On July 1st Missouri joined nearly 3 dozen other states that have adopted a new formula for the workers’ compensation experience modifier. As most employers already know, the National Council on Compensation Insurance (NCCI) collects payroll, job classification, and claims information on all Missouri employers as well as employers in more than 40 other states. This information is then used to set insurance rates and calculate each employer’s individual experience modification rating. This rating, most commonly referred to as the “experience modifier,” is used by insurance companies to tailor their base rates and premiums to the unique claims experience of individual employers. Simply stated, the experience modifier is an employer’s individual “driving record” that shows how the employer’s claims experience over a 3-year period compares to other employers in the same industry. And, just like our personal driving records, the experience modifier will increase premium if claims are above average, and decrease premium if claims are below average.
The experience modifier is a mathematical formula that has been mostly unchanged for 20+ years. However, most states adopted a new formula in 1998 that encourages employers to return injured employees back to work sooner after having an injury. The Missouri Department of Insurance declined to accept the new formula when it was originally filed by the NCCI in 1998, but recently decided to accept the new formula and make the change effective July 1, 2011. The primary change in the new formula is the way medical-only claims are valued. Under the current formula the total amount paid by the insurance company for a medical-only claim is treated the same as the total amount paid for a lost-time claim. However, under the new formula the total cost for lost-time claims will still be treated the same, but the total cost of medical-only claims will be discounted 70%. This effectively means only 30% of medical-only claim costs will be included in the calculation.
So how can employers use the new formula to reduce their experience modifier and save money? It is now more important than ever to establish a relationship with a qualified company physician and to establish a formal return-to-work or light-duty program. Since the cost of claims involving more than 3 lost workdays are still counted at 100%, but claims with 3 or fewer lost days are counted at 30%, then the goal is clear: work closely with your company physician to return injured employees back to work.
A few other important details regarding the new formula are:
- The 70% discount applies whether it’s a small medical-only claim of $100 or a very large medical-only claim of $15,000 or even more.
- The new formula will apply to the employers next effective experience modifier on or after July 1, 2011. The new formula will apply retroactively to all claims including all or part of 2007 through 2010.
- In some rare cases an employee may not miss any days, but still sustain a permanent disability as determined by the physician. These claims will be counted as lost-time claims.
- There are other changes to the formula that will increase the experience modifier if an employer has a higher than average number of lost-time claims. Basically, the new formula contains both the carrot and the stick to encourage early return to work.
Employers can still self-administer med-only incidents under $1,000 and keep them completely off their experience modifier. However, since only 30% of these costs would be included in the calculation, then the future savings from self-administering will not exceed the direct costs of paying the claim. There are other important considerations regarding the new formula and you are encouraged to contact your agent at Connell Insurance if you have questions or would like additional information. The new formula is clearly designed to encourage employers to return employees back to work as soon as possible, and Connell Insurance offers services and assistance to help our clients reach this goal and control their workers’ compensation costs.