I Take It All Back on the NC Industrial Commission

We have been in the business of cutting Workers Comp costs for employers and governmental organizations since 1996. However, we have not and will not aid any employers in illegal practices with their Workers Compensation, especially in not providing coverage to their injured workers.

Last month and earlier this week, I posted on the upcoming North Carolina Industrial Commission's hearings on employers that did not have Workers Comp Insurance in effect when employees were injured on the job. For some reason, I had thought the Industrial Commission was dropping the hammer.

Today, I read an article from the Charlotte Observer that indicated the employers were given extensions to pay their fines and claims. I am not sure whether to be appalled or just plain surprised at these decisions. If the employers were not going to pay their fines at the hearings, they will likely not pay any claims or fines in the future.

If the Industrial Commission is not going to enforce the rules, what type of effect will it have on other employers in the state? If Company A is getting away with not paying Workers Comp insurance, Company B will never be motivated to pay their premiums.

I then read in the same article where State Congressman Doug Berger introduced a bill that would move the jurisdiction of Workers Comp fraud from the Industrial Commission to the Department of Insurance.

Congressman Berger is the Congressman from my district. I do not necessarily agree with him in some areas. This would be a prudent move in my opinion as you can see from my last article on this situation that there is a very large amount of premium $ that NC is not providing to the Workers Comp system.

The enforcement would likely stabilize the NC Workers Comp even if it would have to add the employers that previously had no coverage to the Risk Pool.

North Carolina Industrial Commission Prosecutes 70 Employers - Only 29,930 More To Go

Governor Bev Perdue had issued an edict that all 30,000 North Carolina employers uninsured for Workers Compensation should be investigated immediately. The Industrial Commission's response was to start prosecuting the employers that had employees with pending claims, but no Workers Comp insurance.

Seventy employers are now being prosecuted with the threat of jail. Judging by this article on Workers Comp prosecutions, some of the employers had said this would be an unfair increase to their cost of doing business. Are you kidding me? Remember, these are the ones with injured employees that had no place to file a claim.

What should North Carolina do about the other 29,930 employers that are "going bare" on Workers Comp? Maryland and West Virginia both cross-referenced other databases to easily found out employers that have no Workers Comp insurance.

In the article (see first link in article), the NC Rate Bureau reports to the Department of Insurance any employers that did not replace or renew their expiring policies. One has to wonder what happens to this info.

In North Carolina, if an employer has 3 or more employees, Workers Comp coverage must be purchased and kept in force. Most states require a policy for any company that is not out of business or has an alternative insurance arrangement such as self-insurance.

D&B Services carries a huge database of employers with the number of employees. Could this not be cross-referenced to the NC employers to see which companies with more than three employees do not have insurance?

If one calculates the amount of potential premiums:

29,930 * $15,000 = $448,950,000

The $15,000 was an estimation. I will check with a few info sources about the accuracy of the number. Regardless, this is a huge amount of $$ that is not in the NC Workers Comp system. Could other employers actually be subsidizing the non-payers?

Upcoming Important Workers Comp Dates Part 2

Part I of this article is located here. This article is separated into self-insureds and employers in the voluntary Workers Comp market.

Self Insureds

For most self-insureds (especially governmental entities), the renewal date for your TPA contracts is July 1st. Some governmental entities have converted the contracts to January 1 renewal dates.

There is much debate concerning the extensions of TPA contracts in place. Should a self-insured employer:

• Just renew the contract with the same TPA by an extension every year
• Place the TPA contract out for bidding on a yearly basis
• Place the contract out for bidding every three years?

The first two are great ways to lose the TPA's adjusters that are working on your files. If you company or entity is large enough to have a Workers Comp adjuster working solely on your claims 1/3 time, they will very likely want some stability in their job.

The first two options will likely cause the TPA's adjuster to not really be sure if they will have a job from year to year. This instability is why we recommend to bid out the claims services every three years with no extensions.

If your company or organization just keeps renewing your WC claims handling with the same company year after year, you could easily be overpaying for services or not receiving the proper level of service.

If a TPA thinks they will have your business year after year, you may want to shake things up a bit by placing your TPA work out for bid.

Voluntary Market (Non self insured)

If your policy renews in June or July, you may want to start organizing your financials for the premium auditor. If you close out your year on July 1, I recommend examining your premium auditor's letter from last year and gather the same information for this year. This article covers preparing for your Workers Comp premium audit.

As you go through your records for closing out your fiscal year, you will have your hands on the exact data the premium auditor will request.

Making a copy of all the records (paper or electronic) as you come across them will save you double work and will cut down on the stress of closing your year out and the premium audit process.

Upcoming Important Workers Comp Dates Part I

Timing is everything with reducing your Workers Comp claims and premiums. There are a few upcoming dates that are very important for Workers Comp polices in the regular market.

If your company has a January 1 renewal date, your Workers Comp reserves will soon tabulate on June 30th for your 2013 policy. If you have not started your Workers Comp reserve reduction program, the time is running very short.

Insurance carriers are not known for quickly reducing reserves on files. One of the main reasons is a larger file may have to navigate its way through the insurance hierarchy to have any changes to the reserves.

The Workers Comp claim formula is Total Incurred = Paid + Reserves. You can do little to change what has been paid. I have come across two companies that will actually review the medical bills post-payment. This may be an area that will gain in popularity over the next few months.

The reserve part of the formula is negotiable. If you renew on January 1, you should be in the last phase of reserve negotiation, not the very first. One area that you can help your carrier's Workers Comp adjusting staff is to not call them out of the blue requesting a claims review.

This can be a recipe for disaster as you may cause increases in files that you are actually trying to have reduced by the deadline date. Your company knows what is occurring with each employee much better than the adjusters. Updating them with timely information is important. You, as the employer, are basically their eyes and ears.

The updates will help your company establish a working relationship with your carrier's Workers Comp claims department. This will let them know about your company's:

• Medical treatment network
• Return to work program
• Timely first report of injury filing
• How your company treats injured employees

An insured's reputation is very important as the adjusting staff will know your reputation for handling your Workers Comp claims. This can save you a large amount of premium in the long run.

If you wish to have your reserves analyzed for your upcoming policy, you would need to likely bring in an expert ASAP. If your company does not renew January 1, please email (info@cutcompcosts.com) or call us, and we will provide you with the date that your reserves will apply to your next policy.

If your carrier wishes to have a claims review with you just before your renewal date, that is a grand waste of time if you are aiming to reduce your reserves for your next policy.

How Obamacare Could Ruin Your Workers Comp Program

One of the most obvious trends in the Workers Comp environment is that health insurance is trumping the attention paid to employers budgets. Who can really blame employers for hinging their decisions on the upcoming Supreme Court result?

The one under-the-radar concern that I have is Workers Comp has taken a back seat (or possibly in the trunk) to the health insurance discussions. With the changes occurring with Workers Comp E-Mods for 2013, 2014, 2015 and beyond, Workers Comp should very likely not be a forgotten matter.

Safe workplaces are going to reap the harvest in the next few years. Unsafe employers are basically going to pay the price over the next few years. In a way, they will be subsidizing the safe employers when compared to the present Workers Comp system.

For instance, one of our larger current clients is having a 300% increase due to a change in one of their classification codes by their current carrier. If there was too much attention paid to other areas (and we were not a consultant for them), this increase may have slid through unnoticed. The client was able to change most of their employees back to the original class code. They were very happy with the result.

There are many posts involving saving on your Workers Comp program in this blog. Feel free to use the search box on the right side of the page or look in the archives for articles.

What Ever Happened to Workmans or Workmens Comp?

Workers Comp used to be termed Workmens or Workmans Comp in the old days - right? Actually, that is an inaccurate statement. According to the Google Adwords Keyword tool, Workmens Comp was searched for 90,500 times last month worldwide.

I think Workmans Comp is not such an archaic search term. I also tried the same Google Adwords search for Workmans Comp. The results showed a surprising 165,000 searches worldwide for the term. If you combine Workmans and Workmens Comp together, that is 255,500 searches for those two so-called archaic terms in the last month.

Why would there be so many Google searches (not counting Yahoo or Bing) for such chauvinistic or misogynistic terms? I think most of the searches for these terms could be attributed to people unfamiliar with Workers Compensation insurance.

One of the most astounding results is the Google search itself. Due to onsite and offsite website engineering the first two pages of search terms for either term does not even appear until the second page. Yes, I am one of those people that actually look at the second pages of the terms.

As we all know, Google search results can vary. I just checked again and Workmans Comp appeared twice on the first page. Workmens had the same results.

The one astounding metric is when you search the two terms, Google will correct your search term and show the results for Workers Compensation. The result would agree with the changing of the terms to Workers Compensation sometime in the 1960's or 1970's.

I could add in the apostrophes (Workmen's Workman's) and search again to see the terms. The results are different from the non-possessive terms. Finally, there is the term Work Comp that results in a different set of Google search results.

Preparing For A Workers Comp Audit - Seven Suggestions

I have read many guides, manuals, and blogs on how to prepare for a Workers Compensation premium audit. Some of the suggestions were borderline, if not completely illegal. As this story on fraud points out, trying to manipulate the premium audit will only end up costing your company.

My main recommendations are:

• Have everything organized with spreadsheets. Premium auditors are under a time pressure. The easier you can make their audit process, the better the results. Handing the auditor a pile of unorganized papers or computer files is never a good idea.
• Follow the audit letter to the nth degree. The premium auditor will send a letter a few weeks before the audit spelling out everything needed for the audit.
• Having someone that is very familiar with your company assist the auditor is advisable. Assign this person to answer ALL of the auditor's questions and to obtain additional information requested by the auditor. Nothing good has ever come of having many different people meet with the auditor.
• This is a debatable point - there is no requirement that the auditor can leave the premises with copies of any records.
• Ask the auditor to leave a copy of his/her workpapers and background info on the audit. This material is very important if you have questions when the premium audit report and bill is provided by the carrier.
• As with any audit, it is best not to argue with the auditor. There is a dispute process if you disagree with the final results.
• Read your Workers Comp policy. This will often answer many questions and clear up any confusion about the audit results.

12 Ways Self Insurers Can Ruin Their Programs - Part II

My last post covered the first six ways that self insurers can ruin their program. I will now cover the next six.

7. Leaving the ancillary services to the TPA's discretion. Services such as bill review, rehabilitation nurses, and PPO network fees can easily cost more than the TPA processing fee. These fees should not be bundled into a TPA contract without a cost itemization.

8. Not Monitoring Large Medical Only Claims. This is a major cost factor that flies under the radar. You will usually know more about the current medical condition of an employee. I wrote this post on Medical Only claims last year. If their medical only claim continues for a long period of time and increases in cost, you could have a very costly claim on your hands.

9. Not requiring the TPA to call you before putting up a large reserve. I usually recommend this not be done by email. If you are setting a July 1 Workers Comp budget and the adjuster increases a reserve by $100,000, where does that fit into your budget?

10. Not following the Five Keys to Cutting Your WC Costs, click on the title for coverage of the keys.

11. Not pursuing the recoverables. Subrogation, bill overpayments, etc. are the small things that add up to a large total. This is pure $$ left on the table. The amount of effort to collect on these is often minimal.

12. Fighting claims that should be settled. If emotions rule the day, you may as well get out the checkbook. If the TPA claims staff or defense attorney can justifiably recommend a settlement, then keeping it out of court may be the best decision. The % of claims won by the defense is very small.

I could have listed more as there are so many areas where self insureds can inadvertently harm their program. Reading this article is the first step. Putting it into action is the next one.

A Great Charity

I occasionally point out charities that are worth the donation. Nothing But Nets basically provides mosquito nets for mainly children in undeveloped countries. Their goal is to wipe out malaria as much as possible.

Nothing But Nets has already provided almost 7,000,000 nets. Each net saves a life. Check it out here. The charity has partnered with the Bill and Melinda Gates Foundation and the Boy Scouts of America.

12 Ways Self Insurers Can Ruin Their Programs - Part I

Workers Compensation self insurance can be more complicated than paying for a regular policy. I have received many emails asking me to comment on how self insureds can save on their Workers Comp payouts.

I often hear that being self insured has removed an employer or public entity from the E-Mod system. Nothing could be further from the truth. The following are 12 ways Workers Comp self insureds can harm their programs.

1. Ignore your reserve figures. Your Third Party Administrator (TPA) analyzes the claim and tallies the total lifetime cost of the file. I often see the reserve figures not taken into account fully when a self insured is budgeting for their WC expenditures. Online loss run access is critical in following your reserves.
2. Consider a large deductible as being self insured. There are a number of differences between a large deductible and a self-insured. For example, large deductibles still have an E-Mod calculated every year and it is posted to the rating bureaus.
3. Not having a Loss Development Factor (LDF) calculated every year. See the intro paragraphs - your organization needs to have a figure that reflects your safety measures. The LDF, in my opinion, is superior to an E-Mod. The LDF examines many more years than the E-Mod.
4. Forgetting the close fiduciary relationship with your TPA. TPA's are spending directly out of your bank accounts. There is no buffer as with an E-Mod system.
5. Not reviewing your TPA's claims performance. Most (but not all) TPA's perform at an acceptable or better level. Your claims are only as good as the Workers Comp claims staff working on your files. Adjuster turnover should be a large concern.
6. Not sending out RFP's often enough. Sending out RFP's is an arduous task. From what I have seen, it is very well worth it. I often see companies/entities extend an RFP contract for very long periods. If that is occurring, see #5.

I will cover the other six in my next post.

NCCI - More E-Mod Changes for 2015

A few weeks ago, I discussed the upcoming changes to the E-Mod calculation and gave an example. I then blogged on what will happen to the E-Mod calculation in 2014. Believe it or not, there will also be an increase to the E-Mods for unsafe employers for 2015.

For example, if a state publishes its ratings on 4/1/2015, then any polices starting AFTER 4/1/2015 will be affected due to the changes. I had planned on commenting on the 2015 changes later in the year. Due to the number of questions that I received, I will do it now.

On January 1, 2015, the Primary Loss split point (ceiling) increases to 15,000. As I mentioned, in the prior three articles on the E-mod changes, I want to keep everything very basic. The basic E-Mod Formula is Actual Losses / Expected Losses.

Adding in the Primary and Excess Loss variables -

(Actual Primary Losses + Actual Excess Losses) / Expected Losses

If we break that down further the formula would be

E-Mod = (Total Actual Primary Losses + (Total Actual Excess Losses * Discount Factor))/Total Expected Losses

This is the example table for pre-2013 polices. As in the last example, we are going to use a .3 discount factor for the excess losses. The Expected Losses are 57,750. The Expected Loss figure basically is calculated from payroll per classification code.

Claim No	Loss	Primary	Excess
A101	15,500	5,000	10,500
A102	12,430	5,000	7,430
A103	9,350	5,000	4,350
A104	8,200	5,000	3,200
A105	7,300	5,000	2,300
A106	65,000	5,000	60,000
A107	2,350	2,350	0
A108	2,800	2,800	0
Total	122,930	35,150	87,780

The E-Mod is calculated as:

(35,150 + (87,780 *.3))/57,750 = 1.06

After 2014 the numbers would change dramatically

Claim No	Loss	Primary	Excess
A101	15,500	15,000	500
A102	12,430	12,430	0
A103	9,350	9,350	0
A104	8,200	8,200	0
A105	7,300	7,300	0
A106	65,000	15,000	50,000
A107	2,350	2,350	0
A108	2,800	2,800	0
Total	122,930	72,430	50,500

The E-Mod is calculated as:

(72,430 + (50,500 *.3))/57,750 = 1.52

This results in an E-Mod of:

• 2012 - 1.06
• 2013 - 1.41
• 2014 - 1.48
• 2015 - 1.52

The increase (3%) is not that large from 2013 to 2014. However there was a three year increase of 31%. This type of E-Mod increase can affect your company in two significant ways:

• If your company is bidding on contracts, the main contracting company will usually only accept bids from a 1.0 E-Mod sub-contractor. The other side of the coin is that it will be much tougher to slow down an increasing E-Mod.
• The increase can push a company into the risk pool where Workers Comp becomes prohibitively expensive in an already bad economy. The voluntary market is very rarely going to write a company with an E-Mod above 1.5.

As mentioned in one of the previous articles, this example was taken from an actual policy and rating bureau/NCCI Experience Rating Sheets. I do realize there are scheduled debit/credits etc. that would figure into the final premium paid.

All of the examples I gave were for comparison purposes only. Employers with many accidents are going to see their E-Mod jump significantly even with no additional claims or reserve increases.

There are many techniques to reducing your company's E-Mod. This blog has many recommendations on how to decrease your Mod for any company. The main concept to remember is the E-Mod (X-Mod in California) system is a delayed system. A company cannot wait a few months to start an E-Mod reduction program. The time is today, not tomorrow or next week.

Hiring an Insurance (or any) Consultant - 23 Keys

I had written a similar article here on hiring insurance consultants. The consultants I am referring to are non-agent consultants. This excludes any type of consultant that may be selling insurance products of any type. You want an unbiased opinion.

This list is not in any order of importance. The list was generated from real-world examples. We often have to clean up the mess the last consultant left behind.

1. Make sure that you really need one. Can you do it yourself? You may not even need to hire an insurance consultant. #2 in the list will likely aide you in your decision
2. Have you defined what you want? An outline of the goals that you wish to accomplish is necessary to proceed further into the consultant search. A short Request For Proposal (RFP) may be very helpful.
3. Know the consultant’s background – the exact one that will be working on your project? Many times a potential consultant company will list down their "big gun" consultants only to give your project to a trainee later in the process. I have seen this happen very often.
4. Know the company that made the website. Any company can put up a website calling themselves consultants. A search of the state corporation database is very helpful.
5. Cheap is not the best, but most expensive is not either. Early in my consultant career, I was often told that I was eliminated from contention on bids as I was "too cheap" on the amount that I was proposing to charge the client. Bringing in the most expensive consultant does not mean better quality. See #3 above.
6. References are a must. Email each one that is provided with a few questions.
7. Outlandish claims of cost savings are just that. In the premium audit business, I now see claims that 70%, 80%, or even recently 90% of all Workers Comp insurance policies are incorrect. That is just not true and has no statistical validation.
8. Explore the initials at the end of their names. Some of the initials such as the ones I have - ChFC, ARM, MBA, AIC should all be researched. It may look good, but not apply to your project.
9. If it is a large enough project, check out a D&B Report. If the potential consultant company does not have a D&B number, that should be a red flag.
10. The first phone call is critical, emails – not so much. As with first impressions, the first phone call you make to the consultant company will usually have the consultant unprepared and not in the "canned phone speech" mode.
11. How long has the company been in existence? With so many people being unemployed, will the consultant company be around when the job market recovers in the future?
12. Check databases such as Department of Insurance for licenses, suspensions, and especially license expiration.
13. Does everything look too flashy in the website? The flashy websites seem to come and go every few months along with the associated companies. Insurance-based websites are not usually known for flashiness. What is the company trying to make up for or trying to hide?
14. LinkedIn Profile - If the consultant does not have a FULL LinkedIn profile, that should raise many red flags. The service is free to add in a profile. There is no reason to not have one - none.
15. Are they really writing their own blog? I have been offered $$ to write in other company's blogs or to borrow articles from here. I also know of six people writing blogs for other people. Why cannot the consultant write their own blog? This is a big red flag.
16. Do they have experience in the area for which you are searching for help? There are hundreds of lines of insurance. Calling in a plumber to fix the lighting is not a good idea.
17. What organizations do they participate in and are they officers or on the BOD?
18. Are clients all in one state? If they only have clients in Wisconsin and you are in Oregon, the rules and laws are so very different.
19. Are there any states they will not operate in? Why? Some of our competitors will not operate in CA. We operate there with no problem.
20. Do they have a blog/newsletter – How often updated? I sometimes get a little behind in the articles. There are actually award-winning blogs that have not been updated in 9 years.
21. Are they listed with the BBB, Best’s, etc.? Best's should be a minimum qualification.
22. Are they brick and mortar? This was becoming less of a concern recently. However, the long-term companies are usually office-based. This is not for all types, especially CAT adjusters.
23. Check out whois.net to see who actually owns the website. As J&L grew in size, we had to mask the contact info as we were getting over 100,000 junk emails a day per employee. Check the address after the@ in the email address such as name@companyname.com. You may be in for a real shock.

This is not an all-inclusive list. It is a great starting point for hiring a consultant. Your gut feeling should rule the day.

Oklahoma Does Not Want To Be Texas After All

Oklahoma appeared on the Workers Compensation radar screen over the last few weeks. Texas has the opt-out or non-subscriber choice in Workers Comp. I had consulted with a few Texas clients that were using the opt-out services. I had previously written an article on the Oklahoma Opt-out here.

The Oklahoma House voted down the opt-out amendment. There were so many discussions in the insurance blogosphere on Oklahoma’s push for non-subscriber services. I had thought the legislation would easily pass and be signed by Governor Fallin. There was no veto expected.

The main reason for the bill to not be passed in the House was the concern that the employees would not be treated fairly. The other reason might have been that the plaintiff bar worried that it was going to not treat their bank accounts fairly.

The reason for not passing the bill was that the injured workers may not receive the proper benefits as they would have under the current Workers Comp system.

I read a few articles earlier this week that indicted the proponents of the legislation would likely marshal their forces again. These groups of opt-out advocates were going to try to get some type of opt-out bill approved over the next few weeks.

I grew up in Oklahoma. One of the main themes was whatever Texas does, we will do it and it better. I am actually glad to see the bill did not pass the House. The main reason is the writers of the bill did not take into account, the Law of Large Numbers. For any type of insurance program to work, there has to be enough willing participants. Oklahoma has always suffered from the “Texas Fever”.

The Texas system for opt-outs has been in place for quite some time. In my humble opinion, Oklahoma did not understand what they were getting into when they just had to be like Texas. There are some changes desperately needed in the Workers Comp system.

On a side note, the two main clients that I had with non-subscriber services in Texas both went bankrupt. I do not think it was due to their Workers Comp opt-out program. However, they both had called us in to help them with a string of very serious accidents which they could not even afford to furnish benefits. Oklahoma may have been very wise to not to have the “Texas Fever” again.

Payroll and Premium Audit Urgent Question

I received this question at 2AM. The sender must have been losing sleep over it.

We are now with a new carrier. Our Workers Comp Payroll Auditor came into our business four months ago. She went through our books and said everything looked good except for a few things.

We just received a bill for $85,000 with an overdue notice. We received no other warning and had no idea the bill would be so much. Our original Workers Comp policy was $105,000.


Should we just pay the bill as we are so late? How do we find out the results of the audit? Can we dispute the $85,000 bill? Should we contact the Insurance Commissioner? Please answer ASAP.

The insurance carrier will usually send the audit bill to the contact information they receive during the premium audit or the address on the policy. I looked up your company address and it is a PO Box. If you have a PO Box and the carrier sent it to your physical address, the bill and the backup info from the audit was likely returned to the carrier.

Your letter may have gone into a pile of returned envelopes at the carrier or will sometimes get lost in the mail. The carrier sent you the final notice by Fedex so it was delivered directly to your physical address.

The best way to find out the results of your audit is to immediately write the billing office noted on the bill. Send the letter certified return receipt. Explain to the carrier what happened and ask for a copy of the audit results and the auditor's workpapers. Make sure you note that you receive mail at a PO Box.

This previous article on your choices when you receive an audit bill may help you. Judging from the name of your company, it is likely you have hired subcontractors. That could be the source of the additional premiums.

Quite often, a new carrier will view your workplace differently than the last carrier. Your business may have added in additional employees which will cause a spike in your payrolls resulting in an increase in premiums.

A cardinal sin is to dispute a bill without a basis. Another cardinal sin is to contact the Insurance Commissioner's office until all other means have been exhausted. This will harm the relationship with your new carrier and your agent.

I Made A Mistake On The Emod Changes

The E-Mod/X-Mod changes that I posted over the last two weeks had an error in them. I rarely ever go back and correct or change a post. This time I thought that I would go ahead and correct it.

The link to the post is in the last paragraph. Unfortunately, the NCCI had the 2014 Primary Loss figure at $13,500. I originally calculated the Primary Loss at 13,000. The correction actually increased the Mod another .01.

If you are not self-insured, I would heavily recommend looking over the two posts on the 2013 and 2014 changes to the E-Mod. The NCCI has decided to build in an increase for the unsafe companies and to reward the safe companies by increasing the Primary Loss and reducing the Excess Loss.


The basic effect is that in a three year time span the Primary Loss is going to increase from 5,000 to 15,000. The primary losses are basically where workers compensation insurance is charged at the highest rate.


The Excess Losses have a discount factor and figure into the E-mod at a much less severe rate. If your state has its own rating bureau, they are very likely going to follow the same model. I will post in the next few weeks whether or not any of the State Rating Bureaus are going to use the new model.


The NCCI and most other rating bureaus are going to increase the Primary Loss again in 2015 and then build in an inflation factor for 2016 and beyond. It is time to take control of your E-Mod now.

Workers Comp Paid To Australian Woman Injured During Sex

An Australian woman is injured during sex at a hotel. Believe it or not, the judge ruled that this is the same as watching TV or taking a shower. I am not sure of the whole story. It seems a lamp on the wall was the cause of the injury that involved what it looks to be disfigurement. Read the story here.

Australian Workers Comp benefits are called compo. The comments of her companion are interesting. I thought this was a joke when I first read it. It was not likely a joke to the government agency that was her employer. The claim was filed in 2007.

Can We Still Bid On Contracts With A High X-Mod?

I received this question two weeks ago and wanted to answer it. The rest of the question is - How do we reduce our X-Mod very quickly? We receive a large number of employer inquiries on reducing an E-Mod/X-Mod to 1.0 or below. In fact, I just received this question from a California employer yesterday.

A few main contractors and governmental units will accept contracts from an employer with an E-Mod of higher than 1.0. The unofficial cut-off point is usually 1.2.

I am now seeing more contracting companies that will only accept a 1.0 or lower E-Mod. Some governmental units only require that you have Workers Comp insurance without an E-Mod requirement.

I had posted on the E-Mod/X-Mod being the same as a credit score, but much worse. One of the main concerns is that you can change a credit score much more quickly than an E-Mod. There are no overnight ways to change your E-Mod.

The Experience Modification system keeps an employer from feeling the direct brunt of a very large claim. The X-Mod system does not forgive a series of small lost time accidents.

The reason is 10 smaller claims are much more likely to have 2 or more of those claims turn out to be larger claims. Repetitive injuries will cost a company in the long run.

There are a few legal methods to change your E-Mod/X-Mod more quickly:

• Some PEO's will allow you to take on their E-Mod/X-Mod. Understanding the PEO's rules and current E-Mod is very critical. Your company will also need to analyze the complicated rules of coming out of a PEO arrangement.
• When the economy recovers, if your company adds on a large amount of lower risk payroll such as admin assistants and salespeople, your X-Mod may naturally lower.
• Make sure your insurance carrier understands that you have a safe workplace and that you are receiving your proper Scheduled Credits. This can save your company up to 25% of your policy.
• Become a self-insured insured organization. You will switch from an X-Mod system to calculating your own LDF's.
• Make sure you know how your X-Mod was calculated and what claims are affecting your X-Mod.
• Enter into a captive arrangement. Unless your company is large, you will need to likely fund a rent-a-captive, usually offshore.

There are more ways to lessen your E-Mod/X-Mod. The ones I mentioned are in no way an attempt to game the X-Mod system. There are companies that will attempt to assist you in gaming the system.

Those methods may work in the short term. They will cost your company dearly in the long-term. The tortoise and the hare fable fits well. The Experience Mod system is a three year corrective process.

The best way to reduce your X-Mod is to invest heavily in a safety program. The accident that never occurred will have a 0% effect on your X-Mod. There are many companies scaling back or eliminating their safety program. In the short term, the reduction looks great on paper. Three or four years from now, it will look like a disaster with your X-Mod.

Please note I used X-Mod and E-Mod interchangeably throughout this post. I have linked to any terms or articles that explain some of the ideas in this post. I did this to avoid a long boring article.

North Carolina Workers Compensation = 30,000 uninsured employers

Uninsured employers have plagued the Workers Comp system for many years. Was anyone actually shocked there are 30,000 employers (with more than two employees) that have no policy to cover their workers if injured on the job? I was shocked when this number hit the Workers Comp blogosphere.

A very intelligent newspaper reporter for the Raleigh News and Observer compared the number of employers with three or more employees and compared the number to number of companies covered under a Workers Compensation policy. The result was a shocking 30,000 companies.

North Carolina should not feel alone. The same type of investigation was performed in New York finding that one of three companies in the state did not have a Workers Comp policy in place in case their employees sustained an on the job injury. These uninsured companies basically shortchanged the WC system out of $1 billion.

The North Carolina Rate Bureau (NCRB) is the Workers Comp rating organization for any companies that operate in NC. The NCRB reports to the North Carolina Industrial Commission (NCIC) when any company's policy is non-renewed. There was nothing being done after the uninsured companies were reported to the NCIC.

Governor Perdue wanted to get to the bottom of how 30,000 employers were not paying for Workers Compensation coverage. The Industrial Commission's response was they would review their internal policies on handling uninsured employers. This means nothing will probably be accomplished without a push from the Legislature.

West Virginia's Workers Compensation Commission has provided some great examples of how to make companies come into compliance. WV sent out personnel state-wide placing warning signs on all businesses informing the public of their non-compliance.

The North Carolina Department of Motor vehicles should be the best example for the NCIC to follow. If a resident of NC lets their automobile policy lapse one day, the NCDMV sends out a $50 fine letter. I actually received one for having one day of non-coverage when switching carriers a few years ago.

North Carolina has no uninsured employer fund that would function as a safety net when there is no policy to cover an injured employee's benefits. This would likely be a great time to consider starting a fund of this type.

I am sure this story will resurface again due to the startling numbers that were discovered by the reporter. Hopefully, there will be a more positive report the next time.

E-Mod Calculation - More Changes Ahead

Last week, I discussed the upcoming changes to the E-Mod calculation and gave an example. One area I wanted to clarify is that the new E-Mod calculation going into effect for any polices that commence AFTER January 1, 2013.

For example, if a state publishes its ratings on 4/1/2013, then any polices starting AFTER 4/1/2013 will be affected due to the changes. I had planned on commenting on the 2014 changes later in the year. Due to the number of questions that I received, I will do it now.

There was quite a buzz generated on the two articles I wrote last week on the new E-Mod changes. There is actually much more to the rating increases for companies with higher E-Mods. On January 1, 2014, the Primary Loss split point (ceiling) increases to 13,500.

As I mentioned, in the prior two articles on the E-mod changes, I want to keep everything very basic. The basic E-Mod Formula is Actual Losses / Expected Losses.

Adding in the Primary and Excess Loss variables -

(Actual Primary Losses + Actual Excess Losses) / Expected Losses

If we break that down further the formula would be

E-Mod = (Total Actual Primary Losses + (Total Actual Excess Losses * Discount Factor))/Total Expected Losses

This is the example table for pre-2013 polices. As in the last example, we are going to use a .3 discount factor for the excess losses. The Expected Losses are 57,750. The Expected Loss figure basically is calculated from payroll per classification code.

Claim No	Loss	Primary	Excess
A101	15,500	5,000	10,500
A102	12,430	5,000	7,430
A103	9,350	5,000	4,350
A104	8,200	5,000	3,200
A105	7,300	5,000	2,300
A106	65,000	5,000	60,000
A107	2,350	2,350	0
A108	2,800	2,800	0
Total	122,930	35,150	87,780

The E-Mod is calculated as:

(35,150 + (87,780 *.3))/57,750 = 1.06

After 2014 the numbers would change dramatically

Claim No	Loss	Primary	Excess
A101	15,500	13,500	2,000
A102	12,430	12,430	0
A103	9,350	9,350	0
A104	8,200	8,200	0
A105	7,300	7,300	0
A106	65,000	13,500	51,500
A107	2,350	2,350	0
A108	2,800	2,800	0
Total	122,930	69,430	53,500

The E-Mod is calculated as:

(69,430 + (53,500 *.3))/57,750 = 1.48

This results in an E-Mod of:

• 2012 - 1.06
• 2013 - 1.41 (calculated in last example post)
• 2014 - 1.48

The increase (5%) is not that large from 2013 to 2014. However there was a two year increase of 28%. This type of E-Mod increase can affect your company in two significant ways:

• If your company is bidding on contracts, the main contracting company will usually only accept bids from a 1.0 E-Mod sub-contractor.
• The increase can push a company into the risk pool where Workers Comp becomes prohibitively expensive in an already bad economy.

As mentioned in one of the previous articles, this example was taken from an actual policy and rating bureau/NCCI Experience Rating Sheets. I do realize there are scheduled debit/credits etc. that would figure into the final premium paid.

All of the examples I gave were for comparison purposes only. Employers with many accidents are going to see their E-Mod jump significantly even with no additional claims or reserve increases.

There are many techniques to reducing your company's E-Mod. This blog has many recommendations on how to decrease your Mod for any company. The main concept to remember is the E-Mod (X-Mod in California) system is a delayed system. A company cannot wait a few months to start an E-Mod reduction program. The time is now.

Independent Contractor vs Employee - IRS Issues New Rulings

Independent contractor status for Workers Compensation is one of the most discussed topics I have come across lately. Have the rules changed that much over the last few years? Check these links for a few articles I had written in the past on subcontractors, ladder of insurance, IRS rules on independent contractors.

The following two cases are tax rulings. These are not Workers Comp rulings. They are great discussion points. The IRS recently published the following info:

New Rulings Issued on Employee vs. Independent Contractor

The U.S. Tax Court has issued two new rulings on whether workers should be classified as employees or independent contractors.

The Law

In both rulings, the Tax Court said that whether an individual should be classified as an independent contractor or an employee is a question of fact. Common (case) law rules are applied to determine whether an individual is an employee or an independent contractor.

In the new rulings, the Tax Court considered the following factors in determining whether workers were employees or independent contractors:

(1) the degree of control exercised by the employer;

(2) who invested in the work facilities used by the worker;

(3) the opportunity of the worker for profit or loss;

(4) whether the employer can discharge the worker;

(5) whether the work performed is an integral part of the employer's regular business;

(6) the permanency of the relationship between the parties;

(7) the relationship the parties believed they were creating;

(8) whether employee benefits were provided to the worker [Reg. § 31.3121(d)-1(c)(2); Reg. § 31.3401(c)-1(b)].

The Tax Court noted that the list of factors above is not exclusive, and other factors may be considered in this analysis.

First Ruling

In Keller v. Commissioner, TC Memo 2012-62, 3/8/12, the Tax Court ruled that an auto body shop employer incorrectly classified three of its 10 workers as independent contractors.

Two of the three workers performed secretarial duties for the auto body shop (e.g., serving as a receptionist, answering the phones, and filing).

The other employee, Eric Mark, started out by cleaning the shop and assisting other workers at the auto body shop, and then moved up to writing estimates for repairs. Mark received on-the-job training from the owner of the company and other technicians at the auto body shop. The three employees were paid weekly by check.

The Tax Court said that the evidence appeared to show that the employer had the right to control the three workers' work, and the employer did not prove that he did not control their work.

Accordingly, this factor weighs heavily in favor of employee status for these workers. Other factors that supported a finding of employee status included:

(i) the workers did not provide their own equipment;

(ii) there was no evidence that the workers had an opportunity for profit or loss; and

(iii) the employer could terminate the workers at will.

Section 530 of the Revenue Act of 1978, as amended, provides employers with protection from employment tax assessments even though they incorrectly classified a worker as an independent contractor if they meet the following three requirements:

(1) reasonable basis,

(2) substantive consistency, and

(3) reporting consistency.

The employer, however, did not qualify for Section 530 relief because it failed to meet the reporting consistency requirement, as it had not filed Forms 1099-MISC, Miscellaneous Income, for any of the workers in question, which is required under Code Sec. 6041(a) and Code Sec. 6041A(a). The employer needed to file something - either a W-2 or a 1099-Misc.

Employment Tax Penalties

The Tax Court recommended that the employer be subject to employment tax penalties under Code Sec. 6651(a)(1) and Code Sec. 6656(a) for failing to make required employment tax deposits with respect to the three workers who were found to be employees, and to timely remit the tax and file employment tax returns with the IRS.

The Tax Court ruled that the other seven workers should be classified as independent contractors based on its review of the above eight factors. What I find odd here is the press release did not comment on the other seven workers and their statuses. This would have been very helpful.

Second Ruling

In Dean Cibotti, et ux. v. Commissioner, TC Summary Opinion 2012-21, 3/6/12, the Tax Court ruled that a mortgage loan officer with Liberty Mortgage, who was also president of the company with a 33.3% ownership interest, should have been classified as an independent contractor, rather than as an employee.

The taxpayer, Dean Cibotti, did not perform any services as an officer of Liberty Mortgage, but was named president because he had the largest individual ownership share of the business. The Tax Court based its decision on the fact that:

(a) Liberty Mortgage did not have control over or dictate Cibotti's hours of business, total hours, route, office location, or methods of obtaining clients;

(b) Cibotti maintained a home office (he didn't have an office at Liberty Mortgage);

(c) Cibotti was paid a percentage of the proceeds from the mortgage loans he closed (he was not guaranteed any compensation);

(d) Cibotti was not provided any employee benefits, such as health insurance, life insurance, and retirement plans.

I do realize that tax status and Workers Compensation status are different in most states. However, I think these are good examples of what a court would examine when looking at the differences between an employee and an independent contractor.