Last updated: August 30, 2012

Here at Zywave we’re getting lots of questions about the 2013 change to the workers’ compensation experience rating split point. As the effective date of this change draws near, I wanted to address a few of the common questions we’re hearing:

Has the split point change been approved in my state?

Here’s the approval status of the split point change (as of July 12, 2012 – we’ll keep this updated as states announce their decisions):

• The change has been approved by all states that utilize NCCI, with the exception of Massachusetts, where the change is still pending. (Note that Indiana, Massachusetts and North Carolina use NCCI for interstate rating but have their own bureau for intrastate rating. IN and NC have approved the change.) 
• Missouri has approved a modified plan in which the increase occurs over 4 years, with the first year split point set at $7,500.
• The independent states of Michigan, Minnesota and Wisconsin have approved the change. In New York, the NYCIRB actuarial committee has approved the 2013 change to a $10,000 split point, although it states that further study is needed for increases in subsequent years.
• The independent state of Texas, which uses rating methodology similar to NCCI’s, has not posted information on their website concerning the change.

It’s worth mentioning that the NCCI states of Alaska, Georgia and Louisiana are also implementing the experience rating adjustment for medical-only losses along with the split point change on their respective effective dates. Read more

The split point change is not likely to be an issue for agents and brokers and their clients in the following states:

• California. Although its rating methodology is somewhat similar to NCCI’s, California had a split point increase in 2010, so another significant increase in 2013 seems unlikely.
• Delaware, New Jersey and Pennsylvania. These states have independent bureaus that use rating methodology that is different from NCCI’s.
• North Dakota, Ohio, Washington and Wyoming. These are monopolistic states in which employers must obtain workers’ comp through a state fund or self-insure, where permitted.

When exactly does the change take effect?

Plan changes, including the new split point and also a new capped mod formula, take effect on each state’s loss cost/rate filing effective date. Many states have a 1/1/2013 rate filing, so by autumn we should be seeing those rates published.

Will the rates be changing more than usual because of the split point change?

In states that approve the change, the ELRs (expected loss rates), D (discount) ratios, ballast and weighting values will be adjusted as they usually are each year. Additionally, since expected losses are split into primary and excess portions based on the D-ratio, resources from the bureaus have indicated that the D-ratios will have an additional adjustment in 2013 to correspond to the new split point.

Will some interstate mods in 2013 use both the new and old split point?

This is a good question, and the short answer is yes. Let’s look at a hypothetical example of an interstate mod for a business with operations in Tennessee and neighboring Kentucky.

Let’s say the mod is effective 6/1/2013.

Tennessee has approved the new split point effective 3/1/2013, so on the 6/1/21013 effective date of this hypothetical mod, Tennessee 3/1/2013 rates and the 10,000 split point would apply.

Kentucky has approved the new split point effective 10/1/2013, so on the 6/1 effective date, the change would not be in effect. Therefore Kentucky 10/1/2012 rates and the 5,000 split point would apply.

While it may seem a bit strange to see different primary loss amounts for losses in different states, it’s something to get accustomed to going forward, as the split point will continue to increase in 2014 and 2015, and will also be indexed for claim inflation in 2015 and beyond.

Will the new split point for a state be “retroactive” to all losses in the mod?

Sometimes people wonder if a new rule, such as the split point change or the implementation of the ERA medical-only reduction, will apply only to losses effective as of a certain date, but that’s not the case. The same split point will apply to all losses in the mod for a given state and effective date, regardless of when in the experience period those losses occurred.

When will new split points be available in ModMaster so I can know how a mod is going to change?

For any given state, the new split point will become active in ModMaster at the same time we update the 2013 rates for that state. As our longtime partners know, we update rates promptly as they are published by the bureaus. Until rates are available, users should input all available data as usual and use the Mod Projection feature in ModMaster to estimate the impact of the new split point on a  2013 mod. (The projection feature is also available for mods effective in 2012.)

Let me know – here in the comments, or by email – what other questions you have about this significant experience rating plan change and how it is being implemented in ModMaster.

– Kory Wells, WorkCompEdge Blog Editor

© 2012 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

For further information:

On NCCI.com:

Understanding NCCI’s Filed Experience Rating Plan Changes – Item E-1402.

On the WorkCompEdge blog:

How Will Mods Change Under New NCCI Plan Recommendations?

New Report Estimates Mod Change Due to 2013 Split Point Value