Insurance – Workers compensation EMR changes

AUSTIN – successful July 1, 2015, humankind will change, at least regarding workers' compensation knowledge modifiers in the State of Texas. Last year, Texas began a change to the National Council on Compensation Insurance (NCCI) for work comp rates and policy forms.

The direct impact is that rates will modify for most classifications, some by as much as 15%.  This could have a positive or unhelpful impact on your premium and experience modifier calculation.  The other impact related to the experience modification rate (EMR).

The worker's compensation knowledge modifier (AKA EMR or eMod) is a cover rating component intended to integrate the individual risk characteristics of each association based on prior claim experience into the worker's comp premium calculations. 

NCCI compiles claim data from insurance carriers by classification, providing a database for comparison and the ability to produce the EMR for each policyholder. Several changes will occur as part of the transition.  Two will have a significant impact on most every policyholder.

First, there are main changes in how medical-only claims utilized in the calculation.  NCCI’s knowledge rating rules allow for a knowledge rating modify of 70% for medical claims. This means that only 30% of a medical claim used in the knowledge rating calculation. This change will make it less beneficial to pay claims out of pouch quite than report them to the indemnity corporation.

 For instance: If you have a $1,000 medical-only bill for a cut or eye injury, only $300 will apply to the EMR.  This will create an extra emphasis on reducing lost-time claims. Once one penny is paid in indemnity payments, 100% of the claim will include in the EMR calculation.

    Second, “spilled points” are altering.
The “split point,” which is used to decide the “primary predictable losses,” will boost from $5,000 to $15,500. For those that are not conscious, there are two calculations used to produce the EMR. One utilizes total expected losses (capped at the maximum, which will be increasing to $230,500 per claim). This computation uses the actual wounded relative to the predictable losses multiply by a normalizing issue based on the size of the process. The smaller the association, the more normalized.  This helps decrease the bang of one claim on a smaller organization’s EMR.

The second computation includes the actual “primary wounded,” those that fall below the “split point” relative to the predictable primary wounded also capped at the “split point.”  Note that there is no normalize, this is a dollar for dollar ratio without taking into account the size of the organization. So, with the split point increasing from $5,000 to $15,500, if an organization has a higher than an average figure of claims above $5,000, their EMR will be adversely impacted. This could be a dramatic change.  In all other states, NCCI phased this increase in over three years. Texas is doing it all at once. 

So over the next pair of years, you can wait for some instability in your EMR. It will be very significant to work closely with indemnity company underwriters to help ensure the overall rates and premiums not disastrously impacted by the theatrical change in the EMR.  You may also want to return to the current claim reporting process and determine if paying medical-only claims remains a cost-effective way to control the overall costs. 

 Lastly, this affirms why the EMR is not an effective safety benchmark.  Just because an EMR moves over 1.0 due to the new rating methodology does not make an employer “unsafe.” There is a multitude of reasons for a high experience modifier not related to a safe workplace.

James J Moore founded a Workers’ Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996.  J&L’s mission is to reduce our clients’ Workers Compensation audit by using time-tested techniques.  J&L’s claims, premium, reserve, and E-Mod reviews have saved insurance carriers, TPA’s, and other companies over $6.8 million in earned premiums over the last three years.  J&L has saved numerous companies from bankruptcy proceedings.

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WORKERS' COMPENSATION PREMIUM REFUNDS POSSIBLE