NCCI had lowered the loss cots or advisory rates for Illinois and Tennessee. The reductions were due to both states enacting fee schedules a few years ago. This will save employers in both states millions in Workers Comp costs.

As I said in my post yesterday, there are many other additional savings beyond just a fee schedule. Self insured employers will usually have their Workers Comp TPA also do their bill review. That is a good step as almost all TPA's have a medical treatment network that will reduce the in-network medical bills by 15%.

The TPA's will likely offer pharmaceutical, physical therapy, radiological, and many other types of networks.

The same 15% reduction will also be available to non-self insured employers that are paying premiums for coverage with their carrier. The carrier will usually provide various networks similar to TPA's.

The one big difference between TPA's and carriers is that carriers will usually only provide one certain network for employers. Sometimes the TPA's will have multiple networks from which to choose. The self-insured employers will sometimes request the TPA interface with the employer's own choice of a network.

The 15% reduction is a big IF as the employer has to make sure the injured employees:

• Treat in-network and not roll the dice and hope wherever the employee treats is in-network. We have seen in our file review for employers the 15% offered savings was not used as often as possible. Throwing away 15% on med costs can be costly over time, especially in the medical cost spiraling states such as California
• See the most competent industrial minded medical providers are being chosen out of the network. If a $75,000 questionable medical procedure is performed, then the 15% saving will seem puny at best.
• Treat with medical providers that are great communicators. As I have said often, communication is the largest cost saver in Workers Comp - no doubt about it. Return to work issues can often be resolved with an open dialogue between the employer, employee, and medical provider.
• Rehab nurse recommendations - very often the rehab nurse assigned to the file knows the local players in the medical treatment networks better than anyone else. If the rehab nurse has an open dialogue with the nurses of the medical providers that are in-network, you are reaping huge savings.

There are many boutique medical providers that will help you as an employer set up the proper medical treatment "in-network" networks. Make sure you check out their backgrounds as we have found some very unscrupulous dealings in this type of network. Biggest is not always the best in this case.

If you want to know of one in your area, email me.

NCCI reminded us that Workers Comp fee schedules do work as TN and IL advisory (loss cost) rates were significantly lowered. Earlier this week, according to NCCI Tennessee’s recommended rate was reduced by 5.1%. NCCI followed suit with IL recommending a 3.8% rate cut.

All of the Workers Comp bloggers such as me always like to publish when we were correct on a controversial subject. TN had enacted a fee schedule a few years ago. As with most WC changes, the bottom line results usually appear three to four years later.

I predicted in an article from December 2009 on Tennessee's new fee schedule that there will be an eventual decrease in rates. This did exactly occur on cue. This one reduction in rates will help TN's small businesses stay afloat in a very difficult economy.

TN used to be so very expensive for Workers Comp coverage. The state is now becoming more competitive due to the reduction in WC rates.

I was more skeptical about IL as when I first investigated Illinois's fee schedule, it seemed to be more of a synthetic fee schedule. At the time, the fee schedule was not based directly on any anchor point such as the Medicaid/Medicare rates.

The fee schedule was changed along the way to be less synthetic. I was not sure if this was actually going to save any $. Illinois medical costs were decreasing in a post I wrote in 2/2012. In monetary figures, the changes will save IL employers $91 million.

Congrats to TN and IL. There is actually a way for your Workers Comp claims to receive further discounts on your medical costs. Check back with me tomorrow.

The WCIRB (California's Workers Comp Rating Bureau) may have come to the rescue of potentially very bad legislation. Their 22 page analysis can be found here on the WCIRB's website.

Senate Bill (SB 863) was introduced last Friday.

In my opinion, the legislators were just paying their dues to their donors. This bill should be sent to the proverbial shredder. One of the most outlandish parts of the bill is that all PEO's were to be eliminated. That would end up costing hundreds if not thousands of jobs just from my company's clients alone. Without PEO's some of our CA clients would have to shut their doors due to the high cost of California coverage.

I do not want to bore any readers with numbers, so I will keep it short. According to the WCIRB:

In total, including the impact of the changes in benefit levels on claim frequency (utilization), the WCIRB estimates that the proposed changes to statutory benefits will increase the total statewide cost of losses and loss adjustment expenses by 0.9%, or $180 million, for 2013 injuries and by 3.7%, or $700 million, for 2014 injuries.

I am seeing the new "reform" as not a cost reform. As I have said in my presentations, and in this blog, any governing body should ask the "numbers people" such as their state rating bureau or NCCI on the possible impact of a large amount of legislation.

The WCIRB's analysis will hopefully end this worthless tinkering with California's Workers Comp laws. The old Workers Comp legislation in CA (SB 899) was a vast improvement and did keep the system from falling off a fiscal cliff. This new legislation would push it off the very same cliff.

Our premium audit bill just arrived. I have questions on how our final bill was calculated and how our Workers Comp policy was written. How do I know if my gut feeling is correct?

I received the above question on Saturday. If you have a gut feeling something is amiss, that is usually the best indication of an error in your policy. You may want to go through a List Of Red Flags concerning your Workers Compensation coverage.

The one from the list that seems to cause the most concern is - was the audit brief and superficial? In this downward spiral economy, insurance carriers are cutting overhead in many ways including personnel. Premium auditors and other insurance personnel are being asked to take on much more of a load than usual. There may not be enough time allotted to properly audit your Workers Comp.

The most important thing to do is to not let the bill and audit report sit on your desk with no response. There are many deadlines with your premium bill. Your bill may say that you have five days to pay. However, most times you have 30 days to pay or dispute the premium audit bill. The number of days varies from state to state.

I have seen many companies have to pay bills because they let the deadlines pass without any action. Phone calls and emails are great, but letters always provide the best documentation.

If you feel that your concerns are not being met or that you are unsure of how to exactly proceed, it may best to consult with a workers compensation premium expert.

I had an interesting question earlier this week on the upcoming NCCI Split Point changes. Over the last few weeks, I have received quite a few emails on how the split points will affect an employer's E-Mod. I am sure that you have heard of the upcoming changes. If not, please follow the link in the first sentence and this link on the 2013 E-Mod calculations.

The main concern now is how an employer will be affected in the upcoming year with the split point doubling from $5,000 to $10,000. The split point is now $5,000 as the primary loss and any amounts after the split point is the Excess Loss. There is a built-in discount factor that kicks in when a claim reaches $5,000. The discount factor is a saving grace for an employer with a few large claims.

NCCI and the rating bureaus have built the Workers Compensation E-Mod system around penalizing employers that have many small claims. Statistics have shown again and again that a certain percentage of small claims will eventually turn out to be large claims. I have seen this in loss runs over the years. I agree with that assumption.

Which employers will see the most increase in their Mods after 1/1/13 - the employers that have a large group of claims between $5,000 and $10,000. There will be no discount factor on these claims. It is true now that six claims with a $5,000 incurred loss will affect the E-Mod as much as one $100,000 claim.

The new changes will change that statement to six claims with a $10,000 loss will affect the E-Mod as much as two $100,000 claims. I am making a blanket statement as each state has its own discounting factors, so this may not fit in all states. However, the concept is true and correct.

If you are not one of my weekly newsletter readers or read the blogs as they are published, I encourage you to go down the right side of the screen and use the search box and search for NCCI changes. I have written numerous posts on this subject.

The NCCI has said that only 18% of the employers will be affected negatively. I am not sure if I agree or disagree with that figure. I think we may have to wait a few years to see the full effect.

X-Mod / E-Mod questions are becoming the most popular questions that I receive in person or by email. The new E-Mod rules published by NCCI have quite a few companies concerned over whether they will be paying more premiums even though there was no increase in their incident rate.

My last post discussed the E-Mod formula in its rawest form. The more complicated and complete formula is here. I always recommend on not delving into the minutia of the E-Mod (X-Mod) formula.

The main variables that will affect your Mod are:

• Number of accidents - having a large number of reported accidents will increase the Mod more dramatically than any other type of occurrence. The E-Mod (X-Mod) system was built around heavily penalizing employers with a large number of accidents when compared to similar companies
• Drop in payroll - this is a more common variable than a few years ago. The risk of accidents being spread over a smaller amount of payroll will indirectly increase the E-Mod. As with most financial situations, smaller employers pay more for the same coverage than larger employers
• Classification Code change - NCCI and the state rating bureaus have changed a number of class codes since 2006. Some class codes are actually less expensive while others have increased somewhat.
• Claims staffs are now smaller - the reduction in size means less claims adjusters to handle the Workers Comp claims. Claims that are examined less tend to have higher reserves - that is the nature of the business
  
• Premium auditors are overworked - as with the claims departments, auditors are being asked to cover more territory and or more employers. Having a brief claims audit can lead to overcharges.
• Upcoming NCCI Changes - there are many articles that I had written a few months ago on how the primary loss portion of the claims are going to double in 2013. Employers with E-Mods of 1.2 are going to see increases in E-mods and premiums. There are more increases for 2014 and 2015 which is going to increase the E-Mod even more if you are a higher risk employer.
• Employers have reduced safety departments - the best way to have a lower E-Mod and pay less premiums is to prevent an accident from occurring. Due to our present economy employers have been reducing their safety departments with some completely eliminating them. Reducing the size of a safety department can end up costing an employer for up to four years.

The bottom line is to not worry about the E-Mod (X-Mod) calculation. It is more cost effective to worry about the inputs to the formula.

The level of questions on XMods/EMods usually increases this time of year. The largest percentage of policies renew on January 1. The rating bureaus such as NCCI usually begin to promulgate and report the E-Mods for the January 1 polices starting late August and continuing through September.

There is actually no exact level of an acceptable E-Mod or X-Mod. As the saying goes, we can always do better. As I have posted often, the average E-Mod for the same type of business is 1.0. At this level, your company is considered to have the same level of safety as similar companies.

I have seen Mods as low as .6. I have also seen Mods at 2.2. I am not sure how a company would improve with a .6 Mod. I have seen companies with a very low Mod suddenly increase to over 1.1 with a sudden spate of a few minor accidents.

I look at Mods as being similar to grades in school. It is much more difficult to keep an A grade than it is to improve from a D. The E-Mod formula in its simplest form is:

Actual Losses /Expected Losses.

A company that provides administrative assistants is going to have a much lower level of expected losses as this type of company is considered to be very safe. The unfortunate result of being a low risk company is that a very few minor injuries can cause an E-Mod to increase dramatically.

Using the formula above, the administrative assistant company's expected losses for a given policy year was $8,500. The actual losses were 9,500. The company's E-Mod would be

9,500/ 8,500 = 1.11

Using the same actual losses, a trucking company would have a higher level of expected losses as they are considered to have more risk

9,500/13,500 = .70

The above example shows that companies with lower expected losses must be as safety conscious as any other company. The E-Mod is affected even more heavily by smaller losses.

The bottom line is there is really no such thing as an acceptable E-Mod (X-Mod). If a company becomes lax on their safety for even a brief period of time, an accident that may have been avoidable is now part of their Mod.

A company with a .6 E-Mod must be vigilant in their safety program. A company with a 1.6 E-Mod must improve their safety program immediately while keeping their Mod from decaying further.

"E-Mod, Mod, and X-Mod are basically the same thing. X-Mod is used by California's rating bureau.

Stop just writing checks for Workers Comp was the first motto that J&L had used when we started over 17 years ago. Yesterday, I had two conversations on Workers Comp costs. One was with a risk management adviser and another was with an attorney.

The attorney and risk manager both were astounded that their new clients were just writing Workers Comp checks without even questioning the basis. I had said that some companies, even self insureds, look at Workers Comp as a tax. The checks are written as a way of doing business.

The two large companies were not regionally specific. One was in Florida and the other was in Illinois. I thought I would quickly cover how to stop just writing checks for Workers Comp. I had written on this subject numerous times in the past.

The top five methods in my opinion are:

1. Question everything you receive. Do not pay for anything that you feel has not been explained to you fully. Keep asking questions when it comes time to pay a premium audit bill. Once you mail the check, you lose quite a bit of leverage.
2. Obtain full online access to all claims, including adjuster notes and reserves. Even if this costs more, it is money well spent. Check your situation online often.
3. Heavily question your yearly premium audit even if you received a refund or credit. I have a list of premium audit red flags you should print and keep handy.
4. Follow my Five Keys to Workers Comp Savings. I wrote the list 25 years ago and nothing has really changed on them.
5. Watch your fees whether or not your company is self insured. We had been reviewing a group of claims earlier this year for a self insured client. The TPA charged $595 per lost time claim. The bill review and network fees added on another $1,490 per claim for a total of $2,085 per claim. This does not include the internal rehab nurse fees.

I would never want to say that an insurance carrier or TPA is dishonest. The employers were charged as according to their contract. That is why I always recommend having someone outside of the insurance carrier, TPA, or insurance agency review any Workers Comp policies or agreements and premium audits. I think the correct term is a "disinterested party."

Workers Comp premium audit and other insurance mail along with claims info handling can be a daunting task for an owner. In my last post, I gave a few examples of how misdirected insurance mail can cost an employer dearly.

There are six easy ways to avoid misplacing or misfiling insurance communications:

1. Ask for everything on paper. I know this sounds archaic. How many of us have found important emails in our spam box? Even if you do receive some of your insurance info by email, always print it. You may have to refer to it 10+ years from now.
2. Designate a non-owner to receive mail, handle insurance adjuster communications. Business owners are much too busy to handle the tedious minutia of all the paper flows. Make sure this trusted person knows the names and addresses of your agent, and other important insurance addresses.
3. Make sure that all parties insurance premium auditors, agents, adjusters, and all insurance personnel know the contact person's address. Adding the person as an "in care of" on all insurance policies and claims info to make sure your designated person receives the mail directly.
4. Provide your designated person with diary dates for insurance renewals, premium audits, and any other important dates so they can expect the insurance communications. This will eliminate any unexpected surprises.
5. Have your designated person sit in on all insurance meetings including premium audits, renewals, and any other type of meeting with your carrier or agent. An informed insurance contact may end up saving your company thousands in the long term.
6. If this person leaves your company, send a letter to the carrier, agent, and claims office informing them of the new designated person. This will save many headaches later.

I know these may sound simpleton or old fashioned. There was a major soft drink bottler that had an administrative assistant leave suit papers on their desk. This caused a default judgment in the millions against the bottler.

Premium audit and other mail from your current or prior insurance carriers can cause you to get out the bottle of antacids. Workers Compensation mail seems to have some of our clients in a bind.

Recently, we had two of our clients misplace or destroy very important mail from their Workers Compensation insurance carrier. One was due to a premium audit dispute. The other involved multiple notices of an upcoming premium audit. The carrier kept rescheduling and then informing the employer by mail. That one turned out to be a disaster.

Most insurance carrier premium auditors or actually any type of insurance personnel will call or email any documents. Some carriers have moved away from phone calls and emails. I think the letters were written as proof of documentation.

We just had one last week where the insurance carrier - a state fund - started mailing letters to an address the employer had not accepted mail at for years. The client had a PO Box that was the designated mailing address for many years on all policies and communications.

The new caveat is that some of the insurance carriers will actually turn the balance due from a premium audit to a collection agency. This causes the credit laws of your state to initiate with different time requirements before your company is considered in default and owe the balance regardless of the premium or policy dispute.

Three months ago I had to tell a client they were on the hook for the complete amount as the collection agency had mailed them three different times with the collection due dates on the opposite side of the letter in very small print.

In my post tomorrow, I will cover how to avoid insurance mail heartburn.

I received this Class Code question last week. With NCCI changing so many classification codes, I thought this would be a good area to cover this week.

Since 2006 the NCCI and State Rating Bureaus have changed many classification codes by either combining codes or creating new ones. If your class codes change due at renewal or at the yearly premium audit, this may not be a negative occurrence for your company.

The new class codes may actually reduce your premiums. It is not necessarily a negative change. One of the most common mistakes I see is when the employer decides that there is a better classification code that fits their business even though the code they wish to have is actually more expensive. This can happen even if the codes look less expensive.

How can this happen? There are other variables that are associated with each class code that may have the wrong effect on your Workers Comp premiums. You have to be very careful before disputing a class code change or if you think your current codes are incorrect.

Another classification code may look tempting as it is much less expensive. However, a class code that is associated with less risk can actually dramatically increase your E-mod (X-Mod). The workers comp savings that are due to a classification code switch may be wiped out and possibly even cause your company to pay more premiums. Some of the calculations and considerations can be very complicated.

If you feel your classification code does not necessarily fit your business and there is a better one that describes your business, it may be good to consult an expert on workers compensation premiums.

I was reading through a large amount of workers comp publications over the weekend. I came across what to me were astounding statistics on safety and risk management. The survey was produced by Staples(r)

Staples had surveyed 412 different small businesses with less than 50 employees. The survey showed that:

• 70% of all managers knew an emergency communication plan existed in their company
• 50% of the employees were unsure if a plan existed or said their company does not even have a plan in place
• 19% of employees thought their company was prepared for a medical emergency
• Managers were almost 50% more likely than non-managers to be able to locate their company's defibrillators, eye wash, dust masks, and caution and wet floor signs.

This led me to the following conclusions:

• Managers are not properly communicating their safety programs to their employees
• Small companies are not ready to handle emergencies whatsoever
• These companies are likely going to pay much more in Workers comp premiums if they do not know how to handle a medical emergency.

There are many safety programs for smaller employers that are free or low-cost such as the Safety and Education Department for the North Carolina Industrial Commission. Almost every state has a department similar to this in state government. They are not OSHA related and do not report companies to OSHA or hand out fines.

One of the most disturbing statistics from the above list is only 19% of the employees feel they are ready for a medical emergency. One of the areas to consider is where does a company transport an employee to for emergencies? Keeping medical control of a Workers Comp claim is a critical key to workers comp savings in emergencies and non-emergencies.

I performed a study a few years ago on how much more expensive is a claim with or without medical control. I found that claims without medical control are 400% more expensive than claims with medical control.

Outstanding reserves can make or break any company's Workers Comp budget. I received two questions this week on the three parts of what is considered Total Incurred. Total Incurred is reported by your insurance carrier to the respective rating bureaus.

The basic formula is Total Incurred = Paid + Outstanding Reserves.

There is little that you can do about what has already been paid on a claim. One of the best methods to cover what has been paid is to do a statistically sound claims performance audit. This type of audit basically puts the onus on the carrier to have handled the files properly and efficiently.

The main and negotiable part of the claim is the outstanding reserves. Outstanding reserves are the leftover forecasted funds by the claim adjuster or department. This is the amount of funds that is reserved for future expenditures.

What happens to the outstanding reserves when a claim is closed? They are zeroed out so that Total Incurred and Paid are the same. However, and this is the important point, if the date arrives for your Mod to be tabulated and there is an outstanding reserve on a file or group of files, YOU PAY FOR IT AS IF THE MONEY WAS ALREADY SPENT!!

That is why there are three very important numbers/dates to track:

• Outstanding reserves
• Total Incurred
• Date your E-Mod (X-Mod in CA) is calculated

If you do not know the date your E-mod will be calculated, email or call me at jmoore@cutcompcosts.com and we will find it for you.

Let me give you an example of what I call reserving budget rot. Your E-Mod (X-Mod) will be pegged on August 31, 2012 at close of business. That is what the insurance carrier will report t to the rating bureaus for your E-Mod (X-Mod). You have a file that was closed on September 3rd, 2012 that had an outstanding reserve of $134,000.

You call the insurance carrier and ask them to roll back the $134,000 of over-reserving to August 31st. That will not happen. Even if the reserves are removed or reduced the next biz day after your Total Incurred is recorded, you are stuck with the $134,000 on your E-Mod. That is the way the Workers Comp biz works. Carriers will never do this on purpose. It is just another function of the Workers Comp insurance process.

Knowing the three bullet points above is going to save you a ton of heartache at your renewal. Why did I write this post? We had a new client contact us earlier this week where the above example just happened with their E-Mod.

Loss Cost Multipliers (LCM's) are one of those "under the radar" concepts in Workers Comp. I had decided to comment on LCM's as they are very important to your Workers Comp budget.

I received a question on LCM's as an employer was confused as to why their insurance carrier was charging significantly above what was published in their state's online rating bureau.

LCM's are basically the insurance carrier's deviation from the advisory loss costs that is published by NCCI or your state's rating bureau.

The advisory loss costs are what each state has set for a Classification Code. Advisory loss costs do have a function. They are the basis for the Loss Cost Multipliers.

Almost all carriers will deviate from the advisory rate by adding in a factor above the advisory loss costs. There are in rare instances certain carriers that will file for a LCM under the advisory loss costs.

The LCM's are basically your company's real insurance rate basis. The basic formula would be (certain classification code for a certain year)

Carrier's Rate = Advisory Loss Cost (published by rating bureau) * LCM

One of the most confusing areas is certain carriers may have multiple named carriers that look similar, but have very different LCM's they have filed for all or certain class codes. I wanted to try to make this the least confusing possible.

The main takeaway is the carrier's filed deviations (LCM's) from the advisory rates are the basis for what you pay in Workers Comp premiums. Some LCM's are up to 211% of the advisory rate.

The bottom line is exploring the insurance market each year for quotes is usually a good risk management technique as a Workers Comp carrier can change their rates dramatically from year to year by filing a different LCM.

Last week, I covered how a company's workers compensation classification codes may change as a company grows. One of the most confusing terms associated with classification codes is classification by analogy. This is especially true if the class codes were changed at the time of premium audit.

Classification By Analogy is the interpretation of what WorkersComp Classification Codes are the closest to the job functions in a company. The insurance company looks at each classification code as a level of risk. These are "guestimations" as there is no exact classification code that matches a job function or employee's job description. The most important word is interpretation. No one knows your business as well as you do.

One of the red flags on Workers Comp audits is the use of Not Otherwise Classified (NOC) when classifying some of the job functions in your company by analogy. Over time, most rating bureaus have reduced the number of class codes. This has given rise to many of the old classifications that better described your business being combined into a more general class code or NOC.

One of the caveats with challenging or questioning a classification code that is analogous to your company's job functions is the class code that you think more closely matches your company may end up costing more money that the original one.

As always, if you feel you that there is something wrong (gut feeling), you may want to call in an expert.

I was supposed to post on premium audits and classification by analogy. I then read a report from the NCCI that was astounding to me. I will cover classification by analogy next week.

According to NCCI, The average duration of workers compensation temporary total disability claims benefits increased during the first half of 2011. This is very likely due to the economy and the availability of jobs in a return to work situation.

The average total number of disability days for a workers comp claims is 149 days. Ouch! The number looks even worse if you compare it to a very well-known standard. After 6 months of disability, the likelihood of a successful return to work is almost zero.

The 180 days (6 month) marker is a well-known and accepted standard for returning injured employees back to work. If I use simple math, it could just be me, but I see a very damaging trend in workers comp.

Subtracting the 149 days from the 180 day precipice, leaves 31 days, or basically a month. I may be making a very large assumption, but that means if the average Workers Comp claim increases by one month, then a Workers Comp crisis would result.

If the average length of disability extends beyond 180 days, does that mean that the average claim will be a permanent total claim or one where the vocational rehabilitation benefits would skyrocket?

That is why employers and their Workers Comp claim departments and adjusters (including TPA's) may have to adjust their paradigms to throwing more effort into the return to work at the very beginning of the claim.

You may want to check out my Five Keys/Secrets to Lowering Your E-Mod. I put this list together over 20 years ago. It is timeless information.

I will post some of my suggestions that employers can use to facilitate a more effective return to work program nest time.

Workers compensation audits for very small companies are usually self-audit situations. Each state has a minimum level of premium that requires the insurance carrier to do an on-site audit.

One of the most common bases for mistakes on payroll (premium) audits is that a very small company and/or their agent will describe to the carrier what operations they perform in going about their daily tasks. As the company is so small, the agent or company owner is charged with making the initial determination. The classification codes can sometimes be wrong from the start.

The more common mistake is made when the company grows and the classification codes are just copied from policy to policy each year. I have seen where there should have been an additional seven classifications added to better describe some of the employees' job functions.

The workers compensation payroll auditor will usually discover some of the errors and possibly reclassify some of the employees. However, the auditor is under pressure to perform as many audits weekly as possible. They may not have the time to review what each employee does on their job. I am not picking on premium auditors - it is just the nature of the business.

Knowing what classifications a company should be under is sometimes a very arduous and complicated task. I have seen employers try to use their SIC codes when describing what they do on their Workers Comp insurance applications. The SIC and Workers Comp classification codes can have (and are usually) night and day differences.

This mistake and others are mentioned in a previous post on red flags with your Workers Comp policy. I will cover classification by analogy next time.