BWC Changes in Rate Calculation and Reserving

As part of the BWC’s perpetual efforts to attempt to achieve rate equity for Ohio employers, we wish to inform you of the following proposed or current BWC changes in rate calculation and reserving. As always, our goal at ORM is to assist you in objectively controlling your workers’ compensation costs through pro-active risk management; however, it is important to understand the BWC rating system changes and opportunities that can enhance our mutual goals.

Split Rating Plan

The BWC is planning to implement a new rating calculation plan for private employers in July of 2011, with public employers likely following suit in January of 2012. Unlike the current rate calculation formula, the new plan will consider injury frequency in addition to claim cost severity. The goals of this “split” rating plan are to ensure better accuracy in determining employer premiums based on the risk their operations present, to provide less volatility from one significant claim, to add greater incentive to prevent workplace injuries, and to be more consistent with rating plans in other states. Further updates on the BWC split rating model will be provided as more detailed information become available.

As a “heads up” to those employers remaining in the $15K Program:

Although the parameters of the split rating plan are still under development, one component places a cost threshold on medical only claims for which they may be excluded from the experience calculation. Early recommendations have been to place a $1,000 threshold on each medical only claim. If implemented as recommended, this creates further disadvantage to continued participation in the $15K Program, as these claims would no longer have a significant impact on rate calculation.

Reminder on BWC Reserving System Changes

Effective July 1, 2010, all medical only claims will be eligible for a reserve. However, bear in mind that most medical only claims will not carry a reserve by the time they enter an employer’s experience period based on BWC statistical analysis. This change will first impact private employers for the rating year July 1, 2011 to June 30, 2012, and public employers for the rating year January 1, 2012 to December 31, 2012.

Salary continuation paid in claims with dates of injury on or after January 1, 2011 will be eligible for a reserve. Claims with dates of injury prior to January 1, 2011 will be grandfathered and continue to have reserves suppressed when salary continuation is the only compensation paid. In most cases, a salary continuation claim would only reflect a medical reserve unless the BWC issues some other form of compensation. The costs savings in avoiding the indemnity reserve by paying salary continuation may still provide financial benefit. This change will first impact private employers for the rating year July 1, 2013 to June 30, 2014, and public employers for the rating year January 1, 2013 to December 31, 2013.

Also effective July 1, 2010, all claims with living maintenance or living maintenance wage loss indicated as the last compensation type paid will no longer have a 50% reserve reduction and will be charged full reserves. This will impact private employers beginning with the July 1, 2011 rating year, and public employers beginning with the January 1, 2012 rating year.

ORM will continue to provide employers with assistance in determining which options are best for your company as we assess this new information. If you have questions regarding any of the BWC Programs or proposed changes, please do not hesitate to call Brandy Jordan directly at (614) 602-8273 or via email at bjordan@ohpinc.com.