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Aug 27, 2014

What Would Happen If Workers' Compensation Ended Tomorrow?

One of the more prolific bloggers such as myself recently published an article that was titled "Without Comp."   I started thinking what would happen if Workers Comp was completely abolished for injured workers.  

The most prevalent results would be:

  1. The loss of  the no-fault part of the system.  Ask Florida employers and citizens what that might be like for all of us.  
  2. An outbreak of liability lawsuits that would clog the court systems for eons.  Employers would sue negligent employees.  Employers would be sued in civil court by their employees.  A very large legal mess would ensue. 
  3. AFLAC stock would blow through the roof.  Disability policies would become similar to health insurance.  Every worker would have to sign up for one if affordable. 
  4. The federal government would create the Affordable Disability Insurance Act with many exchanges. 
  5. Safety standards would have to become more strict to the point of interfering with business.  
  6. A shift in insurance companies from WC adjusters to more liability adjusters.  The retraining burden would make insurance carrier unprofitable for a few years. 
  7. The legal system would shift to pure liability concerning injured employees, 
  8. The vendors would have to adapt quickly, but what would the market look like after the end of comp?
  9. State WC systems would subsist for a few years with the claims run-off of the old claims.  
  10. Many claims would be filed with an accident date of today.  Claims filing fraud would be rampant. 
And the list would go on and on.....

What do you think would be the results of WC ending tomorrow?  Could it really happen?  

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Aug 26, 2014

California - Did The SB 863 Failure Result In A 6.7% WCIRB Rate Increase?

California's SB 863 was supposed to be a cost-cutting measure for all parties involved in their WC system.  Last week, the WCIRB  (Workers Comp Insurance Rating Bureau) recommended a 6.7% increase due to a number of factors for policies effective January 1, 2015.  

According to the WCIRB press release, there were numerous factors that led to the recommended rate increase:

  • Continued adverse medical loss development
  • Greater recognition of changing long-term medical paid loss development patterns
  • Continued high levels of indemnity claim frequency
  • Higher than anticipated loss adjustment expense inflation in part attributable to less than projected frictional costs savings resulting from Senate Bill No. 863 (2012)
  • Lower than forecast wage growth
  • Modest increase in the experience rating off-balance correction factor
The Cost Driver Section in WCIRB's rate filing report delved further into the reasons for the recommended increase.  SB 863 was supposed to save $200 million which never materialized due to the Independent Medical Review (IMR) process.  The WCIRB had to remove the $200 million in savings from their calculations. 

The WCIRB went on to say:

The WCIRB’s estimated frictional cost savings related to IMR were predicated on replacing higher cost medical treatment dispute resolution mechanisms such as medical liens and the qualified medical evaluator (QME) and expedited hearing processes with lower cost IMRs. 

However, Division of Workers’ Compensation (DWC) data on IMR suggests the volume of IMRs is two to four times higher than that contemplated in the initial cost estimates. Also, while at a reduced volume, medical treatment on a lien basis is still occurring. 

Finally, while qualified medical evaluations are generally not being conducted on medical necessity issues, many claims, partially in response to the Dubon decision, are having expedited hearings on utilization review issues. 

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Aug 20, 2014

IRS Says No Magic That Determines If A Worker Is An Independent Contractor

The Internal Revenue Service recently updated their info on the Employee vs. Independent Contractor determination decision by an employer.  The complete breakdown of the common law rules is listed in this article.   
Even though this list is comprehensive, the IRS indicates there is no one factor that determines if the worker is an independent contractor.   This information is not state-specific.   The info is more of a rule of thumb.  
Many of these rules can be seen in the Massachusetts case covered two days ago. 
Common Law Rules

Facts that provide evidence of the degree of control and independence fall into three categories:
  1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
  2. 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.)
  3. 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.

1. Behavioral Control
Behavioral control refers to facts that show whether there is a right to direct or control how the worker does the work. A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done – as long as the employer has the right to direct and control the work.
The behavioral control factors fall into the categories of:
  • Type of instructions given
  • Degree of instruction
  • Evaluation systems
  • Training

Types of Instructions Given

An employee is generally subject to the business’s instructions about when, where, and how to work. All of the following are examples of types of instructions about how to do work.
  • When and where to do the work.
  • What tools or equipment to use.
  • What workers to hire or to assist with the work.
  • Where to purchase supplies and services.
  • What work must be performed by a specified individual.
  • What order or sequence to follow when performing the work.

Degree of Instruction

Degree of Instruction means that the more detailed the instructions, the more control the business exercises over the worker. More detailed instructions indicate that the worker is an employee.  Less detailed instructions reflects less control, indicating that the worker is more likely an independent contractor.
Note: The amount of instruction needed varies among different jobs. Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work results are achieved. A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right.

Evaluation System

If an evaluation system measures the details of how the work is performed, then these factors would point to an employee.
If the evaluation system measures just the end result, then this can point to either an independent contractor or an employee.


If the business provides the worker with training on how to do the job, this indicates that the business wants the job done in a particular way.  This is strong evidence that the worker is an employee. Periodic or on-going training about procedures and methods is even stronger evidence of an employer-employee relationship. However, independent contractors ordinarily use their own methods.

2. Financial Control

Financial control refers to facts that show whether or not the business has the right to control the economic aspects of the worker’s job.
The financial control factors fall into the categories of:
  • Significant investment
  • Unreimbursed expenses
  • Opportunity for profit or loss
  • Services available to the market
  • Method of payment

Significant investment

An independent contractor often has a significant investment in the equipment he or she uses in working for someone else.  However, in many occupations, such as construction, workers spend thousands of dollars on the tools and equipment they use and are still considered to be employees. There are no precise dollar limits that must be met in order to have a significant investment.  Furthermore, a significant investment is not necessary for independent contractor status as some types of work simply do not require large expenditures.

Unreimbursed expenses

Independent contractors are more likely to have unreimbursed expenses than are employees. Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. However, employees may also incur unreimbursed expenses in connection with the services that they perform for their business.

Opportunity for profit or loss

The opportunity to make a profit or loss is another important factor.  If a worker has a significant investment in the tools and equipment used and if the worker has unreimbursed expenses, the worker has a greater opportunity to lose money (i.e., their expenses will exceed their income from the work).  Having the possibility of incurring a loss indicates that the worker is an independent contractor.

Services available to the market

An independent contractor is generally free to seek out business opportunities. Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market.

Method of payment

An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. An independent contractor is usually paid by a flat fee for the job. However, it is common in some professions, such as law, to pay independent contractors hourly.

3. Type of Relationship

Type of relationship refers to facts that show how the worker and business perceive their relationship to each other.
The factors, for the type of relationship between two parties, generally fall into the categories of:
  • Written contracts
  • Employee benefits
  • Permanency of the relationship
  • Services provided as key activity of the business

Written Contracts

Although a contract may state that the worker is an employee or an independent contractor, this is not sufficient to determine the worker’s status.  The IRS is not required to follow a contract stating that the worker is an independent contractor, responsible for paying his or her own self employment tax.  How the parties work together determines whether the worker is an employee or an independent contractor.

Employee Benefits

Employee benefits include things like insurance, pension plans, paid vacation, sick days, and disability insurance.  Businesses generally do not grant these benefits to independent contractors.  However, the lack of these types of benefits does not necessarily mean the worker is an independent contractor.

Permanency of the Relationship

If you hire a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that the intent was to create an employer-employee relationship.

Services Provided as Key Activity of the Business

If a worker provides services that are a key aspect of the business, it is more likely that the business will have the right to direct and control his or her activities.  For example, if a law firm hires an attorney, it is likely that it will present the attorney’s work as its own and would have the right to control or direct that work.  This would indicate an employer-employee relationship.

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IRS - Independent Contractor vs. Employee Definition

The Internal Revenue Service is always a great place to find information on independent contractors.   Of course, the information is common law and your applicable states or states may vary from the following information.     As with most independent contractor considerations - behavioral and financial control along with the relationship of the parties will usually determine how to denote a worker.  

For further consideration, another great rule of thumb list is from the Massachusetts article published yesterday. 

Topic 762 - Independent Contractor vs. Employee

For federal employment tax purposes, the usual common law rules are applicable to determine whether a worker is an independent contractor or an employee. Under the common law, you must examine the relationship between the worker and the business. All evidence of the degree of control and independence in this relationship should be considered. The facts that provide this evidence fall into three categories – Behavioral Control, Financial Control, and the Relationship of the Parties.

Behavioral Control covers facts that show whether the business has a right to direct and control what work is accomplished and how the work is done, through instructions, training, or other means.

Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job. This includes:
  • The extent to which the worker has unreimbursed business expenses
  • The extent of the worker's investment in the facilities or tools used in performing services
  • The extent to which the worker makes his or her services available to the relevant market
  • How the business pays the worker, and
  • The extent to which the worker can realize a profit or incur a loss
Relationship of the Parties covers facts that show the type of relationship the parties had. This includes:
  • Written contracts describing the relationship the parties intended to create
  • Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay
  • The permanency of the relationship, and
  • The extent to which services performed by the worker are a key aspect of the regular business of the company

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Massachusetts And Independent Contractor Determination

One of the hottest topics that still generates interests over the years is the subcontractor vs. employee debate.  Many states have publicized cracking down on "1099 employees."  

Massachusetts has a landmark case that has been used for determining whether or not a workers is considered an independent contractor or employee.

The list is comprehensive in nature, yet concise enough to be a listed here:

  1.  the extent of control exercised by the employer over the details of the work
  2.  whether the worker was engaged in a distinct occupation or business 
  3. whether, in the locality, the type of work usually proceeded under the direction of an employer or by an unsupervised specialist
  4.  the skill required for the occupation
  5. whether the employer or the worker supplied the tools and place of work 
  6. the length of time of the working relationship
  7.  the method of payment
  8. whether the work was part of the regular business of the employer
  9. whether the parties believed that they were creating an employment relationship
  10. whether the alleged employer constituted a business 

The case referred to is MacTavish v. O'Connor Lumber Co., 6 Mass. Workers' Comp. Rep. 174, 177 (1992).

The IRS website will be revisited tomorrow to see if there has been any updates to their website on independent contractors.  

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Aug 7, 2014

Live CA WCIRB - Webinar On The State Of California's Workers Comp System

Please excuse any typos, weird language as I am typing this live as I hear it.   Thanks for the understanding.  Check back often as this blog will keep updating, if things go as planned.

I will try to input info that will not be in the written report provided by WCIRB.

There were a few technical difficulties (as in 99.9%of webinars) with the sound.   Everything is A-OK now.

The Agenda for today is:
  • Employer Costs
  • Cost Distributions
  • Cost Drivers
  • Senate Bill 863
  • Insurer Results
Employer Costs - 

Total Premium estimated for 2014 16.3 Billion, steady double digit increase since 2006

Most of the increased Employer Cost Factors are from increases in what premium carriers charge employers

Average charged payrolls are the same as the 1970's(?)   - $2.97 per $100 of payroll

California has always had a higher charged rates when compared to the national average.

Published rate (average) are extremely high for Transportation and Utilities  - almost $10 per $100.  That is normal for most states- Transportation is usually highest or almost the highest

Cost Distributions

Medical benefits - 37% of total comp payouts - very similar to most states.

WCIRB actuaries say Permanent Disability benefits will increase sharply over the next few years.

The largest growth in medical payments - is medical payments made to employees

Cost Drivers

Accident rates are much lower than n the 1990's with a high in 1991 of 5% of all employees filing a WC claim for indemnity - Frequency has fallen to under 2%- possibly due to CA becoming a service-oriented state

Indemnity claims frequency was highest in central California.   Los Angeles area is starting to increase in the 2012 data.

As compared to NCCI data, since 2012, CA has had a much higher rate of  claims reported.

As expected, California has much more Permanent Disability rate on indemnity claims = 47%   There are actually six states higher than CA.   South Carolina is a surprise state.

Indemnity claim severity has been flat for CA since 2005.

Medical costs increase on indemnity claims have increased by 500% since 1991.   The recent medical costs have leveled off for the most part.

CA is highest on the Incurred Medical Benefits per indemnity claim except for Delaware and Alaska.

Allocated Loss Adjustment Expenses (ALAE) have actually increased since SB 863 as WCIRB had projected a 6% reduction.  ALAE expenses actually grew 6 - 9% in 2013 - alarming.

Senate Bill 863 (SB 863)

Liens seem to be the only positive result so far when compared to the WCIRB's  forecasts.   However, it is much too early to really have any full assessments of the involved factors.

Participant questions- Will the legal push-back on lien affect costs?  Yes, but unknown effect,

Any surprises from SB 863?   Basically, no reductions in SB 863 frictional costs which was the reason for enacting the bill.

Overall Outlook

CA has very high volatility on profitability, but still indicates some profitability.

Summary - I will cover this more in depth next week.   (Slide 37)

Final Participant Questions - Does/will the Affordable Health Care Act affect CA WC?   - Still studying the matter, supply and demand on health care access, workers may not try to shift a health claim to WC if they have health insurance instead of being uninsured - premature estimations

SB 863 question - Forecast on ALAE?   Alarming increases instead of projected decreases. There are many possible changes that may decrease frictional costs.

Any info on Physician Dispensed Medication?   WCIRB released report late last year on this subject.

Overall - a good webinar.

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Aug 6, 2014

Underwriting and Adjusting Conundrum- Recent Nebraska Court Cases

Two days ago, I analyzed a recent court case where the Nebraska Supreme Court made a ruling that can devastate a state's Workers Comp system.

The conundrum is two- fold for carriers and self-insureds and their Third Party Administrators (TPA's):
  1. How do the insurance carriers make up the difference now that bad law that will likely be exploited is now "on the books?" 
  2. Can insurance carriers properly adjust files now that there is a cloud of a bad decision on the definition of an accident? 
The carriers' underwriting departments could have in no way anticipated such a momentous decision that may open up the floodgates on past, present and future denials of claims that were based on the definition of an accident.   

If you did not read the article from two days ago in this blog, it may behoove you to look at the article here.  The article has links to the decision.  Follow this link for the prior bad decision by the Nebraska Supreme Court.

Incurred But Not Reported (IBNR) can only offset so much of a new bucket of claims that may have to be paid or settled due to such a decision.  Changing the definition of an accident can alter the underpinnings of how claims are viewed in a state.

Twenty years ago, the large carriers were going to pull out of writing in North Carolina due to an even worse Supreme Court decision.  The NC legislature stepped in to quell employers' and carriers' concern with legislation that corrected the decision.

Claims adjusters in Nebraska may now have to consider or reconsider claims where the definition of an accident was expanded from a single traumatic incident into an incident that stretched for months or years.

Employers may notice that claims where the definition of an accident comes into play, especially on denials, large increases in Total Incurred which increases an employer's E-Mod (X-Mod) or LDF if self insured.   Adjusters usually react to bad case law on the books by heavily increasing the reserves on a portion of their files that involve an accident definition.

I may sometimes not agree with carriers or TPA's.  However, in this case, when the road-map of underwriting and claims handling change overnight, what is a carrier's underwriting and claims department going to do in such cases?

The bottom line is the employers in Nebraska could end up paying more premiums and the self insureds could end up with a much large WC budget when the unanticipated is now fact.  Even worse, the employers may soon  find fewer carriers writing WC in Nebraska.

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WCIRB - California's Rating Bureau August 7th Webinar - Worth A Listen

The Workers Compensation Insurance Rating Bureau (WCIRB) is the rating bureau for California's Workers Compensation system.   In June of this year, the WCIRB had its annual conference.  The webinar and associated report resulted from that conference. 

WCIRB President and CEO Bill Mudge commented, “This Report and its widespread distribution are directly aligned with our mission to provide objective, actuarially based information and data that informs and is integral to a healthy workers’ compensation system. We believe all stakeholders – including employers, agents and brokers, insurers and policy makers – will find great value in this new annual perspective on California’s workers’ compensation system.”

The annual WCIRB report can be found here.  It is a PDF file.  The report looks strikingly similar to NCCI's reports.   You may register for the WCIRB webinar here.   The webinar is August 7th at 11AM Pacific time. 

There is a section in the report that covers SB 863.  Most of the conclusions are TBD (To Be Determined) as the results will be more solid in the future as Workers Comp is a delayed-results  system.  

I will post more after the webinar 

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Aug 5, 2014

Nebraska Supreme Court - Another Bad Decision

The Nebraska Supreme Court - as State Supreme Courts seem to do more often lately- affirmed the Workers Comp court's decision in one of those cases that sends a chill throughout the Workers Compensation community.   The full decision can be found here.   This is a .PDF file that requires a .PDF reader which can be found for free here.  

Last year, the Nebraska Supreme court made a similar ruling concerning an employee that voluntarily leaves an employer for a higher paying job

I was reading a very recent article on the case that surely seemed to be a proper denial by the insurance carrier.  A 30-year career dental hygienist had filed a claim against her most recent employer even though she had earlier sought medical treatment with a different employer and carrier that actually paid for her medical benefits.   The case is Potter v. McCulla. 

The most recent WC carrier sent the employee for an evaluation where the physician did not relate the injury to her current work.  The physician's exact words were "pre-existing and progressive degenerative cervical disc condition."    The current WC carrier denied benefits. 

The claimant then went to treat on her own and self-reduced her work hours to three days per week.  

From the Supreme Court decision: 
Potter left her employment with Garcia in June 2011 to accept a position as a dental hygienist with another clinic,  where she worked 3 days a week. She continued to feel pain in her neck, and in June 12, 2012, she sought treatment with Dr. Phillip Essay of the Spine and Pain Center of Nebraska. In July 2012, 

Essay imposed permanent work restrictions of working only 3 days per week. Essay opined that Potter had “degenerative spondylosis in her cervical spine” that was “aggravated by the repetitive work duties and postures required in her work as a dental hygienist,” although he acknowledged it was “impossible to state to any reasonable degree of medical certainty which of her positions as a dental hygienist caused what and/or when."
The claimant filed a petition with the Nebraska Workers Comp court.  The court awarded Ms. Potter benefits.  The carrier decided to appeal it directly to the Supreme Court and not the Nebraska Court of Appeals.  

The dentist,  defense attorney, and carrier should have known they were in trouble when the Nebraska Supreme court started referring to Oklahoma's expanded definition of an accident.  There was enough precedent in Nebraska without looking outside the state.  

The Nebraska Supreme Court delved very heavily into the definition of an accident and ruled that the first time that the claimant had to leave work was the date of accident.  

I will pick this back up tomorrow as the article is becoming too much material to cover in one article/post.  

The case is worth a quick read.  You can follow the links above to see it.  

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Aug 1, 2014

3M Offers Free Hardhat For Filling Out a Short Survey

There is no such thing as a free lunch.  However, there is a free hardhat. For industrial workplace safety customers only, 3M offers its 3M H-700 or H-800 Series Hard Hat for free when you fill out this short survey. That's a savings of at least $13. 

These hard hats feature a Uvicator Sensor that changes color as the hard hat is exposed to UV light to let you know when it needs to be replaced.

Note: No personal (i.e. Hotmail, Yahoo!, etc.) email addresses will be accepted. Expect this item to take four to six weeks to ship.

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Jul 31, 2014

Ingress- Egress Rules - North Carolina example - Confusing and Controversial

Ingress - Egress is one of the most confounding set of rules that employers, injured employees, adjusters, and WC courts face very often.  Ingress- Egress is sometimes also referred to as the "going and coming" rules.

The definition of ingress is the act of entering a place or a way to enter a place.    The definition of egress would be exactly- the opposite - a place or means of going out.  

The ingress and egress rules are also referred to as the "parking lot rules."   The debate seems to start when a First Report of Injury is received in a claims department where an injured employee slips and falls on a sidewalk or parking lot.   

The ingress-egress rules are not limited to just parking lots and sidewalks.  Most of the serious ingress-egress rules can be stretched to vehicles.  

What happens if an employee is in a vehicular mishap:

  • On his/her way to/from work?
  • During a company errand?
  • In an employer-supplied vehicle?
  • While on the cell phone/texting?
These will not be completely covered in this article, however these are the questions company owners, risk managers, adjusters, and others in the WC industry should be asking themselves now, instead of post-accident. 

Usually, I can provide a blanket statement that covers most of the US.  This subject is too complicated to make any type of statement.   There are many court rulings in the same state that even making a blanket statement for one state is almost impossible. 

Deviation from the clear path is one of the terms that is very important to this subject.  If an employee is on a company errand and deviates from the clear path, the claims are often denied and contested.  Establishing the clear path can be a task with some routes.  

Using Google Maps, I decided to see what the clear path is from our offices to a local Italian restaurant.  According to Google Maps, (click on the link or here).there are three clear routes, depending on traffic.   Some GPS units will choose one or the other depending on traffic.  

A recent North Carolina Court of Appeals decision shows how complicated an ingress/egress or employee travel case can be when looking at all the facts.   You may have to register to read the article (sorry for the inconvenience).  

The bottom line is know your state's ingress-egress rules now even if they may be inconsistent. 

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Jul 30, 2014

Discounted Experience Mod - West Virginia Blog Readers Question

We received this email over the weekend from a  West Virginia company that found  the CutCompCosts blog on Google.

Our  agent informed us that our E-Mod (Experience Modification Factor) for next year was going to be 1.29.   When we received our policy quote the E-Mod was 1.03.   Can the new E-Mod actually be correct?  Was our E-Mod discounted for some reason?

The question was paraphrased for readability as it was much longer.  The answers are::
  • Something may have occurred between the time that your agent informed your company of the 1.29 E-Mod and the policy renewal.  This rarely happens.   Your E-Mod was tallied six months before your policy renewal date. 
  • Your agent and new carrier cannot arbitrarily discount your Mod.   I have never seen a premium auditor discount an E-Mod at the final premium audit. 
  • NCCI - the rating bureau for WV-is the organization that is responsible for your E-Mod.  
  • You may inquire with NCCI to see what your (and this is important) Final E-Mod for your policy was calculated for the corresponding year. 
  • The carrier's premium auditor would adjust the E-Mod back to 1.29 at the final premium audit - usually 30 days after policy expiration.  This increase would cause your final premium bill to be much larger than expected with the lower E-Mod. 
  • Carriers and in turn, agents sometimes make inadvertent mistakes.  It is advisable that you check with your agent and NCCI.  
It is advisable for employers to always review their policies front to back.  This WV employer likely saved itself a large premium bill by reading their WC policy and asking questions.  Always read your old expiring policy when looking over your new policy to see if there have been any major changes.  Surprises equal $$.

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Jul 29, 2014

Conservators Center- One Of Our Favorite Charities - Rescues Fennec Fox

This organization has been mentioned a few times in the blog and newsletter.  This Fennec Fox had a rough life until it was rescued by the Conservators Center.  We rarely mention other companies in this blog.

This organization does great work.  I have visited the complex three different times.   Each time, I learned something new and saw new rescued downtrodden animals that people tried to keep for pets.   Follow the link and check out the website.  It is worth a few minutes of your time.

The ears on the fox are worth checking out the story.  

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Jul 28, 2014

Ohio's BWC Provides 83.5 Moon Roundtrips For Overcharging Policyholders

Ohio's Bureau of Workers Compensation (BWC), a monopolistic state fund,  had  a very scorching court decision rendered against it a few months ago.  Rather than keep appealing the Appeals Court decision, the BWC decided to settle with certain policyholders .

If you have not had the opportunity to read the decision, you should follow the link above and read the decision.  The judges lambasted the BWC.   The BWC was on the hook for $845 million.

The BWC allegedly picked the companies for discounts on an almost random basis.  There was no tried and true discount structure as with all the other rating agencies including the NCCI and WCIRB.

The BWC was wise for not having the decision reviewed in the Ohio State Supreme Court.  The settlement seemed to be a split between $0 and the $845 million owed to certain policyholders.

How was the 83.5 moon roundtrips calculated?   According to WikiAnswers,  5,026,560 dollar bills stacked end to end would cover a roundtrip to the moon .  So, $420 million would be 83.5 roundtrips to the moon ($420,000,000 / 5,026,560). 

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Jul 24, 2014

Seven Items To Include In Your Workers Compensation Premium First Aid Kit

One of the most popular questions we receive at presentations, emails, and social media is "How do we fix our Workers Comp situation  now?"   As mentioned often in this blog,  WC is a very delayed system.  Fixing your Workers Comp now will show fully in the results 3 -4 years in the future.

The seven items to include in your Workers Comp premiums first aid kit are: (clicking on each will bring up an associated article)
  1. Loss Runs - you have to know where you are financially on each claim.  Online loss run access is a very important part of fixing your WC wounds.  You cannot  treat something if you do not know where it is located on your body.   There are many articles on loss runs in this blog.  Use the search box to find more on loss runs.   
  2. Policies - these are similar to the little instruction manuals in first aid kits.  You have to know what is available in your WC first aid kit.  Policies are similar to the contents list in the first aid kit.   You need to read these BEFORE you have a WC problem.  As with Loss Runs, using the search box will list many articles on policies.  
  3. Experience Mod Sheets - Knowing the seriousness of  the wound will point you to use the proper material.  Access to Experience Mod sheets has become much simpler over the last few years.  As an employer, you have the right to receive a copy of your E-mod sheets each year.  Most of the time, we have seen the sheets end up in the trash or being just filed away. 
  4. Premium Audit Workpapers and Bill - the most lacking in what we see in everyone's first aid kit.  Your true final result for the year is the FINAL premium audit.  How do you know how well your efforts have healed your program without the final results?  
  5. Adjusters Contact Information - your WC adjuster should be thought of as a team member of the Risk Management, Finance, and HR departments.  If you do not have this information, you should go find it after reading this article.  Adjusters can be thought of as wound dressing.  Without them, the wound could become quickly infected. 
  6. Medical Network (2nd Level) - sometimes the wounds become infected no matter what treatments are applied to it.  Knowing the first level  PCP's (Primary Care Physicians) is good, but does the PCP know where to refer your injured employees for orthopedic, neurological, dental, vision, or other kind of treatment?  You need to have this list at your fingertips. 
  7. Scans vs. Paper - your first aid kit needs to be accessible and organized.   Scanning the documents- if that is OK with your IT department -will easily organize  your first aid kit.  You may need to treat a wound quickly.  Shuffling through piles of paper and/or numerous files may not be the best method. 
There may be other items to include in your kit.  These seven will have you on your way to workers compensation premium savings.   

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Jul 23, 2014

Top Four Definitions of Workers Compensation- Back To Basics Or Even More Complicated?

I was recently interviewed by a college student on Workers Compensation for his term paper.   He had asked if he could reference articles in the blog, which of course I allowed him copyright permission.   

One question that he asked me is "What is Workers Compensation?"   I started reeling off info on underwriting, claims, premiums, state laws/rules, etc.  He then said, "No I was just wanting the basic definition of Workers Compensation. "  

I was reminded that we in the WC world become so wrapped up on the technicalities and legalities that we should possibly take a step back and look at the basics.   I decided to google the definition of Workers Comp to see what results would appear.    

The theme that stands out is the lack of one true definition of Workers Compensation.  One can see why WC is a complicated subject even when trying to keep it simple. 

According to Investopedia:

A state-sponsored system that pays monetary benefits to workers who become injured or disabled in the course of their employment. Sick pay may qualify as workers' compensation under certain conditions. Workers' compensation first appeared in the U.S. in the 1930s and 1940s. 

The Legal Dictionary's definition is very long and can be found here.

Merriam Webster's Dictionary definition:  

 A system of insurance that reimburses an employer for damages that must be paid to an employee for injury occurring in the course of employment.  Program through which employers bear some of the cost of their employees' work-related injuries and occupational illnesses or disabilities. It was first introduced in Germany in 1884. 

In Britain and the U.S. in the late 19th century, there was a movement to secure the right of injured workers to compensation and to improve working conditions through court decisions, employer liability statutes, and safety codes. By the mid-20th century most countries in the world had adopted some sort of workers' compensation. Some systems take the form of compulsory social insurance; in others the employer is legally required to provide certain benefits, but insurance is voluntary. 

The system of workers' compensation serves as an economic incentive for employers to prevent accidents and illness among employees, since liability for medical costs and the income lost by placing workers in hazardous environments can easily exceed the costs of establishing safe working conditions.

Wikipedia' definition:

Workers' compensation is a form of insurance providing wage replacement and medical benefits to employees injured in the course of employment in exchange for mandatory relinquishment of the employee's right to sue his or her employer for the tort of negligence. The trade-off between assured, limited coverage and lack of recourse outside the worker compensation system is known as "the compensation bargain".

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Jul 17, 2014

Converting to Self Insurance - Five Important Considerations With Alternative Recommendations

We receive many inquiries every year from employers that wish to cover to self insurance for their Workers Compensation coverage.  The inquiries to our offices reached a fever pitch in 2002 - 2005.   Self insurance can save $$ for the right employer in the right situation.

There are many considerations to analyze before converting to self-insurance.  Five of the top considerations are:
  1. Your company or organization will have a new partner with a very close fiduciary relationship.   If you stop and think, before you were just paying an insurance premium and letting the carrier handle the claims.  You will have an outside company - Third Party Administrator (TPA) spending directly out of one of your bank accounts.  In other words, the method you use to monitor the claims must change overnight.  
  2. With self insurance, you lose the ability to absorb many claims or a few large claims.  Unless your company or organization has a large insurance budget,  this can severely impact your budget.  The buffer of  the insurance policy and the E-Mod system are no longer yours.   Reinsurance may help to a certain degree. 
  3. You have to calculate your own E-Mod better known as the Loss Development Factor (LDF).   The outlook in the E-Mod system is up to four years in the past.  LDF's  survey a 10-year period.  Your LDF may not match your old E-Mod.   If your organization is self insured and you do not know your LDF or have not had one calculated, your insurance budget is no more than a bad guess. 
  4. The state requires certain minimums to be self-insured.   There is a reason for these minimums.  The minimums keep your company afloat if #2 above occurs in your insurance budget.  
  5. There may be less expensive and risk averse alternatives such as:
    • Large deductible plans- are very popular with companies that want to retain some, but not all of their WC risk.  
    • PEOs - becoming very popular with mid-sized employers and companies with high E-Mods.  
    • Small deductibles-I have not seen  a very significant amount of savings in these plans
    • Captives - becoming more popular due to flexibility, they do carry a certain amount of unique risk
The #1 concern with an employer converting to self insurance is #2 from above.   Congrats as your company is or has grown in a tough economy.  Patience and risk diversity  such as PEO's are the keys.   Even though your company may be in line to be self insured in the future, now may not be the best time.

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Jul 16, 2014

Are Small Deductible Policies Worth It -NCCI Study - It Depends On The State

One of the long standing assumptions I had made was that small deductible policies really did not make that much of a difference to the cost of a Workers Comp policy.  Small deductible in my observations were $2,500 or less.  

NCCI (National Council on Compensation Insurance) recently performed a study on small deductibles.  They considered a small deductible to be $25,000 or less.  I had not really considered a $25,000 deductible as small.   NCCI had split their analysis as:

  • Small - $1 to $24,999
  • Medium  - $25,000 to  $99,999 
  • Large - $100,000  and up 
There are three main definitions that should be pointed out:
  • Frequency- number of claims over a given time period
  • Gross of claims- certain states do not allow the removal of the deductible when reporting values  to NCCI or other rating bureaus for E-mod calculation
  • Net of claims - certain states allow the removal of the deductible when reporting values
One would have to conclude the net of claim states would actually have more of a benefit that the states with gross of claims.  The gross of claims states indirectly devalue the effect of having a small deductible. 

The three main conclusions drawn by NCCI were:

  1. As expected employers with high frequencies chose small deductibles - or did the carrier force the higher risk employer to take a deductible before they would cover their business or organization?
  2.  Contractors and employers in the most hazardous group (Group G) selected small deductibles more often than other industries or as in #1, did the carriers require the employer to have some type of deductible before being underwritten? 
  3. A significantly greater number of employers select small deductibles in states that mandate the use of losses net of the deductible than states that mandate the use of losses gross of the deductible. 
Conclusion #3 makes great sense as the employer would want the deductible amounts taken out of the E-Mod calculation.  This would seem to be a very large incentive.  

The net of deducible states are:
  • Alabama  
  • Colorado 
  • Georgia 
  • Hawaii 
  • Idaho
  • Iowa  
  • Kansas 
  • Kentucky 
  • Maine  
  • Missouri 
  • New Mexico 
  • Oklahoma 
  • Oregon  
  • South Carolina 
  • South Dakota 
The gross of deducible states are:
  • Alaska
  • Arizona
  • Arkansas 
  • Connecticut
  • District of Columbia
  • Florida 
  • Illinois
  • Indiana 
  • Louisiana
  • Maryland
  • Mississippi
  • Montana
  • Nebraska
  • Nevada
  • New Hampshire
  • North Carolina
  • Rhode Island
  • Tennessee
  • Texas- with exceptions
  • Utah
  • Vermont
  • Virginia 

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Jul 15, 2014

NCCI Updates Website- More User Friendly - Kudos - A Few Hidden Enhancements

NCCI has update their website often in 2014.  The much appreciated upgrades were long overdue.  Some of the upgrades were:
All of the updates or enhancements come with a webinar which covers the updates and enhancements.  As we all know, upgrades and updates sometimes overdo their intended purpose.  NCCI did not change things so much that navigation of the website was the least bit confusing.  The navigation was similar to the old website.

Unlike most websites, the webinars are actually chock-full of great information and very easy to navigate.  Webinars are becoming the bane of web user, but not in this case.  

One of the big enhancements is for Google Chrome and Firefox  web browser users.  Many web savvy user now use these two web browsers.  One of the most complex uses of NCCI's website was the browser requirement of Internet Explore only.   This was due - without sounding too geeky- to most of the NCCI website being built on frames.   This was a reliable but very old way to program websites.    

The complexity kicked in when I had to have Internet Explorer, Chrome,  Adobe (PDF), and Microsoft Word or Excel open when working on the NCCI website.  Internet Explorer would crash so many times that on some days, NCCI was unworkable.  One very interesting was that NCCI seemed to work the best with Windows XP.

In case you are interested, you can find Chrome here and Firefox here.   

The NCCI website now seems to work with Chrome and Firefox.  The upgrades may not work with all of the website, but so far so good.  

One nice update is the pricing any data such as E-Mods or Worksheets is very transparent.  If you do not have a username and password from NCCI, a large portion of the website can be reached by the general public.  

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Jul 10, 2014

Mistakes To Avoid on IME's - Part II - With A Bonus

This is a continuation of the Part I article.
  1. The IME physician may not like the fee schedule - some states allow the fees to be negotiated directly without using the fee schedule.   This may be a good idea as nothing can sour a relationship with an IME physician that feels shorted in what they were paid to see the injured employee.  Do not assume the IME physician will just accept a set amount.  This should be negotiated upfront and please do not wait 60 days to pay for the IME appointment.  
  2. The court has seen reports from the same physician too many times.  WC umpires, judges, and commissioners are very adept at noticing a trend where a certain employer, carrier, or TPA (Third Party Administrator) sends all of their inured employees to the same IME physician.  That is not a trend you want to establish overall.  There are so many IME physicians  to choose from in most areas.  
  3. The treating physician is not informed an IME has been requested for a 2nd Opinion.   An act of great courtesy is to inform the treating physician that you are requesting an IME.   Almost all physicians will not take offense, especially if  the IME is a surgical second opinion.  In fact, the treating physician's office may even recommend an IME physician.  The relationship between the carrier/TPA/employer and the treating physician is very important to return the employee to work as soon as practical. 
  4. Does not have all the medical records included with the IME request letter.  This is a big potential mistake as the IME physician is going to base a large proportion of their opinion on a review of the medical records.  One of the most overlooked type of medical records is the radiological studies.   The review of the medical records that accompanies the IME appointment letter is beyond crucial.  Leaving out one report can take a file down the incorrect path very quickly.  
  5. Is rushed so heavily the IME physician is not given time to review records and do a full report.  An appointment should be scheduled far enough in advance to give the IME physician record review lead time.  Copying/scanning  the records and writing the proper IME letter (an art) takes time if done properly.
  6. Bonus - Not involving the rehabilitation nurse- Most rehab nurses will know who the best physician in the area for the type of IME that you have requested for the injured employee.   The rehab nurse is invaluable in these instances.  If she/he has a working relationship with the IME physician's office, that is golden for having successful IME.   The injured employee will also likely heavily trust the rehab nurse's recommendation. 
  7.   Bonus -  Sloppy records- See #4 above - the easier you can make the review of the medical records for the IME physician, the better the results for all involved.   Ordering the notes from oldest to newest is a great idea.  Using tabs will also result in a better IME appointment.  
Please note that each state has its own rules that should be followed.  These two lists were just general recommendations. 

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