Workers’ Compensation premiums are based on payroll, classification codes, and an employer’s experience modification (ex-mod). The ex-mod essentially compares an employer’s experience to expected performance for risks in their industry. The ex-mod is calculated by comparing a company’s Workers’ Compensation claims history to other companies in the same industry in the same state over the previous three years to predict the risk of future claims. The ex-mod starting point is 1.0. If a company has an ex-mod of 0.85, the employer’s experience for this period of time looks to be better than industry average. If the ex-mod is 1.25, the company is performing below average compared to the industry and expected losses for that time.
The manual premium for Workers’ Compensation is calculated by multiplying rates by the total payroll (divided by 100). The manual premium goes through several additional rating factors, one of which being the experience modification rating. A credit is created when the ex-mod is less than 1.0, whereas a debit is created when the ex-mod is greater than 1.0.
There are several ways to improve a company’s ex-mod, including the implementation of a claims management program, a robust safety program, and an early return-to-work program.
Why an Early Return-to-Work Program Improves a Company’s Ex-Mod
An early return-to-work program is designed to get injured employees back to work in a modified or ‘light duty’ capacity while they recover. This not only boosts employee morale but also can be a game changer for improving your experience mod, because workers who return to work earn at least a portion of their regular paycheck, reducing the amount of Workers’ Comp indemnity payments. Why is that?
When examining an organization’s claims history and promulgating the ex-mod, claims costs are weighted differently and expenses are not included. Most states value medical-only claims at 30% of the total, while lost-time (indemnity) claims are not reduced for ex-mod calculations. This encourages employers to implement an early return-to-work program. If the treating physician of an injured worker indicates the employee can return to work during the recovery period, the employer can potentially reduce the claim’s value by 70%. To keep a medical-only claim, an employee must return to work within a certain time frame, which can vary by state, but is typically 5-7 days after injury. This is why it’s critical to report claims immediately to a carrier in order for proper medical care to be directed, or advised, and treatment started.
How We Help
At Prescient National, we explore ways to help clients with the cost of Workers’ Compensation, including looking at light-duty placement for injured employees. For example, a plastics manufacturing facility with about $11 million in payroll had no early return-to-work option for injured workers. The company’s ex-mod was 1.19 in 2022 and set to increase to 1.23 in 2023. We separated the indemnity costs from the medical-only claims and ran a test mod through the National Council on Compensation Insurance website to see the impact on the company’s upcoming experience mod. Without the indemnity costs, the ex-mod was projected to go to 1.12, which could ultimately lower the employer’s “modified” premium costs by tens of thousands of dollars.
We recommended implementing a light-duty, early return-to-work program, including placing injured workers at a nonprofit temporarily until they were ready to return to their jobs at their fullest capacity. Because claims costs remain a part of the ex-mod calculation for three years, it’s prudent to absorb as much lost-time benefit costs as possible by reporting injuries to the insurance carrier in a timely manner. Lower ex-mods translate into lower Workers’ Compensation premiums.
In addition, it’s important to note that a negative ex-mod could prevent a company from bidding on or winning a project in specific industry sectors, such as construction and transportation.
An early return-to-work program reduces disruptions and costs by assigning employees temporary, transitional, or modified work duties. Early intervention allows the injured worker to maintain a positive connection to the workplace, reduces employee frustration and concern, and reduces claims costs and future premiums.
For assistance in implementing a robust early return-to-work program, contact a Risk Manager at Prescient National.
