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Sep 18, 2014

The Full NCPRIMA Presentation - Workers Comp Recommendations For Public Risk Managers

Last week, I presented at the NCPRIMA Annual Conference.  The slides for the presentation can be found here.

We received a few requests for a transcript of the presentation.  The rest of this post follows the slides.  The presentation was aimed at public Risk Managers. There are quite a few points that also apply to private industry.

Analyze Trends Not Paperclips - basically paying attention to one big claim, or variable may not be the best way to analyze Workers Comp risk.

Counting paperclips is an old adage that means to not "sweat the small stuff".  The easiest method to examine WC risk is by sticking with trends.

Identifying trends that impact cost - Hundreds of analyzable trends exist in WC.   The key is to identifying the trends that are affecting your WC program the most.  The most popular trends in our claims data are:

• Insurance carrier/Third Party Administrator (TPA)

• Adjuster

• Type of claim

• Accident type

• Body part

Two charts of the same data are included in slide 3 and 5.   They are basically the same data.  We had a Virginia public employer ask us to assist with what they thought was over-reserving by an adjuster.

We examined the data and found the adjuster on their files actually had performed well.  If one enlarges the charts,  there is an obvious trend.

The department 991 had more larger claims.  The conclusion we drew that if the $$$ is ignored and the trend is analyzed, the public entity needed to  focus on the safety of Department 991, not the adjuster.

Develop a Mechanism for Tracking and Analyzing Trends

– Turn the chart sideways - as in our prior example, something as simple as rotating a chart is a simple yet very effective way to look at the numbers.

We have had more than one statistical intern - that knew nothing about WC claims - refer to claims as anomalies or outliers.   They considered claims as aberrations or a system failure.  Interns are great for unbiased opinions.

– Excel® is a great choice - The 2013 version has many statistical packages (and it is free to most public employers).

– Most software is free - There are many other free statistical packages that analyze data.  The internet is full of them. (caveat) - a great place to find free statistical packages.  The caveat is some of the software may not work.  Most of it has been checked for malware or viruses.


LDFs and E-MODS Defined  - click on the links for the definitions

• Individualizes claims experience - one of the basic underpinnings of E-Mods - click here for more info.

• Should know last three years -  a public risk manager should be able to quote the last three years'  E-Mod or LDF.  These are similar to your personal credit score.  Not knowing them is going to make your job much more difficult

• LDF’s – basis for budgeting - if you have not had an LDF calculated for the self insured part of your program, you should obtain one soon.  LDF's can make basic budgeting much more easy for the public risk manager.

Large deductibles still reported - much to the surprise of many Risk Managers and company owners, large deductible policies do not remove your organization from the E-Mod system.  Your E-Mod is still reported and calculated in almost all instances.

– Impact of LDFs and E-Mods on Cost - there is a direct relationship between these two numbers and your budgeting. These are basically the scores of your safety and risk programs.

Access = $$$ The Value in Monitoring

Online claims access – Full - this is one of the best ways to control and monitor your WC program with your TPA or carrier.   Having immediate access to your WC claims will save your program $.

– 20% added value - In my humble opinion, having full claims access is worth 20% the value of what your entity pays a TPA or carrier.  When your TPA or carrier quotes your organization for WC, make sure you have reviewed their online claims system.

– Status reports - these are golden for Risk Managers.  They are basically the Executive Summaries for each one of your claims.  These are great time savers if they are provided online.

– Emailing adjuster - calling the adjuster will usually result in he/she saying that they will have to pull the file and get back with you.  This is one the major concerns that adjusters bring up in conversations about their insureds.  Emailing an adjuster allows time for a response and provides written documentation on both ends

Subrogation - defined follow the link.

– Identifying and Assisting in Recovery - This is where we see the most money being wasted in public or private funds.  Often, recoverable $$ is left on the table.  A simple letter or identification of a third party can recover funds spent in WC.


• First Report of Injury- give the adjuster as much information upfront on everyone involved in a WC accident may flag the system for subrogation from the start.

• Accident investigation forms -these are priceless for informing the adjuster of an accident scenario.  The more info that can be shared the better.

• Communication to adjuster - as the first two bullets in this section have pointed out, communication with the adjuster very important is cases of possible subrogation.

Maintaining a Subrogation Diary - this link will describe a subrogation diary.  As a Risk Manager, it is up to you to keep monitoring any recoverables.

• Outlook® Calendar - easiest one to use

• 60, 180, 365, adjuster change - communicating with the adjuster at these times in the claims can assist in recovering your subrogation funds.

Adjusters have been trained very well in Workers Compensation,   However, as a former all lines adjuster, recovering subrogation funds switches the file from WC to liability.  Liability adjusting is a different world than WC.

WC claims have many changes such as the adjuster or TPA assigned if assuming tail claims.  The diary enhances the tracking of subrogation $ as the claim progresses through changes.

The blog with much more information is at – presentation with

links to articles that I referenced

One area that I could not over is the Six Keys To WC Savings.  Go to the blog and type in Six Keys to find that discussion.

• Six Keys To Cutting WC Costs

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Sep 17, 2014

Should Workers Compensation Premiums Be Considered As A Tax?

Premiums and taxes are similar in some respects.   They are also very different when compared to each other.  

One of  the ways that premiums and business taxes differ greatly is that premiums are regressive.  As more payroll is covered in an employer's account, the unit cost of providing those benefits reduces more than proportionally .

The tax system is progressive.  As business or personal income increases the per unit rate of taxes increases up to a prescribed amount.

The more a corporation or individual earns results in a progressively higher tax rate. WC premium rates are not structured in that manner.    The larger employers tend to  pay  less per unit for WC premiums.   

The WC system is structured as regressive due to larger employers tend to hire safety personnel.  A large amount of payroll can absorb a large or many claims much easier than smaller employers. 

For example, the Tax Tables for Corporations is as follows:

Taxable income over     Not over      Tax rate

$         0        $    50,000        15%
     50,000             75,000        25%
     75,000            100,000        34%
    100,000            335,000        39%
    335,000         10,000,000        34%
 10,000,000         15,000,000        35%
 15,000,000         18,333,333        38%
 18,333,333         ..........        35%

This is the Table Table for Married Individuals
Filing Separately - 2014:

      Taxable income:                   Tax:
  Over     But not over         Tax       +%   On amount over            

$      0     $  9,075        $    0.00   10       $      0
   9,075       36,900           907.50   15          9,075
  36,900       74,425         5,081.25   25         36,900
  74,425      113,425        14,462.50   28         74,425
 113,425      202,550        25,382.50   33        113,425
 202,550      228,800        54,793.75   35        202,550
 228,800      .......        63,981.25  39.6       228,800

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Sep 11, 2014

Workplace Transportation Incidents Account For 40% Of Fatalities - BLS

The Bureau of Labor Statistics recently released various  studies on Workplace Fatalities.  An article was published earlier this year on The 25 Most Dangerous Jobs 

The numbers below are preliminary. The statistics are usually changed slightly as the numbers are verified by BLS.

Some of the eye-opening statistics gleaned from the data are:
  • 40% of workplace fatalities are transportation-related as defined by BLS.
  • Information service providers was the safest sector with a fatality rate of .8% of all fatalities
  • 9% of fatalities were due to on-the-job homicide. 
  • 93% of all fatalities were male.
  • 25% were in the age group of 45 - 54.
  • 89%  occurred in the private sector.
The transportation-related fatalities required a little more research as the transportation-related incidents also included: 
  • Roadway, 
  • Non-roadway
  • Air, 
  • Water,
  • Rail
  • Fatal occupational injuries resulting from being struck by a vehicle.
A partial breakdown of the transportation group which totaled 1,740 incidents was:
  • 991 that  were roadway incidents involving motorized land vehicle
  • 223 resulting from non-roadway incidents involving motorized land vehicle
  • 284 pedestrian incidents
The numbers will be updated once BLS finalizes their statistics. 

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Sep 10, 2014

Does Our Company Have To Pay Any Of Disputed Premium Audit Bill?

Premium audits and the associated bills always generate a large number of questions.  One that we receive the most often is the sufficient amount to pay when there is a dispute.

The answer in the simplest terms is that an employer must pay any undisputed premiums as soon as practical.  The key words are undisputed and practical.  

The amount of the dispute needs to be as accurate as possible.  Determining the correct undisputed amount can be a critical point.  If your company pays too much, you lose your leverage in the dispute with the insurance carrier.   

If you pay too little, your company is violating one of the basic rules of WC rating bureau (NCCI, WCIRB).  The old saying about paying what you owe in full, but not one penny more would apply to this situation.     

The practical time to make the payment is not necessarily when you see a bill due date.  We have often seen clients receive the bill in the mail with the due date of the premium audit bill payment within just a few days.  

If you receive a bill with a due date in just a few days, calling the billing department may keep your  current policy from being cancelled if you are with the same insurance carrier on the renewal policy.  

The best way to proceed is by making arrangements with the carrier as soon as you receive the bill if you feel that you owe it in full and cannot make the bill payment immediately. 

Most insurance carriers have a very specified premium audit dispute process.   The easiest place to locate the rules for disputing the premium is actually in the Workers Comp policy.  

Some carriers ask for a form to be filled out while others request a premium dispute letter written on company letterhead by one of the company officers.   

We usually recommend not using the forms provided by the carriers.  Some of them seem to be very limiting on what can be disputed from the audit.   Phone calls just will not work with disputes very well.  The disputes need to be in writing and timely.   Certified return receipt is the best method for sending audit disputes in to the carrier. 

Another important factor to remember is there are very specific time limits on the disputes.  Letting a premium audit bill sit for weeks can sometimes end up with an employer paying more than they should have even though there was a valid dispute. 

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NCPRIMA Presentation on Cost Cutting - PowerPoint Slides

My presentation today at the NC PRIMA  Conference included these slides.   I am going to link the info in the slides to articles for better reference later this week.

Please note the presentation was on the first nine slides.

PowerPoint Slides


Sep 4, 2014

WCRI - New York Reforms Working Well In Some Areas

The Workers Compensation Research Institute (WCRI) recently published a study on the New York reforms enacted in 2007.   

Coincidentally, we have had an uptick in contact from New York for our services.  Most of the inquiries concerned searching for alternative and less costly WC coverages than being in the NYSIF.  

Two prior WCRI studies in this blog were heavy New York opioid use and  the prior years' study on New York reforms.

The major areas that the WCRI study covered were:
  • an increase in the maximum weekly benefit;
  • caps on permanent partial disability duration;
  • medical treatment guidelines to be created and implemented;
  • adoption of a pharmacy fee schedule;
  • creation of networks for diagnostic services and thresholds for pre-authorization; and
  • administrative changes to increase speed of case resolution.
Some of the major highlights from the study were:
  • The number of visits per indemnity claim decreased notably for chiropractors and physical/occupational therapists when compared with the prior year.  (2012 as compared to 2011).   This is a very positive result for employer WC savings.
  • From 2007 to 2010, for PPD/lump-sum cases at an average 24 months of experience, there was a nearly 15 percentage point decrease in cases that received PPD payments only (with no lump-sum payment) and a nearly 12 percentage point increase in cases with a lump-sum settlement only (with no PPD payments).    This is a very positive result in reducing the indemnity payment portion of claims. 
  • From 2007 to 2011 (for claims at an average 12 months of experience), there was a 4 percent increase in the number of visits for major radiology services by nonhospital providers. The percentage of indemnity claims with major radiology services also grew over that same period, from 45 percent to 52 percent. 
  • There was little change in the average defense attorney payment per claim from 2009 to 2010, but an increase of nearly 9 percent in 2011.

The study uses open and closed indemnity and medical-only claims with dates of injury from October 2005 through September 2011, with experience as of March 2012. The data are representative of the New York system. 

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Sep 3, 2014

The Defense Base Act and Overseas Subcontractors

The Defense Base Act (DBA) is a very important part of the Workers Compensation system. The Act provides compensation for disability or death to persons employed at military, air, and naval bases outside the United States.   

The Act was passed in 1941.  The DBA is very short compared to much of the Federal Laws, Rules, and Regulations.  I had always assumed the DBA also covered any subcontractor employees.  That was not correct.   Then again, I am not a DBA expert.  

Part 1(c) of the DBA covers subcontracted employees.  A memo in 2003 - Explaining the DBA - explains this  in detail. 

Coverage under the Defense Base Act

The Defense Base Act covers the following employment activities:
  • Working for private employers on U.S. military bases or on any lands used by the U.S. for military purposes outside of the United States, including those in U.S. Territories and possessions;
  • Working on public work contracts with any U.S. government agency, including construction and service contracts in connection with national defense or with war activities outside the United States;
  • Working on contracts approved and funded by the U.S. under the Foreign Assistance Act, generally providing for cash sale of military equipment, materials, and services to its allies, if the contract is performed outside of the United States;
  • Working for American employers providing welfare or similar services outside of the United States for the benefit of the Armed Forces, e.g. the USO.
If any one of the above criteria is met, all employees engaged in such employment, regardless of nationality, are covered under the Act.  

The 2003 Memo  points out the requirement of the subcontractors to cover their employees with WC.  Section 4(a) of the Act requires every employer to be liable for, and to secure the payment of, disability, medical, and death benefits to its employees in the event of injury or death. If a subcontractor fails to secure the payment of compensation, the contractor will be liable for and be required to secure the payment of such benefits.

The memo then covers a very important point with non-covered employees that are injured while working for the subcontractor.  

The injured employee may elect to sue the employer for tort damages on account of such injury or death.

An unusual clause  in the DBA  is the  uninsured defendant may not plead as a defense that the injury was caused by the negligence of a fellow servant, or that the employee assumed the risk of his employment, or that the injury was due to the contributory negligence of the employee.

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Aug 28, 2014

Loss Development Factor - Do I Need One?

Loss Development Factors (LDF's) are one of the under-the-radar parts of the Workers Compensation system.   This was a question received last week by a reader that found the blog on Google.

LDF's can be thought of very generally as the Experience Modification Factor (E-Mods) for self insureds.   The Ultimate Claims Value (Ultimate Loss)  is a very important term that distinguished self insured analysis from a regular WC policy.

E-Mods (also referred to as X-Mods) are limited in scope to a maximum of almost five years in the past in certain situations.   LDF's cover up to 10 years as the risk of being a self insured is your company or organization will be responsible for paying the full value of the claim.

There are many companies, including ours, that can calculate LDF's for you.  In fact, you can calculate it yourself if  you have the right software.  The caveat, as any actuary or claims statistician will tell you is the concern about accurate inputs into the LDF formula.

The old saying about GIGO (garbage in- garbage out) applies here to the hilt.   Usually there may be some type of statistical "smoothing"  such as lessening the impact of one or more outliers that can make the LDF become somewhat inaccurate.

The bottom line is - as a self insured- how do you budget for claims presently?  If you have a method that works, then you are ahead of the curve.   However, LDF's will usually be the most accurate way to assess your present and future WC needs.

It may be good to obtain one to see if your projections agree with the calculated ultimate claims value.  Are you looking 5+ years into the future?  If not, a LDF may assist you with long term budgeting.   

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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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