A RTW Case Study: How a $500 wage loss claim cost this employer thousands

Five hundred dollars if $500, right?  Not for this Indiana employer. 

Using actual claim figures and premium calculations, this post will demonstrate how $500 in indemnity (wage) payments resulted in a premium increase of more than $4,000.

Each year, an employer’s experience modification factor is calculated based on prior years’ losses. 

In some states, such as Indiana in this example, medical-only claims are reduced by 70%.  Medical-only claims are claims in which only medical costs were paid, and no indemnity (wage) payments were made under the claim.  So, for explanatory purposes, if an employer has a $1,000 medical-only claim, it is reduced (for the sake of calculating their experience modification factor) by 70%, to $300.  The claim still cost $1,000, but only $300 of that will be considered in their “mod” calculation.

So, how does $509 end up costing the employer $4,000?

If the employer would have brought the injured worker back to modified duty without incurring any wage payments under their policy, it would have reduced the costs of their indemnity claims dollars paid to $0.  They would have also counted as medical-only claims.  However, because these claims in their loss history were not kept as medical-only, the employer loses the benefit of the 70% reduction in claims.

Think of keeping claims as medical-only like a discount coupon at the grocery store.  You must return all injured workers to modified duty to get 70% off your [medical] claim costs.

So, how does $509 end up costing the employer $4,000?

To calculate the premium, the employer’s “discounted” losses are put into the formula for calculating the employer’s experience modification factor.  The higher the losses, the greater the impact.

With RTW (keeping the claims as medical only) this employer’s mod would have been 0.89.  But, because they incurred $509 in wage loss payments under their policy, their mod was 0.93 (still a very good mod).  Their premium, before factoring in their mod, is $100,000.  Their modified premium, had they offered work would have been computed as $100,000 x 0.89, or $89,000.  Their modified premium, because they had lost time claims of $509, is $100,000 x 0.93, or $93,000.  So, they lost out on savings of $4,000 as the result of $509 in lost time claims paid.

What’s $4,000 to an employer with a 5% profit margin?  $80,000. 

While we don’t always like to focus solely on the financial benefits of offering modified duty, this is a real example of how preventing lost time claims from occurring can offer significant savings.  I’ve glossed over some of the finer details to keep this post limited and hopefully somewhat simple.  A strong RTW program can help keep your injured workers at work, speed up their return to regular duties, and significantly reduce the impact on an employer’s premium calculation.