There are several types of Workers’ Compensation programs, including guaranteed-cost and large-deductible plans. An employer can start out with a guaranteed-cost plan and eventually make the transition to a large-deductible program. Let’s look at both types of plans and when and why a shift to a deductible program may make sense for an employer.
What Is Guaranteed-Cost Workers’ Compensation Insurance?
With a guaranteed-cost Workers’ Compensation plan, an employer pays a fixed premium to the insurance carrier in exchange for coverage, usually on an annual basis. This premium is determined based on various factors such as the type of industry, the size of the payroll, and the employer’s claims history. The insurance company accepts the risk of covering the costs of Workers’ Compensation claims from the first dollar on up with a guaranteed-cost plan.
What Is Large-Deductible Workers’ Compensation Insurance?
A large-deductible Workers’ Compensation plan is one in which the employer assumes a portion of the financial risk for its Workers’ Compensation claims. In this plan, the insurance policy includes a deductible, which is the amount an employer must pay out of pocket on a claim. For example, if an employer has a $100,000 deductible on a per-claim, per-occurrence basis as part of its Workers’ Comp plan and the total claim cost is $300,000, the employer is responsible for $100,000 of the claim. The insurer will pay 100% of claim costs as they come due. The employer is then billed monthly for the portion of each claim’s bills that were paid in the prior month. Once the $100,000 deductible is met, the insurance carrier pays all future payments on that claim.
Each state has its own definition of a large deductible, with some states allowing large deductibles as low as $25,000 and some where “large” is in excess of $1 million.
Who Is a Good Candidate for a Large-Deductible Plan?
Typically, candidates for large-deductible plans include larger, established companies with enough payroll dollars and claims history year over year to evaluate trends, frequency of claims, and claims costs. At Prescient National, we analyze this data up to a 10-year period to help determine whether a large deductible amount makes sense and the attachment point up to which an employer can pay for claims.
Other factors play a role in assessing whether a large-deductible plan is right for an employer, including how expected or planned operational changes such as an expansion into another state may impact losses; the ability of an employer to meet an insurer’s collateral requirements in the form of a cash, letter of credit, or bond to cover the insurer’s credit risk exposure; and the employer’s financial strength.
Benefits of a Large-Deductible Plan
Employers typically can save significant premium costs by taking on risk for a portion of their claims. They can dramatically reduce the expense of those claims by taking a comprehensive approach to risk management and safety that includes improved hiring processes, consistently applied post-accident programs, and positive participation with the injured worker. Prescient National assists employers in implementing these effective strategies, which helps them minimize losses and reduce expenses.
In addition, our approach for handling claims in our large-deductible program is the same as with our guaranteed-cost program. Our adjusters have a low caseload, so they can handle claims quickly and efficiently. We negotiate medical expenses and review all invoices for accuracy to reduce claim costs, which are then passed on to our clients in both programs. This is significant for companies in our large-deductible program which are shouldering part of the risk.
About Prescient National
Prescient National offers a full range of deductibles in the states in which we are licensed. We can write policies with deductibles up to $1 million (depending on state limitations).
