Last month we discussed several steps home health care and hospice organizations can take to gain control of their Workers’ Compensation costs. One strategy is to understand how your premium is determined and the integral part that experience rating plays in determining your costs. Here we’ll delve further into how a company’s experience modification factor (ex-mod) works, part of the experience rating process, and why it’s so important in helping to reduce your costs.
To recap, premiums for Workers’ Compensation are determined using the following formula: the classification rate (your workplace payroll exposures) multiplied per $100 per payroll (includes salaries, commissions, bonuses, overtime, holiday/sick/vacation pay, car allowance) multiplied by your experience modification plus fees and assessments (state-specific). Experience rating, on which your ex-mod is based, is a system that benchmarks an individual employer’s historical claim experience against others in the same industry. Factors taken into consideration to determine your ex-mod are: company size, unexpected large losses and the difference between loss frequency and loss severity. Frequent losses carry more weight than larger, infrequent losses.
The comparison with other similar companies in your industry is expressed as a percentage – your ex-mod – that is then applied to your Workers’ Comp premium. Typically an ex-mod greater than 100% (or 1.00) increases the cost of your premiums, while an ex-mod less than 100% (or 1.00) decreases the cost. For example, if you fall within the average range as compared to similar-size companies within your industry classification, you would typically get an ex-mod of 100 and would be charged the full base rate. On the other hand, if your business has an experience mod factor of 0.90, you might see a 10% savings, while a business with a factor of 1.25 would pay 25% more. Basically, your ex-mod functions as an indicator that gauges the “health” of your organization; it helps predict whether your loss experience is better or worse than that of the average employer firm in your industry.
An organization’s ex-mod is calculated by the National Council on Compensation Insurance (NCCI), or in some states, by an independent bureau. Experience rating is mandatory and applies to all employers that meet a state’s premium eligibility criteria for the plan.
How can your organization lower its ex-mod?
- Speak to your insurance agent to verify your ex-mod is accurate, and not based on incorrect or incomplete data.
- Remember, your ex-mod is influenced by small, frequent losses as well as by large, infrequent ones.
- Create a sound safety program that is proactive about injury prevention.
- Develop or improve an effective return-to-work program, minimizing claims costs.
- Be sure to report injuries promptly. Studies reveal that prompt injury reporting reduces the cost of claims.
- Implement an active claims management program to manage outstanding loss reserves and focus on efficiently resolving open claims with the insurance carrier.
- Train supervisors how to manage injured employees. These individuals play a key role in managing the injury and recovery process. When there’s a good relationship between the injured employee and management, chances are you’ll get better results.
- Practice due diligence during the hiring process. Hiring an employee who is not fit for the essential functions of the job will increase the risk of an injury. Be sure, of course, to follow the appropriate and legal steps during your “screening” process.
Ex-mods create a powerful incentive for each company to work to reduce workplace accidents and manage claims with a company-wide safety program and comprehensive accident claims processing and investigation. Manchester Specialty focuses on providing the home health care and hospice industry with Workers’ Compensation insurance solutions. Our insurance carrier partners offer a broad spectrum loss control and prevention resources as well as return-to-work plans for insureds to help drive down costs. For more information about our programs and coverages, you or your local insurance agent can contact us today toll free at 1-855-972-9399.