Workers' Comp: Forgotten Expense?
The potential effect on an individual employer is heightened by the recent change in the split point calculation. The National Council on Compensation Insurance (NCCI) has dramatically increased the employer accountability for workers’ compensation claim costs. In most states, insurance carriers use NCCI’s Experience Rating Plan and its Experience Modification factor to adjust an employer’s premium. This is b
ased on that employer’s actual claims experience compared to expected average losses. Employers’ reported claims experience is separated by primary losses and excess losses. This separation is known as the split point. Historically, a primary loss was any claim up to $5,000. Amounts over $5,000 were considered excess loss. Only primary losses receive full weight in the rating formula. As average claim amounts have increased over time, the effective credibility of an employer’s Experience Modification has decreased because more claims have been subjected to the pooled excess loss portion of the formula.
In response, the NCCI has instituted a three-year transition to increase individual employer claims accountability:
Year 1: Effective 2013, the split point moved from $5,000 to $10,000.
Year 2: Effective 2014, the split point increases to $13,500.
Year 3: Effective 2015, the split point moves to $15,000 plus two years of inflation rounded to the nearest $500.
This change is designed to better reflect an employer’s ability to positively influence claim frequency and severity. Employers with favorable claims experience will see a decrease in cost, while employers with unfavorable claims experience will see an increase.
As medical providers attempt to make up for government losses through increased per-unit medical prices and services per injury, the cost shift combined with the split point reformulation will put added pressure on retailers. It will be critical to evaluate processes and procedures to avoid and reduce claims to achieve the most favorable experience modification.
Lessening the Effects
Analytics and tools are available to help operators better understand what drives their workers’ comp premium. These resources are designed to help companies identify areas for operational improvement. This drives an enhanced process while providing greater cost containment.
Most operators have been faced with reevaluating the makeup of their workforce as a result of health-care reform. Some companies were considering reducing their entire employee base to less than 30 hours, while others discussed moving all employees to full time. It is important to consider the effects that any significant adjustment would have on employee turnover. Over the years we have measured turnover and the effect it has on the workers’ compensation experience modification factor. There is a direct correlation between high turnover and high workers’ comp costs.
Retailers can employ several strategies to mitigate the effects of these costs. Focus on ways your organization can better avoid, reduce and transfer risk specific to workers’ compensation. An experienced insurance consultant who understands your industry can help usher you through this process. Your organization could benefit from a risk assessment that helps to determine if there are areas in need of operational improvement.