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How Workers Compensation Claims and the Experience Modification Rate (EMR) Affect Ohio Businesses

Anyone handling workers compensation insurance, risk management, or proposal management has heard the acronym EMR often – maybe without knowing what it really entails or where it comes from. It stands for Experience Modification Rate, which still isn’t self-explanatory to most. 

It can impact several aspects of operations for some companies, but will always impact workers’ comp premiums.  It’s determined by similar parameters from state to state, but can vary depending on the policy’s home state. 34 states go by the rules of NCCI, the National Council on Compensation Insurance. 12 states use modified NCCI rules to determine EMR, and the remaining four (including Ohio, Washington, Wyoming & North Dakota) are “monopolistic,” meaning they’ve created their own set of rules loosely based on NCCI operations.  

Ohio is monopolistic, meaning the Bureau of Workers’ Compensation (BWC) dictates both the EMR and the base rates. Base rates are determined by job classifications and the risk associated with them, and include catastrophic claims costs, safety & hygiene costs, and surplus costs. If a certain type of work has high claims industry-wide, it will have a higher base rate than one with low claims frequency. The base rate of office staff (8810) is $0.10, while the base rate for tree pruning (0106) is $10.03. It acts as a multiplier for every $100 of payroll assigned to that manual code (NCCI code). EMR can act as an additional multiplier for these rates. Below are some examples of how different EMRs can impact premiums, using Ohio BWC’s current base rates.

EMR: 1.00

NCCI #PayrollBase RateIndividual RatePremium 
8810$500,000$0.10$0.10 $500 
0106$992,020$10.03$10.03$99,500*
Total Premium$100,000

EMR: 1.50

NCCI #PayrollBase RateIndividual RatePremium 
8810$500,000$0.10$0.15 $750
0106$992,020$10.03$15.05$149,299*
Total Premium$150,049

EMR: .75

NCCI #PayrollBase RateIndividual RatePremium
8810  $500,000$0.10$0.075$375 
0106$992,020$10.03$7.52$74,630* 
Total Premium75,005
*rounded up to nearest dollar

EMRs can be an advantage or disadvantage, depending on the company’s individual experience. Now that we know how it impacts things – where does the EMR actually come from? Ohio BWC sets expected losses, comprised of average combined claims and payroll experience of all employers in the same manual classification, excluding certain costs.

A somewhat complicated equation of expected, modified and actual losses, loss ratios and credibility factors all play into the actual calculation of the EMR – but that kind of deep dive is usually reserved for underwriting and actuarial professionals. Simply put, EMR is an estimation of anticipated future claims costs based on industry averages. Employers with lower than expected claims costs (compared to the industry average) will have an experience modification credit factored in, while those with higher than expected losses will have an experience modification debit.

It’s also important to understand that EMRs don’t increase immediately when those expected loss numbers are breached. The current policy year and year prior are excluded from experience calculations – meaning there will be a gap of at least one year (BWC refers to this as the “green year”) before it impacts EMR and premiums. Since EMR plays such a big role in the calculation of workers’ comp premiums, it directly impacts every company’s bottom line.  

For some employers, EMR affects more than just premiums. Virtually all commercial construction, and a growing number of manufacturers, trucking companies and contractors, are required to have an EMR of 1.00 or lower in order to be awarded a bid, or sometimes to even enter specific jobsites. If a company’s EMR is 1.10 and their competitor’s is 0.80, the competition may be awarded the bid even if they’re less qualified or more expensive.

This all begs the question – how can a company keep their EMR low, or reduce it? The best way to keep it low is to have no losses, meaning no workers’ comp claims. Easy enough, right? Since it’s unlikely that a business can do that, it’s important to focus on containing the costs that can be controlled to some degree. The primary tool in controlling these costs will be claims management. 

In Ohio, there are two different parties involved in the management of claims – primarily the MCO (managed care organization) and the TPA (third party administrator). 

If you’re in a PEO (professional employer organization), they will typically provide the services of both. They should work together by monitoring claims for red flags, fraudulent activity and malingering, and providing litigation support for the employer. They will also aid in getting the claim closed in a timely manner, which affects reserves. As soon as a claim is opened, a reserve is set on it by BWC, which is a projection of how much more could be spent on that claim. Until the claim closes or the claimant hasn’t sought treatment in 6+ months, BWC treats the reserve like money that’s already been spent. A good partner will help the employer understand how certain expenditures and settlements in the claim could impact future premiums and EMR.  

Reducing an EMR can be more complicated, and is by no means an overnight effort. If you walk into your first day at a new company, and find that they’re sitting at a 1.70 EMR – you already have several elements out of your control. There’s the money already spent on claims in the experience, and the one to two “green years” that will be coming into the experience over the next two policy years. The company may be losing bids left and right due to the penalty rating (an EMR over 1.00) and now it’s your job to “fix it.”

If you need a quick solution, a self-insured PEO is one of the best options. Not only will your company enjoy the flexibility of being considered a self-insured employer, but you’ll also utilize the PEO’s blended EMR, which should always be credit rated (under 1.00). A business with an EMR of 1.35 may be able to boast one as low as 0.50 when participating in a self-insured PEO. It’s not smoke and mirrors – the lower EMR is accomplished by putting your experience into a pool of employers across several industries, with better EMRs that will now factor into yours.  

While a lot of companies do turn to PEOs in Ohio for a more appealing, lower EMR – many of them also go that route for the savings. PEOs may charge your company as little as half of what BWC charges you in premiums. You’ll often see press releases regarding Ohio BWC’s dividends or lowering base rates, but the only thing that allows the organization all of those extra funds is overcharging the employers of Ohio. They are truly the only game in town for workers’ comp insurance there, which makes this easier to do. The only competition would be self-insuring employers (which requires a good deal of extra work in both applying for and maintaining), or for those who don’t want to shoulder that risk: self-insured PEOs. 

Not all PEOs are created equal – they’re all structured differently, serve companies of different sizes or industries, and exist to solve different problems. Some have an all-or-nothing approach – where if you want the workers’ comp savings, you have to opt in for their insurance, retirement plans and administrative services. 

Look for a PEO that suits your company’s individual and unique needs, and understands the issues that keep you up at night. One that offers both self-insured and state fund options is a nice safety net (since you can exit whenever you want without unbundling everything) – plus they’re less likely to pressure you into one option over the other since they can meet both needs. Especially in the construction, manufacturing, and trucking industries, it’s important to feel confident that your PEO understands Ohio workers’ comp thoroughly and that safety is not just a metric to meet. 

If the initial search for the right PEO has you overwhelmed, reaching out to trusted colleagues and trade associations to find out who they partner with is a great way to start.  

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