

E-Mods are one of the most confusing areas of Workers Comp insurance, as it affects such a large number of policies. We will examine the E-Mod more closely over the next few posts.

What's The Problem With The Ohio Monopolistic Workers Comp System

I have posted on this one a few times in the past. As you can see from the last post, the people that suffer the most from wholesale and somewhat unfounded changes to a Workers Comp system are the premium payers.

Ohio's state-run monopolistic system is not working that well. There have been so many cases of internal fraud and bad decisions in the last five years. The worst had to be the investment of premiums paid into gold coins.

North Dakota has experienced a huge amount of internal turmoil over the last few years. There were investigations and even arrests made on some of their employees. They ended up with a huge surplus that was likely based on improper claims denials.

Most of the states that were once monopolistic have failed and/or to a fully open market system. The states usually convert their monopolistic system to a private carrier, then to an open market system. These carriers usually lose a huge portion of their market share--such was the case in Nevada.

It is my prediction that all of the monopolistic state funds will convert to a private system in the future.

Why have monopolistic states been failing over the last few years? Workers Compensation insurance is based on a free-market system. Letting the government run the programs have resulted in horrendous results in some cases. Workers Comp cannot be administered like a government program.

Bottom Line - You cannot let governmental officials run the system. Their job is to monitor the Workers Comp system to make sure there is a level, legal, and fair playing field.

A Lawsuit Filed Against Ohio BWC

Business owners will try to convince a judge that Ohio plays favorites with some companies by offering unfair discounts in money they must pay to the state's fund for injured workers.

Attorneys representing several businesses, including a sandwich shop and a copper tube manufacturing firm, plan to ask a Cuyahoga County judge on Tuesday to bar the BWC using the rate-setting system.

Bureau officials say recent changes they made to the system will improve the fairness of the rate-setting system to make Ohio attractive to business investment.

At issue is the bureau's practice of offering discounts of up to 90 percent - and 85 percent next year - for business groups with records of workplace safety. The lawsuit contends that businesses outside such groups are subsidizing the injured-worker system.

The lawsuit could affect 85,000 businesses that pay non-group rates. The lawsuit claims such non-group employees pay more than $200 million to subsidize 98,000 group-rated employees.

An example of the premium overcharging by the Ohio BWC of a doughnut business of 35 years:

• Paying $800 yearly to insure four full-time employees and nine part-timers
• Two injury claims five years ago involving falls on wet floors. One was minor and one required surgery.
• The two claims caused the Workers Comp premium to rise to $10,000 as the company was removed from the preferred groups.
• That is a 1,250% increase in premiums!

The lawsuit contends the bureau tries to anticipate what will happen in the coming year when setting rates rather than following the law and applying the workplace experience of the past year to premiums.

James Barnes, the agency's chief legal officer, said the bureau has worked over the past year to refine rate-setting. "These steps are part of a deliberate and comprehensive effort to make rates and premiums even fairer and more accurate for all employers," he said in a statement.

Prior to the December decision to cut discounts, the bureau acknowledged that the set-up it had in place was handsomely rewarding groups of businesses with spotless safety records that banded together into coalitions or associations, but hurt companies that experienced even one serious accident.

A third of the 6,800 businesses that lost their group rating in 2006 because of a serious accident or death involving an employee either stopped paying insurance or filed for bankruptcy, according to the bureau.

Stuart Garson, an attorney for the companies challenging the workers' comp bureau, said the agency had the right to take safety records into consideration in setting premiums, but said its rate-setting formula wasn't fair to all employers.

BWC handled nearly 172,000 job-injury claims last year, including 176 work-related deaths, and about 10 percent of claims were dismissed. In 2006 it paid out more than $1.9 billion in benefits and collected more than $2.1 billion from employers.

Next Up - What is the Real Problem Here? I have posted it numerous times. Coming Soon - I will see how the Ohio BWC formulas compare to other states.

Article From The Oklahoman

On a recent visit to Oklahoma, I came across an article in The Oklahoman newspaper that was of great concern to me.

A group of reporters for The Oklahoman found out that there were workers compensation claimant attorneys that were taking a portion of their clients' settlements and illegally funding a shadow organization that provided funds for Democratic candidates.

A secretive organization has raised close to $1 million throughout the last decade for political purposes, mostly from injured Oklahoma workers who sometimes don't even know they've donated. Many of the donations to Working Oklahomans Alliance may be illegal, an investigation by The Oklahoman found. The organization could be penalized $1,000 or more for each violation.

The lawyers who control Working Oklahomans Alliance specialize in workers' compensation cases. These lawyers raise money for a political fund by withholding a portion of their clients' workers' compensation awards. The lawyers then distribute the money to various political causes and candidates, mostly Democrats.

Several injured workers listed as political donors to the Working Oklahomans Alliance PAC said they were not aware they had given at all. Many were represented by Norman attorney Richard Bell, a key figure in a campaign corruption scandal in the 1990's involving then-Governor David Walters.

This is the worst of the worst, as this is taking money directly from the people that need it the most and funneling the funds to political organizations.

Next Up - Trouble in Ohio - one of the monopolistic states for Workers Comp

How To Dispute A California X-Mod

As a follow up to my last post, I wanted to explain how to protest a CA X-Mod. As I have said in many previous posts, do not just sling out a protest because you think your company is paying too much $ in premiums. That type of protest does much more harm than good.

If you feel there is a mistake after reviewing your X-Mod sheets, the first step would be to send a written protest to your current insurance carrier. While your insurance carrier may not be able to assist much without getting the WCIRB involved, at least it is a starting point. The carrier may not have followed the previous inspection by the WCIRB.

Before contacting the WCIRB, please make sure that the protest will not cause an increase in your X-Mod or premiums. This can and does happen sometimes. There is a possibility that the carrier will order an inspection by the WCIRB to better classify your business. Even after the WCIRB inspects your business and issues an opinion, you can appeal the decision to the Policy Ombudsman or the Insurance Commissioner. Appealing to the Insurance Commissioner should be used only as a last resort as this may damage the relationship with your agent and insurance carrier.

The address to send the protest is:

Workers' Compensation Insurance Rating Bureau
525 Market Street, Suite 800
San Francisco, CA 94105-2767
Attn: Customer Service


The Policyholder Ombudsman should be carbon copied at the same address.

Reader Question-How Can I See My X-MOD Calculation Sheets?

A Question From One of Our Readers - In one of your old posts, you went through how Workers Comp E-Mods (Experience Modification Factors - also known as X-Mods) are calculated. My company is in California only. How do I go about obtaining a copy of my X-Mod calculation sheets?

The rating organization that covers California is the Workers Compensation Insurance Rating Bureau (WCIRB). They are responsible for all the X-Mod calculations in the state of California.

You SHOULD HAVE received an E-Mod directly from the WCIRB, your insurance carrier, or your agent. I would suggest contacting your agent to obtain a copy. If you are a small company that does not use an agent, you should contact your insurance carrier. The X-Mod Rating Sheets are a little confusing. It may be best to have your agent explain the sheets to you.

If you would like to contact the WCIRB, their web address is https://wcirbonline.org/. They are helpful, but they will not give out any type of advice or an opinion, especially over the phone.

Next Up - How to Dispute an X-Mod Calculation