Archives for November 2009

Insurance Carrier Or Agent Could Be Wasting Your Time

November 24, 2009 By JL Risk Management Consultants

Insurance Carrier Claim Reserve Meetings

Your agent or insurance carrier will be wasting your time for renewing policy. We have found that 60-70% of all Workers Compensation policies renew on January 1st of each year.

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That figure matches our client list percentages. We hear from some of our client that the agent and or carrier have set up a claims review meeting to make sure the reserves are correct for the coming policy year.

The service provided is not being questioned in this article. The timing of the service is what an employer needs to take heed over December claims review meetings if the employer’s policy ends in December.

If your company is in this situation, you may want to cancel the meeting under this circumstance. Your reserves on the loss runs have nothing to do with what your Experience Modification Factor (E-Mod or X-Mod) will be for the coming year. Your E-Mod or X-Mod has very likely been in place for months.

Most Workers Compensation claims peg to your Experience Modification Factor Six Months after policy expiration. This allow the set of claims to develop beyond just the regular policy period. If your policy renews in July or August, a December claims meeting may be fruitful.

Make sure you bring up any question on reserves in the right claims to cover in your claims meeting.

Feel free to email us with your Workers Compensation policy dates. We will email back the date that your E-Mod or X-Mod has been set in stone. This is a free service. We will charge nothing for it.

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Certificates of Insurance – Three Things To Remember

November 23, 2009 By JL Risk Management Consultants

Certificates of Insurance For Workers Compensation

Three things on Certificates of Insurance – This is a continuation of the last post.

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After reading the last post, you may be wondering if span of control over a worker determines if they are independent or not. I take the position that if a company or worker provides a certificate of insurance then the insurance carrier cannot charge premium for them as they have already paid for insurance once.

Why would the main contractor have to re-pay for the same coverage? If there was an accident, the subcontractor’s insurance would pay as primary. They have to pay to statutory limits. The main contractor’s insurance would never have to pay. If a carrier is never going to cover the subcontractors in question, why charge the main contractor a premium? I have received many emails from agents, underwriters, and premium auditors that indicate that my position is wrong. My bottom line is there is no law that says a worker/subcontractor/independent contractor has to be covered twice for the same incident.

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With that said – there are three ways for the main contractors to protect themselves from being overcharged for independent contractors –

1. Read my last post on independent contractors and try to follow the IRS rules as much as possible.

2. Always have current certificates of insurance on file from the subcontractors. If one expires while a subcontractor is working for you, then your Workers Comp coverage may be responsible for an accident or receive a premium bill for the subcontractor.

3. Always make sure your agent and premium auditor have a copy of all the current certificates of insurance for all subcontractors that are working on a job for your company. When the premium auditor requests the payroll information, provide him/her with the current certificates of insurance along with the your employees’ payroll information.

Up Next – The Ladder of Insurance

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Independent Contractors – Workers Compensation vs. IRS

November 19, 2009 By JL Risk Management Consultants

IRS Tips On Independent Contractor vs. Employee

One of the most controversial subjects in Workers Comp is how insurance carriers charge employers the proper premiums for independent contractors. Insurance carriers have begun to be very aggressive in declaring independent contractors as employees. The IRS, who has one of the best governmental websites, has provided a great guide on how employer can determine whether a worker is an independent contractor or employee. The following is from the IRS website. It is a summary of tips. I will post more on this subject in the next post.

IRS Summertime Tax Tip 2009-20

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If you are a small business owner, whether you hire people as independent contractors or as employees will impact how much taxes you pay and the amount of taxes you withhold from their paychecks. Additionally, it will affect how much additional cost your business must bear, what documents and information they must provide to you, and what tax documents you must give to them.

Here are the top ten things every business owner should know about hiring people as independent contractors versus hiring them as employees.

1. Three characteristics are used by the IRS to determine the relationship between businesses and workers: Behavioral Control, Financial Control, and the Type of Relationship.

2. Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.

3. Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.

4. The Type of Relationship factor relates to how the workers and the business owner perceive their relationship.

5. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.

6. If you can direct or control only the result of the work done — and not the means and methods of accomplishing the result — then your workers are probably independent contractors.

7. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.

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8. Workers can avoid higher tax bills and lost benefits if they know their proper status.

9. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8 – Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding – with the IRS.

10. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer’s Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS Web site or by calling the IRS at 800-829-3676 (800-TAX-FORM).

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Independent Subcontractors – Confusion on Classification Codes In NH

November 17, 2009 By JL Risk Management Consultants

Independent Subcontractors Crackdown in NH not Classification Codes

Some confusion on independent subcontractors versus Workers Comp classification codes occurred due to new New Hampshire rules.

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New Hampshire authorities have created a new Web site that allows the public to anonymously report companies believed to have misclassified workers as independent subcontractors. The site is part of an effort by the state’s Task Force for the Misclassification of NH Workers, a group comprised of the Departments of Insurance, Labor, Revenue and Employment Security in the state. The state created the task force last year to crack down on employers who misclassify workers.

We have received a few inquiries from our New Hampshire clients on misclassification due to the above press release that made it in all of the newspapers in the area. Misclassification has to do with independent subcontractors only.

This press release does not concern employers that may have accidentally classified one of their workers in the wrong category – for example – clerical/administrative that should have been classified as manufacturing. That is the function of the insurance carrier’s premium audit process to correct these situations.

The IRS website has a great guide on how to determine if the person working for your company is a truly independent subcontractor, statutory employee, or employee. The most important variable is the amount of control one company has over a contractor. The more controls you have in place for the independent subcontractor, you more likely the person may be an employee.

In the next article, I will re-post the IRS rules for the classification of independent contractors or employees. However, there is a difference between tax classification and workers compensation classification codes

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Pinnacol Opposes New Colorado Bills

November 16, 2009 By JL Risk Management Consultants

Pinnacol Opposes New Colorado Bills In State Legislature

Colorado’s Pinnacol opposes quite a few Workers Comp Bills this week. I have seen articles over the last week that Pinnacol has opposed a number of bills that are now in the Colorado legislature. Most of opposition from Pinnacol is justified in my opinion. However, there is one area that I do not agree with overall. I have seen this often in Workers Compensation claims adjusting units. I also see it in our file reviews for self-insureds and larger employers.

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Providing adjusters with incentives on the number of denied claims is somehow fertile ground for conflicts of interest. An incentive for very low settlements is also one that I have seen over the years. I do not agree whatsoever that adjusters’ denial performance should be rewarded. In one carrier where I used to be employed, there were actually trophies and plaques given out for denial rates and low settlements.

Adjusters are supposed to give unbiased opinions and decisions on Workers Compensation files. In our file reviews, we notice that most denials are either won by the injured employees or settled.

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I think the reserving efforts by adjusters should be monitored more than anything else they do in their job. Please feel free to use the search box on the right side of the screen using reserves as a search term to see my opinion on inaccurate reserving. I have posted many articles on the over-reserving of files and the harmful effect to employers. Under-reserving can also be harmful if not monitored properly.

Do adjusters need to perfectly estimate the reserves on the file at the outset of the claim? No – but they do need to monitor the reserves closely for changes in the file that would affect the reserves.

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Workers Comp Judges Ruin Tennessee Workers Comp System

November 11, 2009 By JL Risk Management Consultants

Bad Decisions By Tennessee Workers Comp Judges

In Tennessee Workers Comp system the Workers Comp judges made a few questionable decisions. A recent decision by a Tennessee Circuit Court judge may cause a landslide of permanent total disability cases. This is the second horrible court ruling I have seen in the last three weeks. This decision comes right after Tennessee has made makes great strides in controlling their medical costs.

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A General Motors employee is entitled to greater benefits than typically allowed because of the automaker’s restructuring under bankruptcy reorganization. The injured employee should have received eight years of workers compensation benefits at a maximum. The cap applies if the employee returns to work for the company where he or she was injured. The cap can be lifted, however, if the employee loses his or her job or the company changes ownership.

According to an article in Business Insurance – a Marshall County, Tenn., Circuit Court judge agreed with the workers comp claimant, essentially ruling that the cap should be lifted because GM filed for bankruptcy and formed a new company called General Motors Co. and known as the New GM. The case is expected to go to trial in January, but GM’s attorneys have told him they plan to appeal the decision lifting the cap. Friday’s ruling could affect hundreds of worker injury cases.

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If this case is allowed to stand, there would be a breakdown in the way that premiums were charged to employers in the normal insurance market. Often, I take the opposite view of the insurance carriers. This is one time that I can understand their concern. Workers Compensation policies were not charged for these extra long benefit payouts.

How does the insurance market respond to these unjustified adverse decisions for which they were not allowed to charged premiums? They will either increase their rates or quit writing business in the state of Tennessee. This will cause the market to harden and all of the medical costs controls in place will be nullified. I, the employers, and insurance carriers hope this will all be corrected on appeal.

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Workers Comp Class Codes 8810 and 8742 – Standard Exception Codes

November 9, 2009 By JL Risk Management Consultants

Workers Comp Class Codes 8810 and 8742 Revisited

The Workers Comp Class Codes 8810 and 8742 always generate a large amount of attention. I receive a large number of comments and questions every time that I post on the NCCI and State Rating Bureau Workers Compensation Codes 8810 and 8742. As we all know, the two codes usually represent the lowest rates for Workers Comp Class Codes 8810 and 8742 are also known as Standard Exception codes. The definition of Standard Exceptions can be found by clicking the Definitions Tab on the right side of the screen.

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There are a number of rules on Standard Exception codes – especially 8810 Clerical. One of the most common mistakes by employers is the employee or group of employees perform the duties allowed under the code – but not 100% of the time. As I have posted very often, if an employee spends one minute performing a higher risk task, then the employee will not be rated under the Classification Code 8810.

The insurance carriers at premium audit are very picky about this Class Code. There are some exceptions to the 100% requirement, but not many. It is very rare that the NCCI or State Rating Bureau will allow the premium to be allocated on a pro-rata basis on how many hours the employee or employees worked in each job.

Next up – Class Code 8742 – the most misunderstood classification code.

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Workers Comp Audits – ‘Tis The Season

November 6, 2009 By JL Risk Management Consultants

Upcoming Workers Comp Audits

Most of the Workers Comp Audits are performed in February and March. Why? Most policies expire January 1 of each year. The insurance carriers will finish most of the premium audits for these expired policies by the end of March. We receive most of our inquiries and phone calls in February, March, and April each year. They usually occur when the premium bill arrives with a 10 day notice to pay.

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I will cover some of the ways to help your company with the audits over the next few days and weeks. The main piece of advice that I can give is to not let a premium audit bill sit or ignore it. If you have any questions on the audit or bill, write the carrier a letter and fax it immediately. Telephone calls may not preserve your dispute rights.

Make sure that you have a legitimate concern when you dispute a premium audit or bill. The one quick and sure way to ruin the relationship that you have with your Workers Comp carrier is to dispute the bill or audit as being too high without justification.

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Some of the carriers will allow payment plans if you ask within the time limit on the bill. You may have a longer period than the 10 days to dispute the bill, but not to ask for a payment plan. I had just talked with a collection agent with ACE USA today. We were informed that one of our clients had been offered a payment plan, but no payments were ever made on the premium bill.

As I have mentioned often in the past, please do not use the dispute process as a way to delay paying a bill. This is a great recipe to having your current Workers Comp policy canceled. If you have any questions or premium audits or billings, please feel free to ask me. I may post them to the blog which will help everyone.

Ohio BWC Overspends $20,000,000 on Pharmacy Program

November 4, 2009 By JL Risk Management Consultants

Ohio BWC Monopolistic State Funds Mismanagement

I thought I would leave the Monopolistic State Funds alone as I had bashed them heavily over the last few months. I then read articles last week that pointed out a very large mistake by the Ohio BWC – Bureau of Workers Compensation. The overspending had to do with their pharmacy program since mid-2007.

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Inspector General Tom Charles says the BWC failed to take steps to recover $14.5 million in available rebates from drug manufacturers from 2005 to 2008. The BWC also spent another $5.5 million on medications that were not approved by the FDA for treating certain conditions. The “icing on the proverbial cake” is the report also says the bureau has taken steps to recover rebates but still lacks procedures for changing its drug reimbursement policies.

A spokesperson for the BWC said the program was in disarray when the new administration took over in 2007 and that there had been may improvements instituted in the pharmacy program. I would have suggested they enter into a PBM (Pharmacy Benefit Management) with an outside vendor immediately that monitors the rebates. Companies such as CorVel(R) and others have these programs in place. There are software companies that also provide this tracking information.

One can easily find a PBM or any other type of vendor by referencing the vendor page at the yearly NWCDC Conference in Vegas. I recommend attending the conference for companies or organizations searching for vendors. You can talk with a number of vendors that provide the specialty that you are considering adding to your Worker’s Comp program.

This is where I usually say that all monopolistic state funds should privatize. I will not say anything as there are 20,000,000 reasons to privatize on the table right now. In this economy, every $ is critical.

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Kansas Supreme Court Issues Opinion On Alternate Employment

November 2, 2009 By JL Risk Management Consultants

Kansas Supreme Court Issues Questionable Decision

The Kansas Supreme Court issued a bad opinion for Workers Comp this week.

Wikipedia – State of Kansas

Someone had emailed me this decision No. 99,369 CAROLYN BERGSTROM, Appellant, v. SPEARS MANUFACTURING COMPANY AND ZURICH U.S. INSURANCE COMPANY, Appellees. I thought that it was just another Supreme Court Decision that would have little impact on Workers Compensation rates in KS. As I read over the decision, three passages jumped off the screen:

The Board’s inquiry into whether Bergstrom made a good-faith effort to assume alternate employment is not supported by the plain language of the workers compensation statutes. The Kansas Workers Compensation Act does not require a worker to seek or accept such employment.
K.S.A. 44-510e(a) contains no requirement that an injured worker make a good-faith effort to seek post injury employment to mitigate the employer’s liability. Foulk, Copeland, and all subsequent cases that have imposed a good-faith effort requirement on injured workers are hereby disapproved.
Bergstrom’s second issue — that substantial competent evidence did not support the Board’s finding that she did not put forth a good-faith effort to engage in alternative employment that Spears offered her — is moot in light of our determination that the good-faith effort requirement is not a component of the workers compensation scheme.

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If you are a Kansas employer, this is the same type of decision that has caused almost all insurance carriers to pull out of certain states and instantly hardened the Workers Compensation insurance markets. One state, in particular – North Carolina – actually wrote in an early 1990’s decision that this was “social legislation.” I may be premature in saying that this decision will be detrimental to Kansas’s Workers Compensation system. However, I have seen this type of decision in the past and the results had to be corrected immediately by the legislature.

Florida and California – Hard Market May Be Starting

November 2, 2009 By JL Risk Management Consultants

Florida and California Hard Market

Has the Hard market in Florida and California Started? One of the hallmarks of what I consider the start of a hard market is when one of the major players in the Workers Comp business pulls back on writing coverage. A few articles this week have pointed out that Liberty Mutual (R) has begun to not write as much coverage in one state with a possibility of doing the same in another state.

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I have always considered the moves by Liberty as the direction the market is headed in a certain state. They are now reported to not write as many polices in California. Liberty has also considered Florida as a state to watch closely to see whether a pullback is in order. Over the years, this seemed to be the start of a hard market in a certain state.

A hard Workers Comp market usually begins when there are less insurance carriers competing to write policies in a certain state or region. The carriers will no longer undercut one another to get the business on the books. This leads to the underwriters becoming much more stringent in deciding to cover a risk. Certain types of employers such as trucking companies and temporary labor suppliers may be turned away by all the insurance carriers in a certain state or region.

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This is a heavily debated point as some insurance gurus will refer to investment income, negative insurance laws or court decisions, or a change in a state’s business environment as the reason for a hardening. I have stuck to the basic supply and demand theories. When a product is still desired by the same number of people/companies and the supply is restricted, the price increases quickly. This happened in CA in the early 1990’s. If there are any more updates, I will post them as I see them.