Ohio employers are required to provide workers’ compensation coverage for their employees to cover costs associated with workplace injuries. Very large employers may qualify to self-insure, but the majority of employers must obtain coverage through the Ohio Bureau of Workers’ Compensation’s State Insurance Fund.
As with any insurance, employers commonly want to know how much an allowed claim will actually cost them. The Ohio Bureau of Workers’ Compensation (BWC) sets rates and collects premium based on many different factors, including an employer’s loss history and participation in various alternative rating plans, such as group rating and group retrospective rating. This means that the answer to that question may not be as simple as one would expect.
Smart Business spoke to Randy Jones, senior vice president of TPA Operations for CompManagement, Inc., about how a workers’ compensation claim can affect your bottom line.
If I have a claim, when will I see the effect of that claim on my premium rate?
BWC sets rates using claims and payroll history from the oldest four of the most recent five years. For example, 2012 policy year rates are set using claims and payroll filed from 2007 to 2010. This means that a claim filed in 2011 would not actually affect your rates until the 2013 policy year.
The actual cost of the claims used in the rate calculation is determined at an annual survey date. The BWC survey date for private employers is Dec. 31 of the year preceding the rating year, and private employers’ rating years begin July 1. For example, for the July 1, 2012 policy year, claim costs are based on all claims incurred from 2007 to 2010 with costs incurred as of Dec. 31, 2011.
Because employers pay BWC premiums in arrears, these rates would be reflected in the premium payments made in February and August of 2013.
What types of claims costs does BWC use in calculating rates?
Claim costs fall into three main categories — compensation payments, medical payments and reserves. The most common compensation payments are reimbursements for lost wages from time off work. Medical payments are made directly to providers and then charged to the overall claim costs. The reserve is an estimate of future claims costs for both compensation and medical payments. Reserves will decrease as medical and compensation activity decreases. Over time, with no activity, the reserve will decrease to zero.
How are these claims costs factored into my rate calculation?
As explained earlier, BWC determines rates based on four years of historical claims and payroll information. BWC uses the actual payroll an employer has reported on its semi-annual payroll report to determine Expected Losses. These Expected Losses essentially tell BWC how much in claims losses an employer with that level of payroll in that particular industry is expected to have incurred over that same four-year period.
BWC then compares the actual claims costs incurred for that four-year period to the Expected Losses. If the employer’s actual losses are less than Expected Losses, the employer will pay at a rate below the established base rates. If the employer’s actual losses are higher than Expected Losses, the employer will pay at a rate above the established base rates.
One important consideration is that BWC looks at the total cost of the claims (not the total number of claims) on your policy, so many small, seemingly insignificant claims can add up to have the same effect on your rates as one very large, expensive claim such as a back surgery or knee replacement.
How can I reduce the costs of the claims used in my rate calculation?
The best way to reduce your chargeable claims costs is to prevent the claims from occurring in the first place. There are several simple steps an organization can implement to create an awareness of safety, such as:
- Holding monthly safety training meetings focused on specific topics
- Ensuring that adequate personal protective equipment is available and that employees know how to access and utilize it properly
- Posting warning signs where appropriate as reminders for best safety practices, as well as marking all hazardous areas
- Verifying that all equipment has appropriate safety devices installed and is checked regularly for proper working condition
- Appointing someone within your organization to do a monthly safety checklist review of the entire workplace
- Ensuring first aid kits are available and easily accessible throughout the building
Unfortunately, not all claims are avoidable through proper safety programs. Once you have an allowed claim, aggressive claims management from the onset can prevent costs from getting out of control. Also, the BWC has several alternative rating programs that offer discounts toward annual premiums, whether up front or retrospectively. These programs are Group Rating, Group Retrospective Rating, Individual Retrospective Rating, Small and Large Deductible Programs, Drug Free Safety Program, Safety Council, One Claim Program and Self Insurance.
Some programs are also compatible with one another, allowing employers to ‘stack’ discounts together up to the maximum discount allowed, determined annually by BWC. There are different eligibility requirements for each program, as well as expectations that must be met in order to participate and maintain eligibility. However, each program has the goal of rewarding an employer for its focus on safety in the workplace and controlling claim frequency and severity. Implementing workplace safety, aggressive claims management and cost containment strategies, and utilizing alternative rating programs will all help to offset the impact of a claim to your bottom line annual premium expense.
Randy Jones is the senior vice president of TPA Operations for CompManagement, Inc. Reach him at (800) 825-6755, ext. 2466, or Randy.Jones@sedgwickcms.com.