Experience Modification Factor
The vast majority of employers and insurance brokers concentrate on the status of open work comp claims when policy renewal is approaching. This strategy is “too little, too late.” The reality is by the time of renewal, the most important date has already come and gone: valuation.
Valuation is the specific date that the insurance carrier uses to provide a “snap shot” of your claims to the rating bureau, typically 6 months before renewal. The rating bureau uses this snap shot when calculating the mod. At the time of valuation, some of your open claims may have a reserve – a dollar amount set by the adjuster that serves as an estimate for the total cost of the claim. If, for example, the adjuster thinks the injury might require surgery, they put money for that surgery in reserve, in case they need to pay it out later. This is important because the rating bureau applies open reserves to your mod calculation, whether or not that amount gets used. And since the experience mod helps determine how much an employer pays for work comp insurance, an inflated mod can drive up the premium.
Again, this all happens 6 months – half a year – before your policy renews, and a lot can happen in 6 months. Let’s say a month after valuation, the claim closes lower than expected and the reserves get wiped out. The rating bureau does not know the claim has been closed, and uses the snap-shot with the open reserve to calculate your mod. Or recovery is going well and surgery is no longer needed, so the reserve can be lowered, but the adjuster – and the rating bureau – is unaware of the change. The mod gets calculated using outdated information. It is important to note that it is not the responsibility of the insurance carrier to know when the employer’s mod is being calculated.
Best practice dictates negotiating reserves with the carrier prior to valuation, and monitoring open claims after valuation, so that employers do not have an inflated mod when it’s time to renew. Instead of dedicating precious time and manpower to negotiating reserves and keeping an eye on open claims, employers can rely on the help from Minnesota Comp Advisor’s dedicated claims management team.
According to Minnesota’s work comp laws, you can get your experience mod corrected, but only if you can figure out what went wrong in the first place. The so-called “Aggravated Inequity” rule allows you to get an updated mod, but only if 3 things happen first:
1. An open claim on the experience mod closes between valuation and your renewal date.
2. The claim results in a 5 point or greater reduction in your experience mod.
3. You can prove it to the carrier
The carrier then issues new data or “stat cards” to the rating bureau, which then uses the updated information to issue a new mod. It’s not the responsibility of the insurance company to know when your experience mod is being calculated, and most adjusters are two swamped to keep the rating bureau updated on claims, let alone point out the mod is going to be impacted. If you want a new mod, it’s up to you to go get it. Most insurance agents don’t know about aggravated inequity, and if they do, they simply don’t have the time to go chasing down new stat cards. And unless you can devote the time to it, it’s best to leave it up to your work comp –and experience mod – experts.
Med Only Vs Med + Indemnity
Whether you’re based in Minnesota or run a multi-state operation, there’s a rating bureau collfecting, processing, and analyzing your workers compensation data – and they’re using that information to calculate your experience mod – and how much you pay for workers’ compensation. In the state of Minnesota, it’s the Minnesota Workers’ Compensation Insurer’s Association (MWCIA). For multi-state operations, it’s the National Council of Compensation Insurance (NCCI). Whichever agency issues your experience mod, your mod normally includes 3 years of claims data, not including the most current year.
The insurance industry considers a 1.00 mod to be average. A mod below 1.00 means your claims experience is better than other businesses similar to yours in size and scope of work, and a mod above 1.00 means your experience is worse than many of your competitors.
The rating bureau looks at two types of claims when calculating your experience mod: Medical Only and Medical + Indemnity (Lost Time). For medical only claims, the insurance carrier pays the medical bills and does not need to cover wages due to lost time at work from the injury. For medical + indemnity claims, the insurance carrier pays the medical bills and wages for lost time from work.
To encourage getting injured employees quickly and safely back to work, workers compensation offers two benefits to employers: the 3-Day Waiting Period and the 70% Rule.
When an employee gets injured, the clock starts ticking: the moment an employee misses time from work due to an injury, the employer has 3 calendar days to get them cleared to return to work. Any time after that gets counted as lost-time and wages get paid. If an employee is out 10 days or longer, the carrier will then pay the first 3 days of lost time wages.
The 70% rule applies to claims kept medical only. When the rating bureau calculates your mod, medical-only bills are reduced by 70%. Medical + indemnity claims are not discounted and impact your mod calculation in full. Keeping a claim medical only will help reduce your experience mod and lower the cost of your work comp premium.
Keeping claims medical only starts with selecting an occupational health care provider who is familiar with your organization and physical requirements of your job positions. Next, implement a return to work policy and provide it to your health care provider. The provider will use your return to work policy and light-duty job descriptions to release your employee back to work, with restrictions as needed.
Equally important, your employees need to know if they are injured, they will be accommodated while they recover at work.
By keeping your workers compensation claims medical only, you will reduce your costs and improve your organization’s profit margin.
Return to Work
A Return to Work program is one of the most effective tools available to contain the costs of a work comp claim. Employees recover faster and more fully at work than they do sitting at home, they continue to collect wages without adding to the cost of the claim, and the employer does not have to spend extra time and money recruiting and training a new employee. A well-structured return to work program accommodates work restrictions, allowing the employee to contribute at a highly productive level, with minimal production loss. The employee is able to recover at work and potentially get back to their normal job while performing meaningful work. Employers also benefit from return to work:
· Improved employee morale
· Improved productivity
· Less training
· Limited overtime
· Reduced insurance premium
· Reduced chance of lawyer involvement
Employers also benefit greatly in terms of reduced costs. Here’s an example of the major impact return to work can have on the cost of a claim:
An employee gets injured and is cleared to return to work the same day, but with restrictions. The employer can accommodate the restrictions, and continues to pay the employee normal wages. No lost time wages are paid with minimal loss to production. When the claim gets factored into the employer’s experience mod, it is reduced by 70%, helping the employer pay less in premium.
An employee gets injured and is cleared to return to work the same day, but with restrictions. The employer is not able to accommodate restrictions and the employee ends up sitting at home, and the carrier pays lost time wages. The entire cost of the claim, which now costs more because of the lost time wages added to the medical bill, gets factored into the experience mod, increasing the amount the employer pays in premium.
24/7 Nurse Care Line
A 24/7 nurse triage line is another effective way to reduce the costs of work comp claims. Instead of waiting around for costly ER care, the employee can call the nurse line and get immediate medical assistance, any time of day, any day of the week, including weekends. The care line nurse assesses the nature and severity of the injury and provides treatment recommendations. If an injury requires treatment beyond first aid or self-care, the care line nurse can help schedule appointments with an occupational doctor. The care line nurse then coordinates communication between the employer, the employee, the doctor and the adjuster to make sure the care plan fits the injury, is being followed, and the proper documentation is being filed. Employee injuries are handled quickly and properly, reducing the overall cost of the claim.