Nothing Like Other Insurance
Workers’ compensation has been an incredible benefit for employees and employers since it was first implemented by law in Wisconsin in 1911. Workers’ compensation creates a streamlined system that allows employees to be compensated and not forced to take on powerful employers to secure benefits. Minnesota law helps insulate employers from lawsuits and forces coverages to be “no fault” so the courts are not tied up in costly and time-consuming litigation. Workers’ compensation also sets parameters and requirements for insurance carriers, to ensure they pay certain amounts by a given time period.
Workers’ compensation is far different from other lines of insurance an employer might purchase. If an employer has an auto or property claim, for example, there is no mechanism for the employer to pay back that claim to the carrier. You may pay a deductible, your rates may increase, but that’s it. However, with a work comp claim, every claim is paid back to the insurance carrier over time. This is due to the experience modification factor (or ex. mod). Based on a variety of factors, employers are assigned an experience mod on an annual basis, which is then used to calculate how much they will pay for work comp coverage. An employer with a mod of 1.00 pays 100% of their premium. Mods under 1 act as a credit and the employer pay less. Mods over 1 act as a debit and the employer ends up paying more. This is important to note, as every claim you file impacts your experience mod – and not just once, but every year for 3 years.
If the claim is kept medical-only, and the employee is able to return to work within the 3 day waiting period, the claim is reduced by 70% on the experience mod (this is also known as the 70% rule). But if the claim incurs even a few days of lost time, work missed due to the injury, and the insurance carrier has to pay wages (also known as “indemnity”), the cost to the employer can be astronomical. In addition, small claims can affect the experience mod at a much more costly rate than larger claims, due to what is known as the split-point. You pay back a certain amount of the claim in full, up to a given amount (“primary loss”) and the rest of the claim (“excessive loss”) you pay back at a discounted rate. You end up paying back a higher rate for claims under the split point than claims that go over.
It’s a lot of information all at once, and unless you take the time to learn about it (years in some cases), most of it will go straight over your head. Take a look at the difference in cost for a medical-only versus a medical + lost time (indemnity) claim:
An employee gets injured and incurs $1,000 in medical bills. Since the claim is kept medical-only, and no lost time wages are paid, the claim is reduced by 70% of the experience mod.
$1,000 – $700 = $300
$300 per year x 3 years = $900.
Since the claim appears on the experience mod for the next 3 years, the employer pays back $300 every year. Keeping claims medical only is good financing.
An employee gets injured and incurs $1,000 in medical bills, but also gets paid $100 in lost time wages (indemnity). Since lost time wages are paid, the full cost of the claim appears on the experience mod.
$1,000 + $100 = $1,100
$1,100 per year x 3 years = $3,300.
Since the claim appears on the experience mod for the next 3 years, the employer pays back $1,100 every year. Incurring indemnity, even just a day, is bad financing.
That’s a difference of $3,000 over 3 years. Now imagine if the medical bills were higher, and a week’s worth of lost time wages are paid.
Most employers do not realize the real costs of a work comp claim. Fortunately there are many processes you can implement to make workers’ compensation more than just a high-priced financing vehicle for claims.
Consumers have been inundated with insurance company commercials telling us to compare their rates with their competitors. It makes perfect sense. Comparing prices is our free market economy at work and our way of working the system. It’s our way of keeping the insurance companies accountable for their pricing so that we don’t get over charged. It’s not a bad way to think, but thinking it’s the “best” or “only” way to lower work comp insurance premiums sets your company up for a bad deal. Bid and quote may lower rates in the short term, but it’s like putting a Band-Aid on a broken arm – sooner or later it will need to get fixed.
The best way to lower your work comp rates is to have proper employee injury and mod management practices in place, including a hardy safety and loss control program. Next, because we live in the real world where, despite our best efforts, people still get hurt, we need a robust return to work procedure in place – including light duty, med clinic relationships, and proper claims management.
You may be thinking at this point, “This all sounds pretty complex” and it is. Believe it or not, this is just a fraction of the procedures that need to be in place to ensure you are paying the least possible premium and achieving the best possible outcomes for your company and your injured employees.
Safety managers and HR directors waste an inordinate amount of time bidding and quoting, and sometimes end up doing more work as a result of selecting a carrier based on price alone. Not only will your managers end up taking valuable time away from more important tasks, but mismanaged claims can drive up your experience mod, and your premium. The savings you get this year from price shopping will completely vanish and then some over the next several years.
A comprehensive employee injury and mod management program will produce the best possible premium without risking the wellbeing of your employees and your company’s bottom line.