Water Well Journal
Issue link: https://read.dmtmag.com/i/1330849
he will save about $1500 in 2015 and 2016, too. The bad news is that the self-paid claims costs add considerably—in this case, $12,000—to Mike's Year 1 total cost of risk. In Year 2 of this scenario, imagine that Mike has instituted some safety improvements and the shop had just one small claim per quarter in 2013, for a total of $4000 in type 6 losses. Also imagine that payroll and other itemized losses have stayed ex- actly the same, as well as rating values. If Mike is not reporting small losses, his MOD and premium are the same as in 2014 (0.95 and $47,500). If he is reporting the small claims, then the new claims in 2013 drive his MOD to 0.99—one more point than in 2014. Cumulatively, the 2012 and 2013 small reported claims are responsible for four points or approximately $2000 in premiums. Because Mike's self-paid claims costs are considerably lower in Year 2 ($4000), the Year 2 total cost of risk differs only by $2000 between reporting and not reporting losses. Still, Mike has a financial advantage to report claims, especially when consid- ered over the cumulative two-year total cost of risk. Scenario 2: Non-ERA States If Mike were operating in a state that has not approved the ERA reduction, then the impact on the MOD of small medi- cal-only claims is certainly more significant, and it's easier to see how the scales could tip in favor of not reporting. However, in this scenario, using all the same assumptions as before, the overall cumulative cost savings still favors reporting of claims. In states that have not implemented the ERA reduction, the total cost impact of paying workers' compensation claims out of pocket requires especially close analysis. (See Non-ERA States –Year 2.) Analyze Your Choices There is a myriad of reasons that ultimate costs could vary other than these two scenarios. However, in most scenarios, paying small claims out of pocket demands a detailed analysis that accounts for all associated costs, such as any fines and applicable medical fee schedules. In all cases, knowing your state's rules is imperative. Refer to your state's Department of Insurance or to the NCCI's Unit Statistical Reporting Guidebook for more information. Claiming all losses results in better data—not just for the bureaus or insurance carriers, but also for you as an employer. Work with your insurance broker to analyze and act on your MOD data. Getting a complete picture reveals trends and will help you make the best decisions for your business. Twitter @WaterWellJournl WWJ February 2021 n 41 ERA States – Year 2 For type 6 losses in a state where ERA is approved No Losses Less Than $1000 Reported One $1000 Loss per Quarter Reported in 2013 Potential Savings of Reporting MOD Effective January 1, 2015 MOD factor 0.95 0.99 –0.04 Estimated premium due (MOD × $50,000 man- ual premium) $47,500 $49,500 –$2000 The $2000 cost in premium impact includes $1500 for the 2012 losses and $500 for the 2013 losses. The $500 cost for 2013 reported losses will also apply to the 2016 and 2017 MODs. Self-paid claims cost (one $1000 loss per quarter)) $4000 0.00 $4000 Year 2 total cost of risk $51,500 $49,500 $2000 Cumulative two-year total cost of risk $111,000 $98,500 $12,500 Non-ERA States – Year 1 For type 6 losses in a state where ERA is NOT approved No Losses Less Than $1000 Reported One $1000 Loss per Month Reported in 2012 Potential Savings of Reporting MOD Effective January 1, 2014 MOD factor 0.95 1.04 –0.09 Estimated premium due (MOD × $50,000 man- ual premium) $47,500 $52,000 –$4500 The $4500 cost in premium impact of 2012 reported losses will also apply to the 2015 and 2016 MODs. Self-paid claims cost (one $1000 loss per month) $12,000 0.00 $12,000 Year 1 total cost of risk $59,500 $52,000 $7500 INSURANCE CORNER continues on page 42