Common problems associated with a workers compensation EMR or experience modification rate can lead to unusually high workers compensation premiums. While the EMR, X-Mod, Mod or Experience Rating Factor is designed to provide a more accurate workers comp premium, errors and misapplication do occur during the development and calculation phase. Lets explore some of the common errors and solutions to an Experience Modification, EMR, problem.
Toughest part for any employer is determining if there’s a problem at all! The development of an experience mod, for most, seems shrouded in secrecy. The formula is complicated and data sources seem hidden behind smoke and mirrors. Rating organizations, whose task it is to calculate and apply the Mod, seem to operate at an unobtainable level usually unknown to the very employers who are effected by the EMR they develop and publish.
Problems associated with an Experience Modification Rate or EMR can occur in many places. They are usually complicated, not easily discovered and very costly when left uncorrected.
Here’s a few common areas where experience rating mistakes are discovered:
- Claim Data – Claim data is provided to the Rating Organization by each individual workers compensation insurance company that an employer may have had during their experience period. This information includes paid and reserve amounts established for any given claim. Claim data must be reported to the Rating Organization within certain time frame guidelines with well established cut off dates. Medical only claims are typically discounted and large claims are capped. When either the claim data itself is incorrect, over reserving, poor claim handling or if that information is reported outside of the required time line, an error will occur in the EMR.
- Classification Code – It’s just as important for an employer to have the correct classification code used on their experience rate calculation as it is on their policy. Each classification code that applies to an employers workers compensation program will have its own unique rating factors. Factors that produce an employers expected losses, a major part of the experience rating calculation. An incorrect class code will skew the calculation and lead to an incorrect EMR.
- Payroll or Remuneration – Properly assigned payroll to the correct classification code will produce the correct expected losses in the formula. If the payroll is reported incorrectly by the insurance company, or if an adjustment due to an audit dispute has not been corrected by the insurance company, the EMR will be wrong.
- Incorrect ELR and D-Ratio – These are specific classification code rating factors, different for each code, different for each state that change, for the most part, every year. If incorrect ELR and/or D-Ratios are used the EMR will be wrong.
- Split Point – Experience rating formulas are designed to discount large shock type or severe claims and emphasize frequency problems. The split point is the numerical point, in claim data, where claims are split into primary and excess losses. Primary losses being those more heavily weighted in the formula. For those states using NCCI as their rating organization the split point is changing from $5,000 to $15,000 over the next 3 to 4 years. Refer to this previous post for more details how split point changes effect premium. Incorrect split points will cause the EMR to be wrong.
- Incorrect Combination of Entities – Specific rules govern the actions taken and the effect combining entities and changes of ownership will have on an experience modification rate. When common ownership of two or more entities exist it is possible to combine those entities where the experience of both are used to calculate a common EMR. The key here is “specific rules apply!” Costly EMR problems may develop when entities are not properly combined.
What about some solutions? You might now understand how Experience Modification Rating problems can be a nightmare! Unfortunately there are no easy fixes even if and when a problem is easily identified. But here’s a few things that should be considered:
- Have a Claim Review conducted. You can’t do this by yourself. It requires an experienced consultant who knows what to look for, when to look for it and how to have it corrected. A claim review conducted by an outside consulting firm will identify problems in poor claim handling, improper claim reserving or over reserving, improper data reporting and improper data usage in the EMR calculation. All workers compensation claims should be reviewed!
- Have a Classification Code Review conducted. Codes and their accompanying rate factors must be reviewed. Not only do they effect current policies in place, but have a significant effect on the EMR calculation. Have a code review conducted.
- Have a Workers Compensation Audit Review conducted. Properly applying payroll to the correct class code directly effects the calculation of Primary and Excess Losses which are used in the EMR calculation. An Audit Review will reassure you this is being properly done.
- Have an Experience Modification Review conducted. Ask an independent workers compensation consultant to conduct this review for you. Certain areas of your E Mod will be reviewed for accuracy. They can even help you with future experience rating projections!
Hope this has been of some help to you! Please contact our office if you should have any questions how an independent workers compensation consultant can help identify EMR problems and assist with solutions for your company!