Many of you are undoubtedly familiar with the importance of medical-only claims to the experience modification rating process. In a great majority of states, these claims, also known as injury or IJ code type 6 losses, are reduced by 70% for the purposes of the mod calculation. This reduction is also known as the experience rating adjustment (ERA). Reducing medical-only losses for the purposes of the mod calculation can result in a considerably lower mod factor and, in turn, workers compensation premium.
A Change for Medical-Only Losses in New Mexico and Colorado
It’s timely to revisit medical-only losses right now because of two reasons:
- New Mexico has recently approved the medical-only reduction, effective 9/1/2010. If you’re a ModMaster user, this reduction will only take effect on NM mods with an effective date of 9/1/2010 or later – IF you’ve applied ModMaster update 10.04 or later. This update also includes new NM rates, also effective 9/1/2010.
- The Colorado legislature has recently DISAPPROVED the medical-only reduction, effective 1/1/2011. This change is part of Senate Bill 10-112, which also says that deductibles paid by employers cannot be used in determining the experience mod. NCCI has not yet published anything about this change (and we really wouldn’t expect them to for a while), but those of you who do business in Colorado may want to start thinking about this change now. We anticipate that mods with effective dates of 1/1/2008 through 12/31/2010 will still reduce medical-only losses by 70% and mods with an effective date on or after 1/1/2011 will NOT reduce such losses, but we hope this will be clarified by forthcoming documentation from the appropriate authorities. In the meantime, your best bet for anticipating this change on a certain risk in ModMaster is to:
> Use File Utilities/Copy a file to make a copy of the desired mod file.
> On the Small Loss page, change all CO losses that are coded as IJ type 6 to any other code (usually 5 will be the most appropriate code for something that was previously medical only).
> On the Large Loss page, change all CO losses that are coded as IJ type 6 to any other code (again, usually 5).
> Now recalculate the mod.
You can use the Mod Comparison Report to compare your original file to your copy of the file with the IJ types changed – HOWEVER, before you get too excited, it’s important to remember that your new calculation is still using 2010 rates, AND the claims coded as med-only may fall under the deductible and not apply to the mod calculation. So you may also want to make a copy of your original file and DELETE some or all of the type 6 losses (depending on the deductible level you anticipate) and recalculate to see what that impact will be. We also anticipate that the 2011 rates will change somewhat to reflect these new rules.
We will continue to monitor the forthcoming changes in Colorado and write more about this as information becomes available. We appreciate our clients and readers sharing any information that you learn from other sources, too!
Update, 11/14/2010: The Colorado Insurance Department has approved the proposed change, and NCCI has documented this change in circular CO-2010-07. ModMaster has been changed accordingly so that calculations in Colorado effective 1/1/2008 through 12/31/2010 will still use the medical-only reduction. In ModMaster, calculations with effective dates before or after these dates will not reduce medical-only (type 6) losses. ModMaster must be on update 10.12 and code level 100915 for this change to take effect.
A Brief History of the Experience Rating Adjustment
The experience rating adjustment was first implemented in 1998 as a way to encourage employers to report ALL losses, not just those involving lost-time claims. Prior to the ERA (and still today in states that have not approved the ERA), companies would often pay their small claims to avoid having these claims count against the mod. Interested in collecting all possible data for actuarial purposes, NCCI implemented the ERA method of reducing medical-only claims by 70% for the purposes of the mod calculation.
This change in turn has considerably increased awareness of the importance of keeping claims medical-only through:
- optimal injury management, especially in the first 24 hours after an injury
- early return-to-work/modified duty
- and good communications between everyone involved in an injury: the injured employee, the supervisor, HR, and medical and insurance staff.
All of the above principles we explain in great detail on WorkCompEdge.com.
The ERA shows up in key strategy #8 in our 9 Key Strategies to Better Work Comp Sales and Service which we’re unveiling this summer. Look for a 2-minute video on this topic soon! In the meantime, for more about the ERA itself, don’t miss this related reading:
- ModMaster FAQ: What is the experience rating adjustment?
- ModMaster FAQ: What states have approved the experience rating adjustment?
- WorkCompEdge Blog: Small Medical-Only Claims: To Pay or Not to Pay?
This whole subject may become a moot point once the Medicare Secondary Payers Act of 2007 becomes effective and all applicable rules for reporting all Medicare Beneficiary payments to the Center for Medicare and Medicaid Services (CMS). Employers will have to be very careful when paying their Medical Only claims especially should they exceed $600 (what I have been told is the threshold) and the Employer becomes a Responsible Reporting Entity and required to report all future payments, medical and indemnity, to CMS.
Is the risk of becoming a RRE under MSPA worht the few points saved on your Emod? Every employer will have to answer that question for him/herself, but will certainly require some guidance for a knowledgable agent..