When it comes to worker’s compensation, many employers look to their Experience Modification Rating (EMR), or mod for short, as proof of their success or failure in creating and maintaining a safe workplace. Just because this is a common practice doesn’t mean it is correct. In fact, with few exceptions, using the mod as a safety benchmark is inherently flawed and there are other ways to more accurately gauge a company’s overall safety practices.
We are not here to argue what is wrong with the processes we can’t change. What we want to accomplish is figuring out how to better navigate the current system to best control the results. The fact is over 50% of all mods are incorrect and over 90% are mismanaged. An incorrect or mismanaged mod can create way more headaches than necessary. “It is what it is” is not the right attitude to have.
On a basic level, the mod is simply a way for the worker’s compensation rate-making organizations to ‘even the playing field’ on rates. Every employer in a state is assigned the same class code as every other employer in that state performing the same operation, with 1.00 being the baseline, or average, mod. If an employer’s actual claim experience is better than the average, they receive a credit mod. If their actual claim experience is worse than the average, they receive a debit mod.
Once an employer has received a credit mod, they are often satisfied that they are better than average but don’t realize how much money may still be left on the table. Every employer has a minimum mod, which changes by employer each year based on the data that is used to calculate the mod. The difference between the actual mod and minimum mod is considered the controllable premium that the employer is still paying the insurance carrier. It is like writing 2 checks for your insurance premium.
An example of this is an employer who's premium, based on the average mod, is $100,000. If they have an actual mod of .87, they are paying $87,000, or 13% less than the average for their industry. However, their minimum mod is probably closer to .65 meaning they should be paying $65,000, or 35% less than the average. In this case, they are leaving $22,000 on the table as controllable premium. They are sending one check for what their mod should be and another for what it is.
As is true with any complicated system or equation, the better you understand the ‘input’ side, the easier it is to manage the outcome by tweaking the data in your favor. I have found, without exception, that once an employer truly understands how the mod is calculated, they self-realize what needs to be done to manage it better. All that they are missing are the tools and expertise to assist them on the implementation side.
One of my clients had an employee injured at work. The medical bills totaled $60,000. If the client allowed the insurance carrier to pay the wages for time off, another $10,000 would be added to the claim. They wanted my recommendation on whether they should accommodate the restrictions imposed by the medical provider or allow the employee to be paid by the insurance carrier and stay home while they recovered.
If they did not accommodate the doctor’s restrictions and the insurance carrier paid the wages in addition to the medical, the client would pay an additional $48,025 in premium over 3 years. If the client accommodated the restrictions and kept the employee at work, they would pay an additional $13,800 in premium over 3 years. The reason for this is due to the difference in the way the claim would impact their mod. One way would result in a 39-point increase and the other in an 11-point increase. Guess which one I recommended?
On top of everything else, the client is involved in commercial construction. Choosing to accommodate the restrictions kept their mod under 1.0. Had it gone above that threshold, the impact to their bottom line would have gone far beyond the increased premium costs simply due to the fact they would not even have been able to bid projects they were used to winning on a routine basis. Being in that position for 3 or more years could easily bankrupt a contractor.
I can give multiple examples like the one above. Figuring out what you should do is not difficult, but in order to have the greatest impact, the process must be managed in real time. You can’t go backwards once the insurance carrier has made payment on the claim. The only way for it to be effective is to work with an agent or broker who understands how the system works and can properly advise you on the correct direction.
The great news is, if you’ve come this far in this article series, we’ve already discussed almost every way that you can better manage your mod using the processes in Conquering Zero. Hiring correctly, choosing the right medical providers, timely reporting, striving for no injuries, immediate medical attention, safety implementation and accommodating restrictions will all have a positive impact on the ‘input’ side of the mod equation.
There are other strategies that can provide a more positive mod experience. One of those strategies is proprietary to WalkerHughes Insurance and only available to our clients at the present time. If you’d like to learn more about any of these strategies, you know what you must do. What are you waiting for?
About the Author:
Ray Gage, Director of WalkerHughes Allen County Office, is a Master Work Comp Advisor who's passion and life's work is to help sophisticated, process-oriented businesses create safe, healthy, productive workplaces, and as a result, more profitable firms. For more information on Automate Safety along with the other tools offered by WalkerHughes to assist in your quest for Zero Injuries, contact Ray at r.gage@walkerhughes.com or by phone at 260-627-3641 with any questions or inquiries.
