The "rules" of WC aren't a secret -- really anyone can find them...

Workers’ compensation has existed in the United States for over 100 years.  Unarguably, things have changed since 1911.  One acronym says it all:  EDI.  Don’t worry, this isn’t a post about EDI at all – we’re trying to gain a following here, not see how quickly people “x” out of their browsers.

Every year we hear of a few states who are taking a crack at this reform or that amendment.  These changes are typically a fusion of neighboring states’ systems, but with a twist!  Each state’s laws address workers’ compensation it a bit differently but whether you’re in Texas or PA, there are some similarities that, amazingly, people still don’t know about. So, here are a few common things about WC that I wish more people knew.

Medical providers:  If you want to get paid you need to submit your bill with medical records.

Would you pay a bill if you had no idea what it was for?  Despite they average person's usual philanthropic tendencies, I’d bet not.  Why would you expect an insurance carrier to pay for something when they don’t know what they’re paying for? 

Here’s what happens.  The carrier gets a medical bill or invoice without records.  The carrier denies it and requests that it be resubmitted with medical records.  Maybe the billing company is a separate entity and can’t just print out the records.  The billing company then has to request the records from the provider, who then sends them to the billing company who sends them, hopefully, with the appropriate bill, back to the carrier.  This could take a few weeks.  Suppose that in the interim, the provider identifies this as an account with a balance on it and they send a second notice to the injured worker, causing all sorts of outrage and frustration, when all the while letters and requests are crossing in the mail. 

An avoidable mess is the most frustrating mess!

Modified duty reduces claim costs

It’s as if this is a big secret!?  I’ve always said that for every attorney billboard along the major highways that we see, I wish there was one explaining why modified duty makes sense – if done properly.  I bet if you asked people what happens to their rates when they file a homeowner’s or auto damage claim the overwhelming majority of people would say, “My rates go up.”  It’s so prevalent NBC’s Today Show website has an article on this topic from just 6 days ago! The more a claim costs, the more it impacts your policy (in most cases).  WC coverage is no different.  Modified duty is one of the most effective ways to reduce indemnity (wage) loss costs on your policy.  Carriers don’t make this stuff up!

The “rules” of WC aren’t a secret – really anyone can find them.

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?

What's the ROI on RTW?

It’s no surprise that claims-people like to use acronyms and abbreviations.  It’s as if we’ve got our own language…TTD, IME, PPD, IRE, RTW, ABC…just kidding with that last one, but it’s plausible.

The knee-jerk response of any business owner when asked to bring someone back to modified duty is typically, what’s this going to cost me?  It is important that employers understand what their potential return on investment is with a return to wellness (or, as others call it, return to work) program, but that is only part of the picture.  Examining the opportunity costs associated with modified duty will help an employer/business owner make the best decision, for their business and their employees.

What’s the return on RTW programs?
A 1993 study conducted by Crawford & Company estimated returns ranging from $8-10 for every $1 invested in a RTW program.  This same study noted an overall reduction in WC costs of 54%.

Roto Rooter Services Co. experienced a reduction in incurred WC losses from $1.4 million to $356,000 in one year, which was largely attributed to their RTW program¹. 

Gibson Greetings’ RTW program reportedly reduced their incurred WC losses from $400,000 to less than $50,000 the following year¹.

The RAND Institute (2010) published a working paper which examines the effectiveness of RTW programs.  The study suggests that for large employers, RTW programs are highly effective at reducing duration of absences due to work injuries, resulting in about a 3.6 week reduction in the median number of weeks away from work for an injured worker.²

Obviously, individual companies will experience varying results.  These statistics represent case studies that are likely not applicable to every industry nor every employer. 

What is the cost of doing nothing?
Without going into the nitty-gritty of calculating experience modification factors (if you’re a glutton for punishment, you can learn more on this by going visiting your state’s compensation rating bureau), the higher your experience mod is, the higher your premium calculation will be.  A credit score is used to assess a creditor’s risk when lending you money.  Similarly, an experience modification factor is used, among many other factors, to determine an insurer’s risk of insuring your company for workers’ compensation insurance.

The impact of a RTW program, or not having one, will depend on what type of policy you have.  If you’re an employer with a large deductible, you will see more “immediate” savings than someone on a guaranteed cost policy.  If you’re an employer who has a retrospective rating plan, then you have an incentive to lower your claims – a dividend! 

These are the direct costs associated with insurance premiums.  Consider your profit margin.  Think about how much more you would have to sell to offset a WC premium increase of $10,000.  Now, reconsider the cost of offering a few hours of modified work per day for 6 weeks.  There’s an opportunity for even greater savings in some states when a claim remains medical only as opposed to becoming a lost-time claim in regards to your experience modification factor.

We haven’t even discussed the indirect costs associated with having an injured worker out of work…lost productivity, decreased employee morale, increased potential of illegitimate claims, increased turnover, increased injury rates, increased costs of overtime, increased health insurance costs…  We’ll save that for another post.     

References:
1.   Friedman, S. (May 8, 1995).  Back-to-work WC programs pay big dividends.  National Underwriter, 99(19), 3;26.
2.   McLaren, C., Reville, & Seabury, S. A. (March, 2010). How effective are employer return to work programs? (Working Paper No. WC-745-CHSWC).  Retrieved from RAND http://www.rand.org/content/dam/rand/pubs/working_papers/2010/RAND_WR745.pdf.

Meet JAN, your new best friend

Who is JAN?

The Job Accommodation Network (JAN) is the leading source of free, expert, and confidential guidance on workplace accommodations and disability employment issues.  Working toward practical solutions that benefit both employer and employee, JAN helps people with disabilities enhance their employability, and shows employers how to capitalize on the value and talent that people with disabilities add to the workplace.

JAN’s Workplace Accommodations:  Low Cost, High Impact  reports  the results of a recent survey of 723 employers who utilized JAN’s services.  We’ve provided some of the most relevant findings below.

An astounding 57% of accommodations didn’t cost anything.  Zilch.  They were free.  The average cost of a one-time expenditure was $500 for employers.   Do the accommodations work?  76% of employers reported they found the accommodations to be “very effective” or “extremely effective.”

What benefits have employers utilizing JAN received?

Direct Benefits
 

39% reported a savings on workers’ compensation or other insurance costs

90% reported the retention of a valued employee

71% reported increased the employee’s productivity

60% reported the elimination of costs associated with training a new employee.

Indirect Benefits

66% of employers reported improved interactions with coworkers

61% cited an increased overall company morale level

45% reported increased workplace safety

57% reported increased overall company productivity

99% of employers stated they would use JAN again.

There’s a Searchable Online Accommodation Resource (SOAR) database which provides information, suggestions, examples and resources for employers interested in implementing a job accommodation.  These suggestions are sorted by impairment or by industry.

 

References:

Job Accommodation Network (Original 2005, Updated 2007, Updated 2009, Updated 2010, Updated 2011, Updated 2012). Workplace accommodations: Low cost, high impact. Retrieved August 12, 2013, from http://AskJAN.org/media/lowcosthighimpact.html

 

Have an injured worker out of work? The meter is running.

If you're an employer with an injured worker who is currently out of work, the temporary total disability (TTD) meter is running!  Whether it's staring at the meter at the gas pump, silently praying that it will soon stop, or imagining dollars going out the door everytime the air conditioning kicks on and you see your electric meter hypnotically spinning in circles...cha-ching, cha-ching, cha-ching, most of us have at least felt the pain at the pump or cringed when reviewing your summer-time electric bills.

We can blame the meteorologists and global warming, or grumble about the price of oil, but it's unlikely that we're going to stop using gasoline or electricity.  The same goes for workers' compensation (WC) insurance.  It's a requirement for the overwhelming majority of employers, and while there's little you can (legally) do to avoid having WC coverage, there are many ways to avoid overpaying.  Don't worry, you won't have to start biking to work or start adopting the ways of the Amish life.

One of the most influential ways to reduce workers' compensation claim costs (and resulting impact on premium calculations) is to offer modified duty.  If you have an injured worker who has restrictions that you [think] you cannot accommodate, the TTD meter is running.  As a claim representative I was often outraged at the number of employers who didn't seem to be alarmed by this statement:  "Each week that you do not offer modified duty, your policy is paying out $422 per week!  Over the course of 12 weeks, that is $5,064!"  It's not Monopoly™ money, it's real claims dollars.  Dollars paid to an injured worker, who is capable of performing productive work. 

Out of sight, out of mind? 

The Mod Squad: RTW and Experience Modification Factors

We sat down with Karinda Greo, Eastern's Operations Analyst to discuss the intricacies of experience modification factors (herein known as EMF) to determine what impact RTW can have on an employer's EMF. 

If you're an Eastern client or agency partner who is interested in learning more about how you can control your EMF, register for our webinar, Experience Mod 101, that is set to take place on 3/27 @ 10 am!

Now, back to the interview...

What does the employer’s EMF represent?

The employer’s experience modification factor predicts, based on past experience, whether the employer is likely to develop loss experience that is better or worse than average. A period of 3 years of experience is considered, excluding the most recent policy term. For that time period, the employer’s claim data is compared to the average claim data for employers of similar operations and size. If the employer’s claim experience is worse than average, an EMF of greater than 1.0 is generated and acts as a surcharge to the workers compensation premium. If the employer’s claim experience is better than average, an EMF of less than 1.0 is applied to the premium and provides a discount. Keep in mind that since 3 years of experience is considered, each claim impacts the employer’s EMF for three consecutive years.

What impacts an employer’s EMF more: frequency or severity? 

In NCCI states, frequency definitely impacts an employer’s experience modification factor more than severity. The NCCI calculation uses a split point where all claim dollars below the split point are considered primary (frequency driven) and all claim dollars above the split point are considered excess (severity driven). The excess claim dollars are heavily discounted in the final calculation. Currently, the split point is transitioning from $5,000 to $15,000 over a 3 year period. Most states are around $10,000 today. Consider Employer A with one $40,000 claim; and Employer B with 4 claims at $10,000 each, totaling $40,000. Each has the same amount of total losses, but Employer A would have a lower EMF because the first $10,000 would be included at full weight, and the remaining $30,000 would be discounted as excess. Employer B would have a higher EMF because each claim would be counted as primary, resulting in $40,000 included at full weight in the calculation.

In PA and DE, the impact between frequency and severity is more even. Both states apply a cap instead of a split point. All claim dollars in excess of the cap are excluded entirely from the EMF calculation. The current cap for PA is $42,500, so the impact of highly severe claims is reduced. For example, if an employer has a $50,000 claim, only the first $42,500 is included in the EMF calculation. The remaining $7,500 is excluded. In the case of Employer A and Employer B described above, however, there would be no difference in the EMF as the full $40,000 would be included in the EMF calculation in both cases. The cap value for DE ranges from $31,000 to $470,000 and depends on the classification and size of the employer. The largest employers with the highest rated classifications will have the highest cap values.

How does the impact of lost time claims differ from medical only claims in the calculation of an employer's EMF?

In NCCI states, lost time claims have a much greater impact on the EMF than medical only claims. In fact, medical only claims are reduced by 70% in the NCCI calculation. For example, a $10,000 medical only claim counts as $3,000 in the EMF calculation. Lost time claims do not get discounted.