Archives for January 2013

Five Things You Must Do If You Have Workers Comp Career

January 31, 2013 By JL Risk Management Consultants

Five Ways To Survive Your Workers Comp Career

Your Workers Comp career changes every year. Interestingly enough, last week when I included the Five Ways To Prepare For The Death Of Workers Comp in the newsletter, more attention was paid than when I originally wrote the article in 2010. One cannot ignore the intrusion of the Federal Government into Workers Comp – Medicare Set Asides.

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Many settlements now have to be approved by CMS. Would you have thought that would occur even 10 years ago? The answer is a definite no. There have been many changes even in the last two years in the Workers Comp landscape from prepackaged medications given out by physicians to the beginning of the full adoption of Obamacare.

What would you do if tomorrow you no longer had your position? These will apply whether you are in the sales, safety, actuarial, risk management, or claim areas. Vendors should also heed this advice. The five areas to think over for your Workers Comp career are:

You cannot just sit behind your desk any longer and think you have a safe job until retirement. Property Casualty reductions in staff numbers are astounding. Seniority really means little in the Workers Comp marketplace.
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You must network, network, and network more. If you are not vising LinkedIn every day and have a less than 100% completed profile, you are cheating yourself. There are many groups that you can join to not only read, but participate in the conversation.
Cross-training is now a great idea. There are many newer acronyms for cross-training. If you are a one trick pony in the circus, what happens when they decide to remove your act? There are many aspects to Workers Comp that you may be asked to explore IF you have the qualifications.
Attend conferences even if it is on your own time and dime. Employers are rightfully cutting back on sending employees to conferences. There are many low-cost or free ones in your area. This goes hand-in-hand with #2 in this list. I have recommended to unemployed workers that they go to conferences and drop off resumes with people working at the booths. This is better than sending a resume to some anonymous email. Some conferences have discouraged resume-dropping. Check to make sure it is OK with the sponsors.
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Educate yourself to the nth degree and not just in your specific area. An AIC (Associate in Claims) is great. Now, can you add on an ARM or even the more intensive CPCU? The same can be said for an agent with a CIC. For your resume or personnel file to be pulled out of the massive stacks, you need to beat out the competition. You also can add your designations after you name. Check out LinkedIn closely for the “letters after your name effect.” They are noticeable by all that read info on you.
Bonus – Be flexible as you may be asked to take over part of the duties of a job that may not be filled again due to the recession. This is now very true in governmental positions.

There are many other suggestions. I invented this list after seeing many unsolicited resumes from former WC and Property Casualty employees.

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Premium Auditor Asked Employer To Sign Audit Agreement

January 30, 2013 By JL Risk Management Consultants

Audit Agreement – Premium Auditor Asked Employer To Sign Off ???

The Audit agreement form has been a rather controversial topic. This question was emailed in earlier this week. We had our yearly Workers Comp premium audit last week. The insurance company’s auditor actually worked for a premium audit company and was not a direct employee of the insurance carrier.

Two businessman Audit Agreement shaking hand

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After the auditor completed the audit, I, as CFO was asked to sign off on an audit agreement form where I agreed to pay the premium owed after the audit and that I agreed to the audit. The form is sitting on my desk. Should I sign it? What are the repercussions if I do not sign it?

This is a disturbing trend that I have heard on the Workers Comp airwaves over the last few years. There seems to be not even an audit company, but certain auditors in certain companies that have used this tactic.

I am not sure that it is even legal to ask you to sign anything after an audit admitting that you owe the $. In all Workers Comp policies, there are rules about Workers Comp premium disputes. I have never personally seen in any policy the requirement to sign an agreement to the audit results. There are also many state laws, rules, and regulations that would seem to prohibit that request. Of course, if you sign it, then the policy and rules/regulations will not matter.

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Your Workers Comp policy may be unique. I thought I would reach out to a few premium auditors and ask their opinion on if they have ever requested this sign off. I also asked if they knew of any auditors, auditing companies, or insurance carriers that requested a signed agreement.

The answers were unanimously – no. According to the insurance premium auditors if the premium bill was in collections for a long period of time, there are some agreements that could be signed such as a partial payment arrangement or if the file was in litigation to stop the collection process.

I am not saying NEVER on this one. There may be some specialized policies where this may occur, but it would still be in the policy. I suggest immediately reading the policy front to back.

By signing the agreement, you will also be giving up certain rights as a policyholder.

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As I mentioned previously, I have never seen in any policy the requirement to sign off on a premium audit whatsoever. There are a few exceptions that I noted in the last post.

An employer would give up most of their rights by signing such an agreement. These rights would include:

The right to later question the audit is eliminated. If you agreed to the audit, it is too late to even consider a premium audit dispute. Get the out the checkbook and pay up.
Some of the agreements may require that your company also give up all rights to the present audit and all of the past ones. If you find a mistake in your next policy or the current one, you cannot ask for premium refunds on past policies.
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Your company may be required to pay the premium audit bill very quickly according to the auditor’s side agreement.
The insurance carrier may possibly still be able to audit your past and present policies and charge your company more premium. This would all depend on the agreement you signed with the auditor.
Your company may have to pay all or a portion of the audit findings on the spot. This is rare, but it does happen.

Please note that most premium auditors are good people just doing their jobs. I cannot imagine why these good people would want you to sign such an agreement.

There are certain instances where an agreement might be appropriate, but not on a just-completed workers compensation premium audit.

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Are Workers Comp Premiums Just Another Type of Tax?

January 28, 2013 By JL Risk Management Consultants

Workers Comp Premiums – Type of Tax

Yes, Workers Comp premiums could be thought of as a tax of sorts. The similarities between taxes and Workers Compensation were spelled out in a previous article. Unemployment insurance (UI), which can be viewed as a tax, is even more similar. Below is North Carolina’s explanation of how UI is calculated.

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The rules on UI tax calculation that is similar to Workers Comp has been underlined. The underlined passage will be covered in tomorrow’s post. The complete text on UI insurance calculation is here.

What is Unemployment Insurance Tax?

Unemployment Insurance tax is a tax on employer payrolls paid by employers and used to provide funds from which unemployment benefits are paid to qualified unemployed workers. Unemployment tax is not deducted from employee wages.

Unemployment tax payments made by employers are transferred to the Unemployment Insurance Trust Fund in Washington. Employers receive credit for tax payments which are posted to an experience rating account.

These credits are used to determine the rate schedule from which the tax rates for contributory North Carolina employers are assigned on an annual basis. Each year a prorated share of the interest earned on this trust fund is added back to the experience rating account of each North Carolina employer having a credit balance.

Employers subject to North Carolina unemployment tax pay quarterly tax on a percentage of their payroll. Most newly liable employers will use the standard beginning tax rate as shown below. Employers are notified of their official tax rate by letter if determined liable for unemployment insurance tax.

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Experience Rating Accounts

North Carolina Unemployment Insurance tax rates are determined under an experience rating system. An Unemployment Insurance tax account is established for each employer determined liable under the Employment Security Law.

The employer’s account is initially assigned a standard tax rate prescribed by law. After approximately two years, an employer’s tax rate is determined annually based on experience. Experience rating is affected by payroll, tax paid, timeliness of payments and UI benefits charged against the employer’s account. Based on economic conditions, an employer’s tax rate could be as low as .00% and as high as 6.84%.

In November of each year, active employers will be mailed Form NCUI 104, Unemployment Tax Rate Assignment, showing the calculation of the tax rate for the succeeding calendar year. Experience rating accounts are maintained for rating purposes only. This statement requires no payment, nor can it be used to pay tax due. The tax rate shown on the Form NCUI 104 becomes final unless protested in writing prior to May 1 of the following year.

NOTE: No employer’s contribution rate shall be reduced below the standard rate for any calendar year until its account has been subject to being charged with benefits for at least 12 calendar months ending July 31 immediately preceding the computation date (August 1) or its liability extends over a period of all or part of two consecutive calendar years.

The system allows an employer to make a voluntary contribution to reduce the tax rate. Voluntary contributions must be made within 30 days following the date Form NCUI 104 was mailed. A check for the voluntary contribution must be made payable to the Division of Employment Security and mailed to:

RALEIGH, NC 27611-6504

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How are tax rates calculated?

Each employer’s tax rate is assigned based on the rate schedule in force and his/her own experience. Experience includes length of liability, tax payments, taxable payroll, timeliness of payments, and benefit payments charged. Form NCUI 104 is a summary of these factors. Use the DES site, www.ncesc.com, Business Quick Links, to view your tax rate and benefit charge information and to calculate a voluntary contribution.

Each employer’s payroll for the last 3 fiscal years as of July 31 of the current year is divided into the applicable credit or debit balance to yield a ratio. This ratio is applied to the applicable rate schedule and determines the tax rate.

Tax Rate Tables

Can the tax rate be protested?

Written protests must be postmarked between the statement mailed date and May 1st of the year to which the tax rate applies. Valid protest must be signed by an owner, partner, or corporate officer. An example of a valid protest is one in which an error has been found in the figures used for calculation of tax rates.

Maintaining Adequate Records

All employers must maintain records for each person they employ (including corporate officers). These records must show:

The employee’s name and social security number.
The beginning and ending dates worked.
The amount of wages paid.
All other payments made to the employee including vacation pay, tips and the reasonable value of board and lodging or other remuneration for services.

Records must be maintained for at least five years and be available for inspection by authorized personnel of the Division of Employment Security.

Who is Liable for Unemployment Tax?

A general business employer with at least one worker in 20 different calendar weeks during a calendar year, or with a payroll of at least $1,500 in any calendar quarter;
An employer who acquires substantially all or any portion of a liable business in North Carolina;
If approved by the Division, an employer voluntarily choosing coverage not required by law;
An employer subject to FUTA;
A 501(c)(3) non-profit organization with at least four workers in 20 different calendar weeks during a calendar year;
An employer with agricultural labor of 10 or more workers on any day during 20 different weeks in a calendar year, or with $20,000 or more in gross payroll for any calendar quarter;
An employer with domestic employment in a private home, college club, fraternity or sorority with a payroll of at least $1,000 in any calendar quarter;
A state or local government agency or department;
An employee leasing company or temporary help company that, under contract, supplies individuals to perform services for clients or customers.
Any Indian Tribe as defined in the Federal Unemployment Tax Act, 26 U.S.C. § 3301 et seq.

One can see from the above UI Tax calculation that workers comp premiums are calculated similarly. An employer’s Experience Mod is calculated similarly which has a huge effect on workers comp premiums.

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Assigned Risk Plans – Blocked By Premium Bill Dispute

January 24, 2013 By JL Risk Management Consultants

Assigned Risk Plans and Premium Bill Dispute

Some assigned risk plans may become quite complicated as in the case of a reader that found themselves in a quandary.

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A Tennessee reader of our blog that found us in a Google search asked this question. We are about to renew our Workers Compensation policy. Our premium skyrocketed as we were forced into using an Assigned Risk Plan. What is the Assigned Risk Plan? How did we get there? How do we get out of it? Why are we not allowed into it with a premium dispute pending?

The Assigned Risk Plan (ARP) in Tennessee is also called the Tennessee Workers Compensation Insurance Plan. These rules are the same for basically all the assigned risk pools. These are some very basic requirements:

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Must be unable to obtain coverage in the voluntary market at a competitive price. Records of declinations (minimum of 2) must be provided, if requested, during the policy period.
Presumed good faith eligible for the Plan in the absence of clear and convincing evidence to the contrary.
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Must not have any outstanding premium obligations or other monetary policy obligations on any previous workers compensation insurance that is not subject to a bona fide premium dispute.
Must comply with reasonable health, safety, premium audit, or loss prevention requirements.
Must allow access to its records for audit or inspection under the policy.

ARP’s are usually the insurer of last resort in most states. Your company may not be in the ARP due to your E-Mod. Insurance carriers may have decided to not write a certain market in a certain states such as dry cleaners, for example.

The current writing carriers for the Tennessee ARP are Liberty Mutual Insurance Company, Berkeley Risk Administrators, Hartford Insurance Company, Employers Insurance of Wausau, and Companion Property and Casualty Group.

New York Liberty Assigned Risk Plans Picture

Wikipedia – William Warby

Your E-Mod was high enough to be a concern, but not high enough to cause you to going into the ARP. Insurance carriers may consider certain types of employers as too risky to underwrite, even with a lower E-Mod.

The reason for the increased premium is that your company was assigned to a participating carrier. Not all of the insurance carriers agree to underwrite companies in the ARP. The higher premium is due to the carrier having to write you an insurance policy without having any choice in the matter.

These sharp increases in premium can be very expensive. There are certain classification codes that differ by over 400% between the regular insurance market and the ARP.

The reason for your company being blocked is due to the fact that your pending premium dispute may not be documented properly or that you do not have a bona fide dispute with your previous or current carrier. What have you supplied to Assigned Risk Pool in reference to your dispute? Please make sure you have not let your policy lapse or your company may incur a very heavy fine.

Many employers have found it difficult to remove themselves once they have been placed in the ARP. Alternatives to the ARP are:

Self Insurance – must be a larger company to self insure
Captives – a good alternative, your company is still self insured and must bear the brunt of the risk, rent-a-captive is an interesting option
PEO’s – growing in popularity, a good choice IF you work with the right companies. There have been many unscrupulous PEO’s in the news over the past few years.

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California Employer Question On Experience Modification Factor (XMod)

January 23, 2013 By JL Risk Management Consultants

California Employer Question

A California employer emailed in this question last weekend. “We are a medium-sized employer (dry cleaner) in central California. Our Experience Modification Factor increased significantly over the last few years. The increase seems to have resulted in our Workers Comp premiums rising significantly. What is in included in the Experience Mod calculation? Is this the same as the Mod that is produced by NCCI?”

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The Experience Modification Factor in California is called an Xmod or X-Mod. It has the same basic function as NCCI’s Emod. E-Mods and XMods individualize the riskiness of an employer’s work environment as compared to other employers with the same job types or functions.

The XMod is produced by California’s Workers Compensation Independent Rating Bureau (WCIRB) and only applies to employers in CA. The calculation of the XMod differs from NCCI’s E-mod calculations.

NCCI has recently significantly changed the way E-mods are calculated. The WCIRB did not follow this change with any formula modifications. The WCIRB defines an X-Mod as:

Dollar symbol California Employer shadow reflection

Wikimedia Commons – Svilen.milev

a comparison of the loss or claims history of one company to all other companies in the same industry that are similar in size. Generally, an experience modification of less than 100% reflects better-than-average experience, while an experience modification of more than 100% reflects worse-than-average experience. Accordingly, an experience modification that is greater than 100% usually increases the cost of your workers’ compensation insurance premiums, while an experience modification that is less than 100% usually decreases the cost of your workers’ compensation insurance premiums.

The XMod is calculated by comparing the actual losses to the expected losses. Actual losses are the claims, both medical and indemnity, that an insurance company must pay as a result of a work-related injury. Expected losses represent a business’s share of the annualized cost of projected losses for the industry in which it operates. In other words, given its classifications and payroll, expected losses represent the statistical average losses that a business of a similar size is expected to incur. Given two businesses within the same industry, the larger the business, in terms of payroll, the more losses that business is expected to sustain.

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If you were to read the NCCI’s definition of an E-Mod, you would see almost the same definition. The one main area of difference is what is called the Primary Loss. In the NCCI states, before 2013, the primary part of the loss was set at $5,000. The WCIRB has set their primary loss at $7,000.

The primary portion of the loss is more heavily weighted into the NCCI’s or WCIRB’s formula. In essence, your company will pay premium at a much higher rate for the first $7,000 part of a claim than the part of the claim that exceeds $7,000 known as the Excess Loss.

If you want to see why it costs more, you should check Primary vs. Excess Loss. The X-Mod formula is not included in this post due to readability and fit on the page.

There are other factors such as class code rates and payroll that may also have compounded your premium increase.

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NCCI – Massive New Study On Long Term Claims

January 22, 2013 By JL Risk Management Consultants

Massive New Study On Long Term Claims

NCCI has recently published what I would refer to as a very hybrid study of the long term medical costs on Workers Comp claims. Claims data is usually examined by NCCI, the WCIRB (CA Rating Bureau), and other rating bureaus with a corresponding time frame of just a few years.

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The 35 jurisdictions for which NCCI provides ratemaking services are AK, AL, AR, AZ, CO, CT, DC, FL, GA, HI, IA, ID, IL, KS, KY, LA, MD, ME, MO, MS, MT, NE, NH, NM, NV, OK, OR, RI, SC, SD, TN, UT, VA, VT, and WV. The seven independent bureau states for which NCCI collects the Medical Data Call are IN, MA, MN, NC, NJ, NY, and WI.

The data time frame actually covered claims from the 1980’s and forward. The amount of data had to have been huge. One of the main quotes from the study, “It is likely that more than 10% of the cost of medical benefits for the workplace injuries that occur this year will be for services provided more than two decades into the future. That percentage has been growing and might continue to grow. ”

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At first glance, that may seem to be an astounding figure until the complete Workers Comp landscape is examined including the very settlement- detrimental Medicare Set Asides. The settlement timeframes have been altered as paying upfront very heavily for medical services that may never be incurred has caused many carriers to not push for settling the clams on a full closure basis.

In other words, why pay upfront for an expense that may never occur? This paradigm shift was initiated by the CMS (Center for Medicaid/Medicare Services) having to approve many of the Workers Comp settlements. Many claim staffs had to shift their way of thinking on closing out large Workers Comp files.

One could have seen the growth of the long term medical files as claim adjusters started recommending leaving the medical portion of a file open forever for palliative care.

Two of the larger cost drivers for long term files were prescriptions and home health care services. Prescriptions were even seen as possibly in the future becoming 50% of the long term medical costs of older files.

One assumption negated by NCCI was that older workers were the ones that would be responsible for a large majority of the costs. This was proven as a fallacy as injured employees less than 60 years of age accounted for a very small portion of long term medical treatment costs.

The finding is in line with a study published last year by NCCI that proved older worker accident rates are much lower than younger workers.

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IRS Assists in Subcontractor vs Employee Determination

January 17, 2013 By JL Risk Management Consultants

Subcontractor vs Employee Determination

Determining whether someone that assists your company is an employee or subcontractor can be tedious as best.

There are many articles in this blog that cover subcontractors including the Ladder of Insurance (c).

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The Internal Revenue Service has a great series of videos for small business including one for making this determination. Lesson 6 is the one that one that covers subcontractors.

Even though each state has a definite set of laws on employees/subcontractors, the IRS website covers the comparison very thoroughly in easy to understand modules.

Below is the complete IRS webpage on subcontractors and employees.The IRS, of course, is mainly concerned with withholding taxes. However, the guide can be used for a quick reference on employee/subcontractor determinations. The IRS last updated the info below on 1/10/13.

Independent Contractor (Self-Employed) or Employee?

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It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors.

Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.

Select the Scenario that Applies to You:

I am an independent contractor or in business for myself. If you are a business owner or contractor who provides services to other businesses, then you are generally considered self-employed. For more information on your tax obligations if you are self-employed (an independent contractor), see our Self-Employed Tax Center.
I hire or contract with individuals to provide services to my business
If you are a business owner hiring or contracting with other individuals to provide services, you must determine whether the individuals providing services are employees or independent contractors. Follow the rest of this page to find out more about this topic and what your responsibilities are.

Determining Whether the Individuals Providing Services are Employees or Independent Subcontractors

Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The person performing the services may be –

An independent contractor – full definition
An employee (common-law employee)
A statutory employee
A statutory nonemployee

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

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Common Law Rules

Facts that provide evidence of the degree of control and independence fall into three categories:

Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

Form SS-8

Wikipedia

If, after reviewing the three categories of evidence, it is still unclear whether a worker is an employee or an independent contractor, Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (PDF) can be filed with the IRS. The form may be filed by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker’s status.

Be aware that it can take at least six months to get a determination, but a business that continually hires the same types of workers to perform particular services may want to consider filing the Form SS-8 (PDF).

Employment Tax Obligations

Once a determination is made (whether by the business or by the IRS), the next step is filing the appropriate forms and paying the associated taxes.

Forms and associated taxes for independent contractors
Forms and associated taxes for employees

Employment Tax Guidelines

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There are specific employment tax guidelines that must be followed for certain industries.

Misclassification of Employees as Subcontractors

Consequences of Treating an Employee as an Independent Contractor

If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker (the relief provisions, discussed below, will not apply). See Internal Revenue Code section 3509 for more information.

Relief Provisions

If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker. You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. See Publication 1976, Section 530 Employment Tax Relief Requirements (PDF) for more information.

Misclassified Workers Can File Social Security Tax Form

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Workers who believe they have been improperly classified as independent contractors by an employer can use Form 8919, Uncollected Social Security and Medicare Tax on Wages to figure and report the employee’s share of uncollected Social Security and Medicare taxes due on their compensation. See the full article Misclassified Workers to File New Social Security Tax Form for more information.

Voluntary Classification Settlement Program

The Voluntary Classification Settlement Program (VCSP) is a new optional program that provides taxpayers with an opportunity to reclassify their workers as employees for future tax periods for employment tax purposes with partial relief from federal employment taxes for eligible taxpayers that agree to prospectively treat their workers (or a class or group of workers) as employees. To participate in this new voluntary program, the taxpayer must meet certain eligibility requirements, apply to participate in the VCSP by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS.

References/Related Topics

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Proper Worker Classification (Audio)
Virtual Small Business Tax Workshop – Lesson 6
The Virtual Small Business Tax Workshop is composed of nine interactive lessons designed to help new small business owners learn their tax rights and responsibilities. See Lesson 6 for information on how to identify an employee versus an independent contractor.
IRS Internal Training: Employee/Independent Contractor (PDF)
This manual provides you with the tools to make correct determinations of worker classifications. It discusses facts that may indicate the existence of an independent contractor or an employer-employee relationship. This training manual is a guide and is not legally binding.
Form SS-8 (PDF)
Publication 15-A (PDF) has detailed guidance including information for specific industries.
Publication 15-B supplements Circular E (Pub. 15), Employer’s Tax Guide, and Publication 15-A, Employer’s Supplemental Tax Guide. It contains specialized and detailed information on the employment tax treatment of fringe benefits.
Businesses with Employees
Hiring Employees
Know Who You’re Hiring – Independent Contractor (Self-employed) vs. Employee

Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit theTax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.

Page Last Reviewed or Updated: 10-Jan-2013

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Five Ways ObamaCare and Workers Comp Are Similar

January 17, 2013 By JL Risk Management Consultants

Five Ways ObamaCare Could be ObamaComp(c)

The five ways Obamacare and Workers Comp are similar may come as a shocker. The Wall street Journal very recently published an article on how the Affordable Care Act will affect health insurance premiums. There seemed to be a few items in the Act that sounded very similar to Workers Comp.

Wikimedia Commons – Obama

The first similar component is health insurance costs and Workers Comp medical treatment fees both being indexed or based on the Medicare/Medicaid fee schedules. A large majority of states now use fee schedules to reimburse providers for medical treatment.

The second similarity is in states with no fee schedules, the Usual and Customary charges are indexed on a Zip Code or address. The Usual and Customary charges seemed to be very similar to the community-based pricing requirements of the Affordable Care Act.

The final three comparisons are best compared by an excerpt from the article. The following three components reminded me of the same Workers Compensation insurance requirements.

Central to ObamaCare are requirements that health insurers

Accept everyone who applies (guaranteed issue)
Cannot charge more based on serious medical conditions (modified community rating)
Include numerous coverage mandates that force insurance to pay for many often uncovered medical conditions.

Workers Comp insurers have almost the same requirements:

Accept everyone that applies indirectly as all employees are covered. Workers Compensation insurance is a guaranteed issue policy of sorts
Cannot charge more for employees with serious pre-existing conditions. Workers Comp insurers cover the employees regardless of prior medical condition
Are sometimes forced to cover injuries that may have not been work-related

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Seven Premium Audit Resolutions For Smooth Premium Audit

January 16, 2013 By JL Risk Management Consultants

Seven Premium Audit Resolutions

The seven premium audit resolutions to reduce stress are below.

As the premium audit season rolls around every year, I usually post quite a few articles on the subject. The reason that this time of the year is called premium audit season is that most policies renew and expire on January 1st.

Picture Of Notes And Pen Seven Premium Audit Resolutions

Wikimedia – Photos public domain.com

Your company does not want to stand out from the pile of audits that the premium auditors face every week. For the most part, Workers Comp premium auditors are overloaded as are most insurance company personnel. They are usually on a very tight schedule.

Premium audits are usually scheduled not long after policy expiry. Even if your current policy did not expire on January 1, the list can be useful whenever you are audited in the upcoming year.

The seven best premium audit resolutions for your company are:

Organization is the key. An unorganized group of records will immediately indicate to the auditor that the audit should at least be yellow-flagged if not red-flagged. How can your company have accurate payroll and company records if they cannot at least be pulled together for a premium audit?
Read the audit records request letter very carefully.
Wikimedia Commons – Ragesoss
An easy way to start the records organization process is the letter the insurance carrier’s audit department will send usually 21 – 30 days before the audit appointment. Almost all policies require your carrier to allow enough time for your company to amass the records. You can ask for the audit to be delayed if the records request letter does not arrive or runs very late.
Spreadsheet programs are crucial. The best method to undertake #1 above is to use a spreadsheet (usually Excel) program. You can use the audit letter #2 as a basis for records organization.
Spreadsheet/audit info must be accurate. One of the pet peeves of a premium auditor is the spreadsheet and the supporting documentation does not match. Checking to make sure the info matches will save the auditor and your company a large amount of time and effort retracing the requested info.
An office contact will save many headaches. Make sure you have one and only one person to answer any of the premium auditor’s questions and to provide any additional information. The contact must understand the records that were provided to the premium auditor; the company’s operations in full; and the company financial records.
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Review your premium audit bill very closely. The bill should arrive within 21 days after a premium auditor has finished your audit. If there is anything in the bill that concerns you, then you should contact the carrier (by letter). The time clock is running once the premium bill is issued. The explanation for any additional charges should be attached to the bill. Only contacting your agent may forfeit some of your rights. The policy spells out what you need to do if you thing your company has been overcharged on premiums. The policy is a contract you must follow.
If you feel that you are in over your head or are running out of time on a premium audit bill grace period, you may want to consult a non-agent expert. There is nothing wrong with not understanding the policy, audit, or premium audit bill. They can be highly complicated in certain circumstances.

Experience Mod Reduction Plans – Are They Really Worth It?

January 16, 2013 By JL Risk Management Consultants

Experience Mod Reduction Plans Can Be Preservation Plans

The Experience Mod Reduction Plans – are they really worth it ? Yesterday, I was presented with two different employers’ loss runs and Experience Modification Factor Worksheets (Mod Sheets). One employer had a good E-Mod of .86. The other employer had an EMod of 1.3.

Black board as Experience Mod Reduction Plans

Wikimedia Commons – Masae

The Mod reduction plans for each of the two employers would not vary that much. The function of one mod reduction program was to reduce the Mod below 1.0 so the employer could bid on projects. Many contractors now require a sub-contracting company to have a Mod of less than 1.0.

Even though the second company had a mod of .86, I would also recommend not only an Emod reduction program, but an Emod preservation program. What would be involved with an Emod preservation program?

The answer to the question from the post title is under almost all circumstances, Mod reduction or preservation programs will almost always save an employer $. The Mod preservation program looks to keep the employer’s low mod in place by performing almost the same tasks as a Mod reduction program.

The Emod preservation program’s importance can be justified with almost the same justification when keeping a grade in school from falling from an A to a B. The same amount of effort has to be expended to preserve an A as it takes for a B student to raise their grade to an A.

If your company has an EMod of .86, then you are still going to use a very large amount of effort to keep the Mod from increasing to .9 and then subsequently to a 1.0.

Clients Experience Mod Reduction Plans with similar E-mod

Wikimedia Commons – Dell’s Official Flickr Page

We recently had two trucking clients with similar Mods have their Emod increase from .89 to almost 1.1 within two years. Both clients had relaxed their:

Safety programs
Loss run reviews
EMod reviews.
Claim reviews

The Emod jump from .89 to 1.1 is very significant. That means at a minimum, each company’s workers comp insurance had increased a ball park estimate of 20%.

I have also found a much higher degree of effort required when assisting clients in preserving a lower Mod than decreasing a higher Mod. The higher Mods will usually have “red flag” areas to identify and work on very quickly.

This is not so with a lower Emod clients as there may be no “red flags” for justifying a rapidly increasing Mod. Our low Mod clients have to use their crystal balls to proactively handle their claims as there are no obvious areas to examine for a reduction.

The bottom line is that if your company has a low Emod, there is much more room for it to become worse (higher) than an employer with a higher Emod.

Premium Audit Bill and Policy Renewal Conondrum

January 9, 2013 By JL Risk Management Consultants

Changing Carriers Due To Premium Audit Bill Can Be Costly

Our Workers Comp premium audit bill surprisingly increased our premium by 26%. We do not necessarily agree with the audit and want to change insurance carriers. Due to the timing of the audit, we are already two months into our next policy. Can we dispute the audit and cancel our renewal policy?

Graphic of puzzle with dollar sign printed Premium Audit Bill Concept

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We receive this question often. There seems to be two issues here – one of the premium audit dispute, and secondly canceling a policy midterm. Both could turn out to be a very expensive proposition if not done properly.

This blog contains numerous posts on premium audit disputes. There are time limits on disputing your premium audit bill. Your company has to be very careful in just disputing a premium audit bill because it looks large. Reviewing the bill and audit may point out a reasonable explanation for the increase.

If you review the bill and associated premium audit and still feel there are overcharges, you can dispute the bill. It is a very wise move to have a basis for your dispute. Your company may even owe a larger bill if the dispute is not done properly.

The second concern is one that has to be handled delicately. Your agent may have already explained to you there are short rate penalties that can be substantial. An assessment of the short rate penalty revolves around a complicated formula for computing the carrier’s fee.

If your company is already six months into your new policy, the penalty can be very substantial. If your company is only two months into a policy, the cost may not be that high to switch.

Searching for a new policy takes time. The new carrier will know that you had canceled out before policy expiration. The search for a new WC policy may take a few weeks if not months.

Arrow Increase diagram and dollar sign Premium Audit Bill Graphic

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There is an inherent delay in receiving the premium audit bill for the prior policy while the next year’s policy is being renewed. The premium audit process cannot finish before your next renewal as the carrier needs to have a complete year of payroll and documents. The normal WC insurance cycle does not provide for an audit 11 months into a policy.

If you are not a fan of the premium audit and policy renewal process, there are many alternatives such as pay-go or PEO‘s. These two options have basically no audits and/or you pay for the WC coverage every payroll period. Both of those options have been growing in popularity over the last few years. There is a caveat that these two types of WC coverage must be placed properly. If not, your company may end up paying much more than for a regular WC policy.

Self Insureds – Stop This Costly Hidden Workers Comp Mistake

January 7, 2013 By JL Risk Management Consultants

Self Insureds Need To Consider Their Reinsurance Purchase

One of the most costly mistakes with Workers Comp self insureds is not putting enough effort into searching for and securing reinsurance, also known as excess insurance. Self Insureds letting the Third Party Administrator (TPA) shop and choose the reinsurance may not be the most economical to purchase this coverage.

Man pursching bread Self Insureds in bakery shop

Wikimedia Commons – Marjory Collins

Reinsurance is basically where the self insured employer secures coverage from a carrier in case of many claims (aggregate) or in case a prescribed amount has been spent on a certain claim. The aggregate is usually a figure such as $5 million. The per claim limit is usually $250,000 of retained risk by the employer. The $5 million and the $250,000 limits are known as retention levels. The employer retains all of the risk up to those figures.

Even worse than allowing their TPA to choose the reinsurance carrier is not monitoring the loss runs to make sure that claims are reported timely to the reinsurer. Nothing will set off the alarms at a reinsurer more than when a TPA has not reported a claim with reserves (not paid) over $250,000.

Even if the contract with the TPA stipulates that the TPA’s claims department is responsible for reporting to the reinsurer, the employer has the final responsibility. This may be a good subject to bring up in meetings with the TPA or when authority is asked to increase the reserves beyond $250,000.

One area that TPA’s sometimes seem to slip is not the original reporting of exceeding the retention level. It is the follow-up status reports that must be filed with the reinsurer.

Picture White Eraser Sketchbook Self Insureds Mistake

If you are self insured and do not have a copy of your reinsurance contract for Workers Comp, now may be a great time to request it. Read over it very carefully.

One of the recourses that reinsurers will use is the outright denial of coverage due to reporting issues. You may be surprised to find reasons that will have your reinsurance claim denied right in the policy.

Why am I writing this article? We have an employer that has asked us to review the denial of reinsurance by the reinsurer for faulty reporting. The TPA contract says the employer has the ultimate responsibility for reporting the claim to the reinsurer. The reinsurance contract was made with the employer. The employer may have to pay out even more funds after paying for reinsurance they may never get to use. This is going to be messy.

Opioids – Oxycodone and Hyrocodone Gain In Popularity

January 3, 2013 By JL Risk Management Consultants

Generic Opioids Gain In Popularity- Oxycodone

Opioids have been on the Workers Comp radar screen over the past few years due to their abuse and dependency by injured workers. Hydrocodone (Vicodin) seemed to be the most popular according to the pharmacists that were contacted in 2011 and early 2012.

Wikimedia Commons – dea.gov

Vicodin is so addictive that people would actually line up to get their prescriptions just after midnight upon renewal of their 30 day Rx. Workers Comp was no different as there seemed to be a trend towards long-term heavy usage.

According to two pharmacists I talked with in December 2012 (one works the night shift 11PM – 7AM), Vicodin is now much less prescribed likely due to its horrendous effects on the stomach. In fact, the night-shift pharmacist indicated that 30mg Oxycodone is the #1 drug dispensed during his/her shift.

One of the most intriguing aspects is that Hydrocodone/Vicodin is a very strong compound. However, the dosages are much smaller than when compared to Oxycodone/Percocet. Both pharmacists pointed out that Oxycodone can be prescribed up to a 30mg dose. Even though Vicodin is stronger (7.5 mg Vicodin = 10mg Percocet), the largest dose of Vicodin available is 10mg.

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Using a very quick math formula, 30mg of Percocet would equal 22.5mg of Vicodin or over two doses.

Due to bad press, OxyContin is now not as popular as in the past. OxyContin is actually just time- released Oxycodone.

The bottom line is that Oxycodone is very popular now as the dosage can be up to 30mg. That is a large amount of immediate-release medication. Oxycontin can be found in 165mg dosages, but it is a time-released opioid.

The FDA is now becoming more involved in opioid education. The FDA seemed more interested in educating consumers on extended release or long-acting opioids. They may want to add Oxycodone to the list.

Workers Comp Self Insureds – Five New Years Resolutions

January 3, 2013 By JL Risk Management Consultants

Workers Comp Self Insureds – Great Way To Start The Work Comp New Year

Five new years resolutions for Workers Comp Self Insureds are listed below. .When talking about Workers Comp premiums, self insureds are often left out in the cold. Self insureds do not pay premiums for Workers Comp. This actually exposes the self insured employer to many more risks besides not budgeting enough funds to cover WC costs.

Graphic Of January 1 Workers Comp Self Insureds Calendar Icon

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Self insured employers may want to adopt these resolutions for 2013. Self insured employers must:

Not think they are outside the regular WC system. Self insureds often say “We do not have to worry about ______ as we are self insured.” Nothing could be further from the truth. They may not have a Mod, but a Loss Development Factor should be calculated every year. The LDF is very similar to a Mod. The premium-paying companies are not that much different from a large deductible or a self insured program in this area.
Realize there is a closer fiduciary relationship with their TPA than with an insurance carrier. There is no “buffer” that a Mod and premium supply. The TPA is spending directly out of one of your budgeted accounts. Reading over your TPA contract may produce some surprises.
Understand their TPA expenses. Many self insureds pay attention to only the yearly cost to handle the claims – usually paid per claim. Has your company considered the bill review, PPO network, rehabilitation nurse, and other TPA costs? If not, you may want to obtain an analysis of those charges.
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Not think they are adjusting the claim. Many of the self insured employers usually have a Risk Management Department. Managing risk and adjusting a WC claim are very different. The TPA was hired for their claims expertise. Monitoring the claim is excellent. Calling every shot on a claim can be very costly.
Periodically review their TPA’s performance on a random selection of claims. This function goes beyond emailing questions to the adjuster. Medical Only claims should be included in the selection. Festering Medical Only claims are usually the ones that appear out of nowhere.
Bonus – Have a prescribed level of reserves, settlements, bill payments, that must be approved by the employer. This is usually in your TPA contract. If not, you should add it at renewal/bid time. Making the TPA’s authority level too low can end up hampering your TPA’s ability to close claims.

Six Workers Comp Premium Saving Resolutions

January 2, 2013 By JL Risk Management Consultants

Workers Comp Premium Saving Resolutions

Workers Comp Premium saving resolutions are always a great way to start the New Year. There are six easy workers comp premium saving resolutions below. These will work for companies of all sizes. Six Workers Comp Resolutions for Self Insureds will be covered next time. The premium-saving employers always:

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Have a current copy of their Workers Comp loss run. Having online access is the best and up-to-date way to track your reserves. Paper loss runs are satisfactory. Monitoring any changes in your company’s reserves can avoid a premium disaster in the future.
Have the most current copy of their company’s NCCI or Rating Bureau sheets. Rating bureaus may issue many different revised rating sheets during your company’s policy year. Your company needs to know the current status of your E-Mod (X-Mod) at all times. The Mod may not stay the same as the one your company was originally issued before policy renewal. The worst time to find out a Mod has changed is at premium audit.
Know their policy status. Is your company in or headed into an assigned risk pool? Are there better deals than the policy you are about to renew for another year? Are you changing to a different carrier? Are you expanding into other states?
Have a copy of the Six Keys to Workers Comp Savings handy. The keys are the same as they were 20 years ago. The keys are still current today. Follow the link for the list. These are proactive tried-and-true ways to reduce your Workers Comp costs on the front-end of an accident.
Understand the premium audit process. There are many employers receiving very large premium audit bills. The premium audit process has very defined rules in every state that must be followed by the carrier, premium auditor, employer, and rating bureau. Disputing an audit without justification is just as detrimental as writing a premium check without full justification of the amount. There are time limits placed on the carrier and employer on completing the audit process.
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Know safety is the crucial element. The least costly accident is the one that never happened in your workplace. Workers Comp claims are called a “loss” for a reason. Post-accident savings are tough at best. The important Schedule Debit/Credits also directly result from your safety regimen.
Bonus – if you have any questions, make sure your company knows which entity or department to contact. This will save your company a large amount of time and money. Even contacting your agent does not necessarily preserve some of your rights as an insured.

These workers comp premium saving resolutions are a good start to reducing WC costs.