For a normal person (that would be anyone not in the insurance industry..I can say that because that’s all I’ve ever done, Ha!), it would seem that classification codes are this great big secret developed by some secret organization (a rating bureau) working behind the scenes with the idea of keeping those outside the insurance industry in the dark as to where codes come from, how codes are applied, how they are used to generate premium for an insurance company and nightmares for an employer….Hmmm….who am I to argue!
I’d venture to say that most folks confuse class codes with the common term “job description.” It’s easy to see how an employer would make such an assumption. After all, codes talk about individual work processes that an employee performs while going about their daily duties. Sounds like a class code description to me. But hold on! It’s never that simple. In practice you’ll often find that an employers job descriptions will encompass multiple class code descriptions. And let’s not forget the fact that when it comes to assigning a workers comp code to a business that it really is just that, assigning the proper code to the business, not the individual work processes found within the business. Sure there are some exceptions, like those found within the construction industry and staffing companies, but for most business operations, it’s the business that’s classified.
Business owners, aka employers, are quick to understand that each code carries it’s own rate used in the development of the workers comp policy premium. They gain a knowledge, often time promoted by a new agent wanting to compete for their insurance business, that if there’s a better, cheaper code out there (one that carries a lower rate) it should be used on their policy over a current higher priced one. Unfortunately this common scenarieo is where many employers make their first mistake.
That first mistake is:
- Believing the class code system is simple because it is not.
It’s not unusual to find an employer who wants to dispute the class codes used on their policy. They may have been lead to believe there is a cheaper code out there that could apply to their business. Maybe there is a more accurate code and that situation should always be investigated. But once we dig into an employers individual problem we often find that current codes being applied to the business operations are appropriate and follow the rules according to their rating bureau.
It’s here where employers will often become confused and not understand, blaming their specific circumstance on the big “but it’s not fair” catch all of all things unwanted.
Let’s take a closer look.
Here’s a few ground rules that should never be forgotten, they’ll help keep you out of trouble:
- An employer/business owner always wants to be sure they are paying the lowest premium for their workers compensation insurance. That’s a good thing, but be careful poking the bear;
- Applying common sense when it comes to code classifications will almost always lead you into trouble;
- Simply reading a code description will not provide you with enough information to make a correct code application determination;
- There are multiple levels of rules that go along with code descriptions that must be considered in order to arrive at a proper code for a business operation;
- All assumptions about codes should be thrown out the window;
- No assumption about a code will be correct (this may be a little strong, but all in all, not bad advise;)
The first sign of a code problem will often be when a business owner receives an unexpected audit bill from their insurance company. A quick investigation will lead to the discovery that the auditor has changed codes at the audit. Keep in mind that most auditors will not discuss their findings with the business owner during the audit data gathering process. That they will simply gather the facts, as they see them, complete their audit report and send that information to the insurance company so they can make adjustments to the employers policy.
Here’s where the employer will dig their heels in and defend their position. This immediately puts the employer behind the curve. Think about it. Who actually has the upper hand in this situation the employer or the insurance company? Who actually knows more about the classification system? Well, maybe I should say, who should know more about the classification system.
And if there’s a lot of money involved in a class code dispute all of a sudden rules and code descriptions truly become a battle field where the spoils go to the victor. Untold amounts of money may be spent in costly litigation to win a favorable outcome.
So taking all this into consideration, just who has the upper hand? Well it has to be the insurance company doesn’t it? After all, they are the ones with the resources, the in house legal department, the history and in some ways the complete backing of the rating bureau. Big secret there. Who pays the rating bureau’s way? Who runs the State Review Boards? Who has the ability to sway decisions for the greater good? Sorry…that’s a discussion for another day!
Let’s answer the question in the title. How do employers make costly mistakes when it comes to codes?
- They make incorrect assumptions that the classification system is “fair.” (In fact it’s not fair or unfair. It’s governed by a complicated set of rules that most folks have no concept of how they come together to develop a correct code application.)
- They have an internal desire to believe there is a lower cost code somewhere out there…maybe there is…maybe there is not.
- They believe they can defend their own class code dispute. (Rarely works out in their favor.)
- They believe the code system is simple. (That’s far from reality.)
- They believe that their interpretation of a class code is the right interpretation. (Maybe but probably not.)
- They believe they can win a code dispute on their own. (It rarely happens.)
- They believe that a rating bureau is on their side. (Really?)
- They believe that State Workers Comp Review Boards are on their side. (No comment.)
So what can we take away from this post?
- That code issues are complicated, even when they seem on the surface to be simple they are often not.
- Sometimes it’s better not to poke the bear! You may end up in worse shape than when you started!
- You don’t have to go it alone. As a matter of fact it may not be in your best interest to do so!
- Be sure to seek out the help of a workers compensation consultant before you go throwing mud at your insurance company!
Hope this helps you out and thanks for reading!