NCCI And Artificially Low Experience Modification Rates


NCCI has published articles from time to time (like this one Unintended Consequences of Net Experience Rating) regarding the use of Experience Modification Rates as qualifiers for new business. They definitely frown upon the practice based on some employers' ability to "buy down" their Experience Modification Rates. Experience rating rules in certain states allow for this.


By buying down an experience mod I'm talking about a business reimbursing an insurance company for claims through a deductible program and, in turn, having those claims reported "net" of the deductible recovery received by the insurance company. There are rules and limits that change the reporting from state to state. But, for example, if you have a $2,500 deductible and a $5,000 claim, that claim could end up as only a $2,500 claim in your Experience Modification Rate; reducing your EMR.


I have previously written about the practice here and again here if you'd like some additional background about why this issue is of concern to NCCI.


It seems that NCCI is attempting to make certain that people reviewing experience modification rates are aware of the fact that a rating is artificially low by adding comments to the Experience Modification Rate Worksheets. NCCI announced a new Experience Rating Worksheet "comments" field on their web site January 14; Look for New Comment Field in Experience Rating Worksheets.


"We’ve added a new comment field to Experience Rating Worksheets. This update lets you know when a claim used in calculating the experience rating modification was reduced due to one of the following...."


The exact comments that will be used in these circumstances are shown in the graphic above.


I wonder if this just adds confusion rather than clarification. The comments indicating that claims have been reduced by Net Deductible Programs indicate only one thing; that the Experience Modification Rate is lower than it should be were it not for Net Reporting.


But, if some business like, say, a general contactor is reviewing proposals from subcontractors for a new project and screening for EMRs below a 1.00, what is the GC supposed to do with that information? The GC has no way of knowing what the EMR should be or if the subcontractor had a $500 deductible or a $100,000 deductible. Or, is the mod 1 point lower than it should be or 20 points?


You could never come up with a ballpark answer without asking questions about the specific work comp program a subcontractor has purchased and knowledge of obscure, technical rules specific to the states in which that sub operates.


Some states allow net reporting for small deductible programs only and some for large and small. Some states have a cap on the amount that can be "netted out" from a claim while others have no maximum other than the level of your deductible. A small $500 deductible, for example, might not even move the needle. It wouldn't have much impact at all on lost-time claims due to their expense while medical-only claims are already reduced by 70% through the Experience Rating Adjustment (ERA is another subject altogether).


I'm sure you can tell that I think these new "comments" might add more confusion. If a GC just assumes that "NCCI wouldn't go to the trouble of notifying us" if something wasn't really wrong, may it then decide to similarly not consider those propects?


I've never thought there is any reason to completely discontinue the practice of using Experience Modification Rates as new business qualifiers. If company has an unusually high 1.75 or 1.90 EMR, wouldn't you want to know? I think NCCI is most concerned about it's work product being used to unfairly disqualify businesses from opportunity. But, maybe in trying to rectify one problem, it created another.


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