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Commentary: New Workers Comp Rules Will Impact Employers Costs

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The National Council on Compensation Insurance (NCCI), which is the workers’ compensation rating organization for 41 states in the U.S., has filed to triple the “split point” over the next few years, with the first adjustment in 2013. The filing will increase the split point from $5,000 to $15,000 over a three-year period to catch up with claim inflation. The first stage will take effect in 2013 and double the split point to $10,000.

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What Is the ‘Split Point’?

Each workers’ compensation claim is divided into a “primary” and “excess” portion. Currently, the first $5,000 of every claim is the primary loss—everything over and above that is excess loss. Primary losses are counted in full (100%) in the employer’s experience mod calculation, which determines employers’ percentage credit or surcharge on their workers’ compensation policy. Excess losses are counted only partially. The split point delineates primary loss from excess loss.

Reasons for the Change

The average cost of a workers’ compensation claim has nearly tripled since the last split point update over 20 years ago. If the split point is not adjusted to account for this inflation, the experience mod rating plan becomes less responsive.

Consequently, with an understated split point, employers with lower than average mods have been subsidizing employers with higher than average mods. The change will result in a “zero sum gain”—meaning that overall average mod factor will remain close to 1.00. This change should correct this current tendency for employers with low mods to subsidize employers with high mods.

Under the filing, employers with substantially low mods will generally see decreases and employers with substantially high mods will generally see increases. There will be a small percentage of employers that will experience exceptions to these tendencies. Response to the proposed change

While NCCI’s filing to increase the split point will result in an overall “zero sum gain,” this change will have significant adverse impacts on some employers and very beneficial impacts on others.

While those in the industry understand the reasons for the change, there are concerns over the proposed speed of implementation. Some employer advocates are promoting more gradual increases (e.g. $3,000 annual increases), which would give employers more time to adjust to the changing environment.

In some states, such as Colorado, public hearings are scheduled where groups can give input to help determine the most equitable and reasonable way to implement these changes.

How to Prepare

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