How to use deductibles to lower workers’ compensation premiums

Mark MaGinn, Vice President, CompManagement, Inc.

Mark MaGinn, Vice President, CompManagement, Inc.

The Deductible Program was implemented in 2009 by the Ohio Bureau of Workers’ Compensation (BWC) as another alternative for employers to control their costs while promoting workplace safety. Over the past few years, the program has been enhanced to include a small and large deductible program so that employers of different sizes, hazard groups and risk tolerance levels have options that best fit their organization.

“The Deductible Program can be financially beneficial for those employers that have a focus on their safety efforts and are able to keep their claim costs low,” says Mark MaGinn, vice president at CompManagement, Inc. “An employer should consider having a feasibility study performed by their third-party administrator prior to participating in order to analyze the deductible levels available and ensure it is the best program for their organization.”

Smart Business spoke with MaGinn about how this alternative rating program works.

How does the Deductible Program work? 

Similar to other insurance deductible plans, an employer agrees to pay the portion of a workers’ compensation claim that falls below their selected deductible level in exchange for an upfront premium discount. Claims costs are paid in full by the BWC, then the employer reimburses the BWC for the claim costs up to the selected deductible level. The employer will receive monthly invoices from the BWC until the selected deductible level is reached. All deductible bills must be paid within 28 days of the invoice date.

What deductible amounts are available to choose from?

Deductible levels range from $500 to $200,000. The small deductible program includes levels of $500, $1,000, $2,500, $5,000 and $10,000. The large deductible program includes levels of $25,000, $50,000, $100,000 and $200,000. There is no deductible level available between $10,000 and $25,000. An employer is limited to 25 percent of its annual premium if the deductible selected is less than $10,000, and 40 percent of annual premium if the deductible is $25,000 or more.

How does an employer join the Deductible Program?

An employer must complete a BWC Application for Deductible Program (U-148) to enroll in the Deductible Program, and meet eligibility requirements. The enrollment deadline for private, state-funded employers is the last business day in April for coverage beginning July 1, and for public employers it is the last business day of October for coverage beginning Jan. 1. Changes to the deductible level or withdrawal from the program are not allowed until the next policy year.

Is there any method to cap the annual out of pocket?

Employers selecting a deductible level of $25,000 or more have the option to request an annual aggregate stop-loss limit of three times the deductible, allowing them to cap the potential annual out-of-pocket expense that may arise from participating in the program.

How is the Deductible Program savings projection calculated?

Based on the deductible level chosen and the employer’s hazard group, which is based on the employer’s manual classifications and risk level, the BWC will establish the savings percent. This discount can range anywhere from 1.4 to 26 percent for small deductible options and is applied to the employer’s standard premium.

An example for a midsize service company selecting a $5,000 deductible within the small deductible program:

• Payroll — $5,000,000.

• Individual premium — $460,000.

• Deductible discount savings — $32,000.

• Premium with discount — $428,000.

• Plus estimated deductible billing — $10,000.

• Net premium — $438,000.

• Net savings — $22,000.

In addition to this savings, deductible payments under the small deductible program will not be charged to the claim, therefore possibly reducing future rate calculations. λ

Savings reflected above do not include the additional savings that can be realized by also participating in programs compatible with either the small or large deductible program, such as the Go Green or Safety Council discounts.

Mark MaGinn is vice president at CompManagement, Inc. Reach him at (800) 825-6755, ext. 65868 or [email protected]

Insights Workers’ Compensation is brought to you by CompManagement, Inc.