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If you are a business owner and required to purchase workers’ comp insurance, then you might know a thing or two about experience modifications. If not, it’s important to know the basics because it impacts your bottom line.
California has an experience rating system which benchmarks your company against others in your industry based on your historical claim experience. This comparison is called an experience modification, or Ex-Mod, and is applied to your workers’ comp premium.
For example, if your claims history is 10 percent better than the state average, then you would be assigned an Ex-Mod of 90 percent, and in turn receive a 10 percent credit on your premium.
Here’s how it works: your injured employee goes to the doctor and receives medical treatment. The medical provider files a Doctor’s First Report of Injury with your insurance carrier, who then reports the details and costs of the injury to the Workers’ Compensation Insurance Rating Bureau.
Loss data is then used by the Bureau to calculate your Ex-Mod. Up to this point, the program should be easy for everyone to follow. But what about those minor injuries — like a cut, for instance — which only require a quick visit at the doctor’s office and are often paid directly by you?
In that case, the insurance company never gets involved, so you might think there is no need to turn that injury into a claim, report it to the Bureau, and negatively impact your Ex-Mod.
You have an incentive to exclude the insurance carrier from this equation because every dollar of actual claim expense generally translates into $3 of additional premium by way of an increased Ex-Mod. Unfortunately, employers no longer have this option because of a recent change in the California Workers’ Compensation Uniform Statistical Reporting Plan.
Historically, there was confusion on this subject among some insurance carriers and medical providers. It has been a topic of concern for the Bureau, Department of Insurance, and the Department of Industrial Relations.
The Department of Industrial Relations published an article in 2007 and stated its belief that “there are improper arrangements in place between some medical providers and employers that allow the employer to dictate how injuries are to be classified by the physicians. In some cases, and at the request of the employers, the physicians send the DFR only to the employers and not to the insurance carriers.”
The publication clarifies that while the Labor Code provides “first aid” exceptions for the Employer’s Report and the Employee Claim Forms, there is no such exception for the Doctor’s First Report.
Still there has been a longstanding practice in which first aid injuries do not make their way up the chain from provider, to carrier, to Rating Bureau. While the California Labor Code has remained consistent on the subject, the Uniform Statistical Reporting Plan, effective Jan. 1, states that a claim or injury, including first aid, must be reported regardless of who pays and whether or not an actual Workers’ Compensation Claim Form is filed.
This change in the Bureau’s rating manual was approved by the Insurance Commissioner last October and codifies the position of all parties, except of course for employers and trade groups who argue against the mandatory reporting of first aid injuries for obvious reasons.
Proponents argue that carriers who do not report first aid will achieve an unfair competitive advantage over carriers who report all injuries regardless of severity and no matter who pays for treatment.
The Bureau holds the position that its primary function is to collect the data necessary to publish proper and adequate premium rates based on expected loss costs. Without a complete understanding of the costs associated with all injuries, the Bureau’s ability to calculate statistically credible rates and loss costs is hampered.
In light of the clarified reporting requirements, employers are advised to allow their insurance carrier to pay for all injuries which require medical treatment, including treatment classified as first aid.
If the injury is going to be reported to the Bureau and will impact your Ex-Mod anyway, there is no longer an incentive for you to retain that cost. As a buyer of workers’ comp insurance, your premium already provides for payment of all work-related injuries. As such, if your employee is injured on the job, it’s in your best interest to allow the insurance carrier to manage payment. That way, you can take advantage of the special network rates and fee schedules negotiated between the medical provider and your insurance carrier.
If you need information on programs and practices which mitigate the impact of first aid injuries on your Ex-Mod, you should contact your property & casualty insurance agent.
Nelson Aldrich is an insurance broker with WISG Insurance, headquartered in Turlock. He can be reached at firstname.lastname@example.org