All employers in North Carolina with 3 or more employees are required to purchase a  workers compensation insurance policy.  And over time, most employers will learn of a modifier to their workers compensation rates called the experience modification factor.  Those of us in the business call it the experience mod for short and this little tool can be a huge money saver for you or it can cost your company big money.  Understanding how it works can help you load the odds in your favor.  This article is a short overview of the experience mod, how it works, and how you can use it to drastically reduce your workers compensation insurance costs.

The experience modification factor is the tool that implements the concept of experience rating in North Carolina workers compensation insurance.  Experience rating is generally a very good thing for employers who want to protect their workers and keep injuries at a minimum.  For those who aren’t focused on keeping losses low, the experience mod can bite pretty hard.  But let’s face it, we do want to reward careful employers and not force them to pay for all those losses that the careless ones generate.  For this reason, I’m very much on board with the concept of experience rating for NC work comp insurance.

Your experience mod is simply a modifier on your premium that is applied to your policy to help reflect the loss experience that you have had recently.  If your mod is over 1, then you will be paying an additional surcharge on your policy for your past losses.  If your mod is lower than 1, then you are receiving a discount for good past loss experience.  I have seen mods as high as 3.25 and as low as .72, so the range from reward to punishment is very large.

So which workers comp policies in NC are eligible for experience rating?  There are two factors involved, time and premium size.  First of all, you must have a policy in place for at least 2 years in order for there to be an experience period to be evaluated.  If you are new in business and buying your first workers compensation policy, then you won’t be experience rated during the first two years.  The second criterion is size.  Very small work comp policies may never reach a large enough size to be eligible for experience rating.  To be eligible you must have had an average annual premium of more than $2500 for the past two years, or have payrolls in the last year, or two years that would develop a premium that exceeds $5000.  Once those thresholds are hit, your policy will be experience rated by the NC Rate Bureau.

The experience rating process will look at losses during the experience period.  That period is usually 3 full years, ending one year prior to the effective date of the modification.  For example, a modification done on January 1, 2011, would look at the payrolls and losses for the prior policies effective January 1, 2007, January 1, 2008 and January 1, 2009.   You can quickly see that a year of bad losses on your workers compensation policy is going to hang around and drive up your mod and thus your rates for a long time to come.

The last thing to understand about the experience rating process for workers compensation policies in North Carolina is just how your modification factor is calculated.  The formula itself is fairly complex but as an employer, you should know several things about this process.  First of all, small losses have the greatest impact on determining your mod.  The formula classifies all losses under $5000 as primary losses and these losses carry the greatest weight in the formula, especially for small employers.  Larger losses are capped and then given increasing importance for larger employers, but for the small guy, the small losses will hurt the most.  The message to small employers is clear  - loss frequency is the strongest measure by which the NC Rate Bureau will punish you via your experience modification factor.

In the past, some employers would pay the small medical only claims out of their own pocket in order to keep from reporting them to their workers comp company and risk driving up their mods.  This practice is dangerous for both the employer and the employee and to remedy this, NC now only applies 30% of the medical only losses to the rating formula.  Please remember, file all work comp claims with your insurance company promptly.  Paying them yourself could leave you in dangerous territory vis-à-vis your financial health.

Your best approach to your experience modification factor is to work to help keep claims from happening, then when they do, do what you can to help your employee get back to work as quickly as possible.  My advice to achieve both of those goals is to purchase your workers compensation insurance policy from a specialty insurance company that only writes workers compensation insurance.  These companies tend to have more streamlined claims processes and they also often  have on staff doctors, nurses and case managers.  This kind or proactive approach to keeping your claims costs low will help you keep your experience modification factor as low as possible.  Also, these specialty workers compensation insurance companies will also have loss control services that you can implement right away to prevent other claims from happening at all.

Your experience modification factor is a way to help make sure that those causing the accidents and injuries are the ones who pay the greatest share of their costs.  You should take advantage of this opportunity to make sure that you move yourself and your company to the credit side of the experience mod equation.  At Clinard Insurance Group, in Winston Salem, NC, we help our clients all across NC save money on their workers compensation insurance.  We understand this coverage and will take as much time as you need to understand all of your options and how to best leverage the marketplace to better protect your employees while reducing your insurance expenses.   If we can help answer your questions about NC workers compensation insurance, please call us, toll free, at 877-687-7557 or visit us on the web at www.ClinardInsurance.com.

Recently the Office of Inspector General (OIG) investigated Medicare and Medicaid medical providers suspected of overbilling the system with improper use of the billing override code 59.  Code 59 is one of 35 different coding edits that are used to bypass Medicare’s National Correct Coding Initiative.   The results of the OIG audit show that 40% of all code pairs billed with the code 59 modifier resulted in overpayments to the medical providers.  These overpayments totaled $59 million.  Remember, that is for just one of 35 modifiers used to override coding edits.   The audit also showed that computer technology did not detect the overbilling errors related to the use of these modifiers.  It was only when the medical bills were reviewed independently by hand that these overbilling errors were found.   So what does that have to do with you and your workers compensation insurance rates?

Your North Carolina workers compensation policy is an experience rated policy.  Your experience modification factor is an extra multiplier on your rate that applies your past experience with your workers compensation insurance to your current rates.  If you have had very few claims and they were all small, then you might find yourself with a modifier that is less than 1.  In that case, your positive history will mean you are receiving a discounted rate.  But, if your experience has been such that your experience modification factor is larger than 1.0, then you are paying an additional amount on your workers compensation policy due to your past claims experience.  Your experience modification factor is calculated based on the frequency of your claims and the severity of your claims.  So if you can hold down the severity of your claims, the amount that is paid out, then you can help to keep your experience modification factor lower.

Now here are the facts that you must understand.  First of all, workers compensation carriers face the same mult-billion dollar challenges as the Medicare and Medicaid system face.  Most workers compensation insurance companies rely solely on their computer technology to detect billing errors and do not conduct reviews of modifier 59.   More often than not, the insurance company just applies the fee schedule discount and pays the bill without any investigation to determine billing accuracy.

Much of this seems to be out of the business owners control, so what can you do to protect yourself from intentional and unintentional billing errors that will drive up the cost of your workers compensation insurance?  The answer lies in which company you select as your workers compensation insurance company.  To begin with, I generally recommend that businesses purchase their workers compensation insurance policy through a company that only writes workers compensation insurance.  These specialty carriers are much more price competitive to begin with, but beyond that, since workers compensation claims are the only type that they handle, they generally have a better system for watching for fraud in the billing process.  In addition, a specialty work comp company will often provide on staff nurses to manage a case as well as more systematic and careful review of all medical bills.  These differences in approach will not only show up in their lower rates, but will also help you keep your experience modification factor lower, thus lowering your company’s specific rates.  Of course, if you are able to see copies of medical bills for your injured employees, keeping an eye out for code 59 on the bill might also help you catch a billing error.

Clinard Insurance Group is an independent insurance agency located in Winston Salem that is actively engaged in helping businesses all across North Carolina with their workers compensation and business insurance.  We would love to show you how to cut your workers compensation costs dramatically with very little effort on your part.  If you would like our help, or if you have questions about your business insurance policies, please call us, toll free, at 877-687-7557 or visit us on the web at www.ClinardInsurance.com.