Workers Compensation Savings Blog

jmoore@cutcompcosts.com (James J Moore) — Tue, 26 Aug 2008 03:29:00 +0000

A Great Question from One of Our Readers - 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 all in 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 the 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 a working relationship established over time. 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 providers.

jmoore@cutcompcosts.com (James J Moore) — Sun, 24 Aug 2008 01:48:00 +0000

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.

jmoore@cutcompcosts.com (James J Moore) — Thu, 21 Aug 2008 22:18:00 +0000

A Question from One of the Blog Readers - 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.

jmoore@cutcompcosts.com (James J Moore) — Wed, 20 Aug 2008 01:46:00 +0000

Question From One of Our Blog Readers -

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 Classfication Rate rate exceptions to the state-supplied rates.

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

jmoore@cutcompcosts.com (James J Moore) — Mon, 18 Aug 2008 02:40:00 +0000

How is an E-Mod or Ex-Mod calculated?

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

jmoore@cutcompcosts.com (James J Moore) — Sat, 16 Aug 2008 01:11:00 +0000

The Mystery of 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 the average than other company’s loss experience 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.

jmoore@cutcompcosts.com (James J Moore) — Wed, 13 Aug 2008 16:44:00 +0000

What Is The Real 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 have switched 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 are the monopolistic states failing and have failed over the last few years? Workers Compensation insurance is based on a free-market system. Letting 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.

jmoore@cutcompcosts.com (James J Moore) — Sun, 10 Aug 2008 16:02:00 +0000

A Lawsuit Filed by Employers Against the Ohio Bureau of Workers Compensation (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 the others states.

jmoore@cutcompcosts.com (James J Moore) — Fri, 08 Aug 2008 02:30:00 +0000

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 1990s 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

jmoore@cutcompcosts.com (James J Moore) — Wed, 06 Aug 2008 03:58:00 +0000

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.

jmoore@cutcompcosts.com (James J Moore) — Sun, 03 Aug 2008 21:54:00 +0000

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

jmoore@cutcompcosts.com (James J Moore) — Thu, 31 Jul 2008 02:44:00 +0000

A Major Disadvantage in CA Workers Comp Policies - California has changed their rating rules quite often over the last few years. After attending many of the WCIRB conferences, I noticed that the CA rules for rating Workers Comp policies is becoming very similar to the rating regs 0f the NCCI.

One area that is very unfair to CA policyholders is the limitation of the lookback period if a mistake is found in an employer's Workers Comp policy. If the employer is owed a refund, they can only ask for a refund from their insurance carrier for one year in the past and the present year. Most states allow for a lookback period of three years and the current year.

What does that mean to CA employers? If you find an error in your Workers Comp policy that results in a refund, you will only be entitled to approximately 50% of what is received by employers in other states. CA Insurance Commissioner Poizner will hopefully be able to modify this rule. If an employer has been overpaying for many years, why should there be a refund limit of only one year in the past and not three?

jmoore@cutcompcosts.com (James J Moore) — Tue, 29 Jul 2008 23:30:00 +0000

The Problems With a Short Rate Workers Comp Policy - The Short Rate Policy or Short Term Cancellation is when an employer and/or their agent makes the decision to cancel a policy before the renewal date.

There are many problems with Short Rate Policies including:

The ominous Short Rate Penalty - This penalty can be significant, as the employer is making the insurance carrier receive less premium than canceling at the renewal date. The insurance carrier has to possibly take on more risk, as the carrier does not have as long as usual to recover their paid losses by charging a full policy term premium.
Payroll Anomalies - We have been studying this phenomenon for the past few years and are still investigating the statistics. We have seen a disproportionate amount of payroll being loaded into, for example, a three month policy, and a new policy is then written. For some unknown reason, the Experience Modification Factor (E-Mod) can easily increase at a very rapid rate. The claims after the short-rate policy now have more claims vs. a lower amount of payroll. If both the claims increase and the payroll decreases sharply, the E-Mod can skyrocket.
The employer's insurance history may be marred, as having more than one short rate policy in a few years time may indicate a "workers comp premium shopper". This could result in less carriers being willing to write workers compensation coverage for an employer.

If you think that there is something wrong with your insurance policy, do not just switch the workers comp policy. First, at least try to work things out with your carrier until the renewal date. You have many rights as the insured and one of them is to question how the policy has been written.

jmoore@cutcompcosts.com (James J Moore) — Mon, 28 Jul 2008 20:06:00 +0000

Assigned Risk Pool - How Do I Get Out of It?

The easiest method to remove your company from the Voluntary Risk Market and place your Workers Comp coverage in the general marketplace is to reduce your Experience Modification Factor. Your company may likely have a very high E-Mod compared to similar businesses. We have posted many previous articles on how to reduce your E-Mod.

Another way to possibly remove your company from the Assigned Risk Pool is to make sure that your agent has shopped your business in all available markets. We have seen this method remove companies from an Assigned Risk Pool if there are workers comp insurance companies that specialize in, or better understand, the risks involved with your company. Never just assume that you should be in the Risk Pool.

Make sure that your company has the correct Classification Codes assigned to it. Quite often, certain Workers Comp Classification Codes have a high risk associated with them and no insurance company will write the coverage in the voluntary market.

One mistake we have seen companies make is to think in the short term with cost reductions. Having a safer company will show up in your Workers Comp insurance in the second year of safe operations and will not be fully realized until the fifth year. We have seen companies switch their focus away from Workers Comp savings strategies, as there seemed to be no effect on their premiums.

There are a few companies that cannot be written in the voluntary marketplace due to the risky nature of the job functions.

Next Up - The Dangers of a Short-Rate Policy

jmoore@cutcompcosts.com (James J Moore) — Fri, 25 Jul 2008 02:52:00 +0000

From our list of definitions:

Assigned Risk Plan: Sometimes called the Pool, this is a mechanism established by individual states to make sure that employers can obtain WC insurance even if insurance companies are not willing to write such insurance on a voluntary basis. Assigned Risk plans in many states carry higher rates than the voluntary market.

If your company is in the Assigned Risk Plan, you must do everything that is possible to get out of it ASAP. Why? For instance. in a certain state, the Advisory Loss Cost for an Administrative Assistant Classification Code (8810) was 41 cents per $100. The same 8810 Classification Code in the Risk Pool was $1.41 per 100.

That is almost a 400% increase. How does a company remove themselves from the Risk Pool?

We will talk about that next time.

jmoore@cutcompcosts.com (James J Moore) — Thu, 24 Jul 2008 02:16:00 +0000

Classification Codes - A great question from one of our blog readers

In one of your earlier blogs, you talk about Workers Compensation Classification Codes and how they describe the jobs that are performed in a business. Why do my Classification Codes seem to be different from what my business actually does, and why are they not the same as what our employees do on their jobs? I am confused.

This is one of the questions that is becoming more popular as the National Council on Compensation Insurance (NCCI) revises and eliminates their Classification Codes. This results in more of what is called classification by analogy. We have seen more of this type of classification in the last three years.

Classification By Analogy is the interpretation of what Workers Comp Classification Codes are the closest to the job functions in a company. The insurance company looks at each classification code as a level of risk. These are "guestimations" as there is no exact classification code that matches a job function or employee's job description. The most important word is interpretation. No one knows your business as well as you do.

If your Workers Comp Classification Codes do not seem to represent the job functions in your company, then have your agent and carrier review your classification codes with you and explain how they best represent your business. If you still feel that something is wrong, consult an expert in Workers Comp.

jmoore@cutcompcosts.com (James J Moore) — Mon, 21 Jul 2008 22:40:00 +0000

Finishing Up #3 and #4 from Yesterday. How to Handle a Workers Comp Audit Bill.

3. If you are sure that you owe the whole bill, but cannot pay it, do not just ignore it and hope that it will go away. On the bill, there will usually be a phone number, address, and sometimes email address of the billing department. Call or email them ASAP and let them know that you will pay part of the bill. Making a good faith payment is a great way to keep your current insurance coverages. Send a check as soon as you can with the bill. It may be a good idea to call the billing department when the check is mailed.

Unfortunately, some carriers now are not accepting a partial payment, or at least they say they do not. I have never seen an insurance carrier to date send a partial payment check back to the employer. NOT EVER.

One of our mottoes is STOP JUST WRITING checks. Make sure that you owe the Workers Compensation premium bill and be sure to question how the bill was calculated.

4. Make sure the payroll figures for the next year's policy are adjusted to the audited payroll amounts, or you will end up owing a huge bill again at the end of the year. Unless your company has had a decrease in payroll, you will likely owe another big bill. It is best to pay it through the year on a payment plan versus having to pay an unbudgeted bill at the end of the policy year.

We have often seen the situation lately where an insurance carrier will write a policy in complete contradiction to the audits. Check to make sure what was on the original policy resembles what is on the Workers Comp payroll audit.

Have your reserves examined by an expert before your next UNISTAT date. A huge increase in Workers Comp reserves will make your next years' policy increase sharply, as your Experience Mod (E-Mod) will increase exponentially.

Next Up - Classification Codes Revisited

jmoore@cutcompcosts.com (James J Moore) — Sun, 20 Jul 2008 14:31:00 +0000

A Question From One of Our Readers - We received a huge bill from our Workers Compensation Yearly Payroll Audit. We cannot afford to pay it. What do we do? We do not want to lose our Workers Comp coverage.

I would advise you to do four things:

Do not panic, as you need to make sure you are taking care of the rest of the business.
Check to make sure that you really do owe that amount; if not, then dispute the amount you think that you do not owe. Do not dispute the bill as a way of delaying your payment.
If you owe the whole bill, then immediately call the contact person on the bill and tell them of your situation. Almost all carriers will let you pay the audit bill over time.
Make sure the payroll figures for the next year's policy are adjusted to the audited payroll amounts, or you will end up owing a huge bill again at the end of the year. Have your reserves examined by an expert before your next UNISTAT date.

I will cover each of the four points - two on this post and then two on the next post.

1. As you are very busy running your company or the financial end of the corporation that you work for, worrying about the bill will not help. We have never seen an employer lose their coverage when they are making attempts to pay the bill.

Often you will see a phrase such as , "please pay immediately", or "you have 10 days to pay." Most state insurance rules will let you have a longer period, even if your Workers Compensation insurance policy says 10 days. However, if you do owe the bill, then at least make contact with the insurance carrier. DO NOT IGNORE THE BILL as this will only cause more problems later on with your insurance carrier.

2. If you are not sure that you owe the bill, then you do have a right to dispute the audit. You must have some basis besides - The bill looks high, or There is no way we can owe this much. If you know something is wrong and you need help, call in an expert to look over the bill. We do not mean your insurance agent. We do provide this service. It takes time to get the records together, so getting help with your audit quickly is crucial. As mentioned before, do not use the dispute process as a way to delay paying the bill.

I have blogged How to Dispute a Bill very often. Please check my prior blogs on how to dispute a premium billing, or contact us.

Quite a few states now require the insurance carrier to inform the employer of how to dispute the bill. California is one of the states that is very specific on this point.

Next Up - #3 and #4.

jmoore@cutcompcosts.com (James J Moore) — Sat, 19 Jul 2008 02:40:00 +0000

A Question From One of Our Readers on Workers Comp Payroll Audits - I just received notice that the insurance company auditor is coming in to audit my company's Workers Comp information. How do I prepare for the audit? What information do I have to provide them?

According to your insurance policy, the insurance company auditor has the right to examine almost any of the records that your company has available. If you refuse to show the insurance company auditor the information they need, that may look suspicious to the auditor.

There are a few things that one can do to get ready for the Workers Comp audit. The best thing to do is make sure that you have ACCURATE and highly organized payroll records together with a summary sheet of those payroll records. Make sure that all subcontractors and temporary workers are segregated on the payroll. Have someone that is the most familiar with the payroll records be available to answer any questions and provide any additional information that the auditor may request.

It is best to make sure that the auditor has a quiet place to work, away from the daily activities in your business day. There are many guides on how to try to influence the audit, but we do not agree with them as being upfront and honest are the two best ways to conduct yourself when the yearly Workers Comp audit occurs.

We have seen quite a few employers become part of a disturbing trend when it comes to the audits. We will discuss this on the next post- Delaying the Audit.

jmoore@cutcompcosts.com (James J Moore) — Thu, 17 Jul 2008 14:27:00 +0000

A Question From One of Our Readers from California - I received my Workers' Comp payroll audit results. The auditor says that I owe $67,587 more than I originally paid for my policy. We are a small company and that is going to kill our budget. Any ideas on what to do?

We have commented on this question very often. Please check out prior blogs on this subject. The main thing I wanted to mention today was what not to do, which can possibly cost you even more premium dollars.

Do not:

Call up your agent or auditor and protest the bill without any backing to the protest. That may damage the relationships you have established.
Ignore the audit results or the bill - you may lose your chance to protest the bill, if necessary, and your carrier may cancel your current Workers Comp coverage
Panic, as you have time to look into the bill. Sometimes the bill will give you ten days, but in most states, you have up to 30 days.
Write a protest letter without looking at the numbers.
Write the insurance commissioner - worse thing to do initially
Try correcting the bill on your own - you may cost yourself more $.
Think you can only protest the one bill - you may be able to go back many years to protest old bills, depending on the state
Think hiring a premium expert is too expensive
Protest the bill without reading your initial policy
Protest the bill without knowing your classification codes and what they mean
Just give in and write a check if you feel something is wrong. The word WHY is a very strong word to use. Most of the contact we receive from employers is when they have a "gut feeling" something is wrong.

Up Next - We will review what to do when you receive a Workers Comp Audit Bill

jmoore@cutcompcosts.com (James J Moore) — Wed, 16 Jul 2008 15:32:00 +0000

Can California's Workers Comp Judicial System Go Paperless?

One of the goals of many Workers Comp carriers and TPA's is to be totally paperless. When I started as an adjuster many years ago, the carrier that I was working for had been using microfiche and a very rudimentary system to handle Workers Comp claims. It was actually a true paperless system. However, the adjusters of today will print off what they need to review instead of reading it on a screen.

If all goes according to plan, by the end of this year the paperwork for disputed claims by injured workers will be missing an important ingredient — paper.

This month California began testing a controversial new paperless system for handling disputed workers’ compensation claims, and officials hope to completely switch over on Nov. 10. The shift, planned for four years, will affect tens of thousands of people, both inside and outside of the state Division of Workers’ Compensation and the state Workers’ Compensation Appeals Board.

Although program officials say the digital system will be faster and easier, critics contend it has significant problems that could make maneuvering through the already-complex workers’ comp system more cumbersome.

Launching the Electronic Adjudication Management System, or EAMS, will mean a fundamental shift for 1,160 state employees, 140,000 to 150,000 injured workers each year, about 7,000 workers’ comp attorneys plus their staffs, and numerous insurance companies and self-insured employers.

I hope this system works. I think there will be a huge amount of printing at the beginning of the process if it survives.

jmoore@cutcompcosts.com (James J Moore) — Tue, 15 Jul 2008 16:35:00 +0000

What Would Be One of the Biggest Advantages for a Monopolistic State to Switch to a Free Market System?

The following comment is from a recent meeting sponsored by the state of North Dakota on looking into switching from a monopolistic state fund. I did find it interesting that the comment inferred that the injured employees receive better medical treatment with private insurers.

Deputy West Virginia insurance commissioner Bill Kenny says private insurers have broader experience in workers` comp. He says they`re often willing to spend more on advanced medical treatment to help get an injured employee back to work more quickly.

Next Up - California's Workers Comp System is Going Paperless?

jmoore@cutcompcosts.com (James J Moore) — Mon, 14 Jul 2008 14:39:00 +0000

North Dakota May Miss a Prime Opportunity

As I have said in many previous posts, a monopolistic Workers Comp carrier is not the best choice for a Workers Comp system in any state. North Dakota seems to have agreed to keep their current government-run monopolistic carrier.

Officials from Nevada and West Virginia say that taking their state`s workers` compensation operations private has helped lower insurance rates and provide better service, but the officials say the moves were prompted by severe money problems. North Dakota`s Workers Compensation system is financially healthy. State legislators say there may not be much support for taking it private. Right now, businesses that must have workers` compensation coverage have to buy it from North Dakota`s Workforce Safety and Insurance agency.

While North Dakota's WSI may be solvent and healthy, that may be at the expense of businesses paying out more Workers Comp premiums than in an open market such as Nevada or West Virginia have begun in the last few years/months.

jmoore@cutcompcosts.com (James J Moore) — Thu, 10 Jul 2008 16:04:00 +0000

Another Way to Know That You Were Overcharged on Your Workers Comp Premiums -

The following is a prime example of a Monopolistic Workers Comp State Fund not providing the proper service to their insureds. If a carrier or fund of any type is mailing out or applying refunds, this means that the employers were charged too much premium when their original policy was written and then again at the year-end payroll audit.

The Department of Labor & Industries (L&I) began mailing dividend checks last week to 100,000 employers as the final step of a process to return excess funds from the state's workers' compensation system. Another 28,000 employers will receive credit toward their next workers' compensation premiums. The remaining 11,000 employers will have their dividends applied to premiums already owed or other debts.

Last year, employers and workers enjoyed a partial workers' comp rate holiday, according to L&I Director Judy Schurke. Employers and workers saved more than $300 million in workers' compensation premiums by not having to pay Medical Aid fund premiums during the second half of 2007.

To complete the rate holiday, employers who did not participate in L&I's Retrospective Rating Program are also entitled to a one-time dividend. Retro employers receive their proportionate share through their retrospective rating assessments.

The dividends will total $37 million, and dividends will average $266 per employer. How much an individual employer receives will be based on the Accident Fund premium he or she paid in the second half of 2007. Checks will be sent to 100,000 employers in amounts ranging from $10 to several thousand dollars. About half the checks will be between $10 and $100. Another 28,000 employers will have their next-quarter premiums credited.

About 11,000 employers who owe workers' comp premiums or may otherwise have a debt with L&I or other agencies may see their dividends applied to those debts rather than receive a check directly. An employer will be notified if a dividend is applied to debts.

jmoore@cutcompcosts.com (James J Moore) — Sun, 06 Jul 2008 23:40:00 +0000

Why do state-created monopolistic and quasi-monopolistic funds really have problems? As I posted yesterday, there are quite a few state-created Workers Comp funds that are having many troubles.

The reason for these problems might be the softening of the Workers Comp market. I think there are many problems with state-created funds including:

Poor customer service: If you are backed by the government, why does a fund need to have customer service, as there are no investors to answer to whatsoever?
The state will prop up a failing fund, but a private company will go under.
The funds are usually very large with departments not communicating.
Some funds attract and hire employees that could not make it in the private world. The pay rate is usually lower than the market average, which means the talented claims people or other insurance personnel will leave for more $.
The funds receive favorable loan rates which lowers the motivation to turn a profit to pay back the loans.
The state-backed funds "take on all comers" as they are sometimes the insurer of last resort. This means underwriting expertise will be sacrificed to write risky policies.
The states do not keep any of the control over the funds once they have been started. I have seen this really harm funds as they have no one to answer for in their practices.
Their rates are usually higher than most carriers, which causes employers to go elsewhere to find Workers Comp coverages.
Internal fraud such as in CA, OH, and others.

There are many more, but I think you may be able to see a trend in these nine. Please note that there are great employees in many of these funds. I am mainly questioning the management of those funds internally and externally by the states.