Workers Compensation High Deductibles

Premium based on the “No Deductible” Premium.  The premium charged must be based entirely on your “no deductible” premium. After determining the “no deductible” premium for your policy, then the insurance company must reduce it by a predetermined deductible credit percentage. There is no leeway for the insurance company to come up with a different premium calculation that results in a premium they perceive to be “competitive” with what other companies offer. The credits used in this calculation are company specific credits that must be filed with the state department of insurance. The state specific rating organization (NCCI or the local State Rating Bureau) maintains a detailed database with all filed deductible credits as well as a description of the procedure as to how to calculate the high deductible premium. 

Why You Should Consider Us:
Because We Literally Wrote the Book on These Issues.

Yes, you could say we Wrote the Book:

  • On audits;
  • On the Classification System (class code);
  • On the Experience Mod System;
    (or the e-mod; or the experience modification factor);
  • On the formula for High Deductibles;
  • On the definition of “Payroll” for purposes of calculating premium;
  • On all PEO workers comp issues, such as proper corporate combinations for e-mod calculations;
  • On the formula for Retros;
  • On the formula for schedule rating;

Because we did.  And all of these items drive the final calculation of your workers comp premium.  

Why You Should Consider Us:  We Know This Stuff. 

After all, during our years at the National Council on Compensation Insurance (NCCI), that was precisely our job.  NCCI set the rules of the road for Audits; the Classification System; for the calculation of e-mods and High Deductibles and Retros and Scheduled Rating.  And while at NCCI, we wrote the rules of the road for PEOs as to workers compensation. 

Together with our staff:

  • We oversaw all the rules that are applied to audits;
  • We wrote the descriptions for the 600+ Classifications in the Scopes Manual;
  • We wrote and implemented the U.S. e-mod system; including its formulas;
  • We created and implemented the complex formulas for High Deductibles;
  • We authored and implemented the definition of “Payroll”;
  • For PEOs, we wrote the rules for corporate combinations for their e-mods; and most of the other rules that effect PEO premium;
  • We created and implemented the complex formulas for Retros;
  • We created and implemented the complex formulas for scheduled ratings;
  • We wrote the definition of “Payroll” for determining workers' compensation premium;
  • We authored and filed some 500 statewide rate filings used throughout much of the U.S., setting the premium levels on about $15 billion of workers compensation premium – every year;
  • We gained regulatory approval to use all of the above formulas and rules;

Earlier in his career, as Iowa Commissioner of Insurance, Bill Hager judged each of these matters and approved or modified the rules as submitted to the Department of Insurance. 

High Deductibles:  Cash Flow Issues are Significant. For all workers’ compensation insurance policies, including high deductible policies, your insurance company is required to pay all claims in full on a timely basis. Then, for high deductible policies, the insurance company may seek reimbursement from you for claims they have already paid (but not for claims they anticipate to pay, even if these claims have already been billed). The deductible endorsement that specifies the amount and circumstances surrounding the reimbursement of deductibles paid by you to the insurance company must be filed with the state Department of Insurance. Your insurance company is not permitted to alter the terms of the endorsement to suit their wishes.

Letters of Credit: High Deductibles. The high deductible policy may contain an endorsement that requires you to provide a letter of credit (at your expense) to the benefit of the insurance company in certain circumstances. The entire endorsement specifying the amount and circumstances surrounding the provision of letters of credit to the insurance company must be filed with the state Department of Insurance. Your insurance company is not permitted to alter the terms of the endorsement to suit their wishes.

Interaction with Retrospective Rating: High Deductibles. Sometimes, high deductible policies are also retrospectively rated. The terms and issues related to retrospective rating interact with the high deductible endorsement in complex ways. We have the expertise to address all issues relating to the high deductible portion as well as the retrospective rating portion of the policies.

High Deductible Policies – an Overview: When issuing a high deductible policy, the insurance company agrees to reduce the premium for the policy in exchange for a guarantee from you to reimburse it for all claim costs under the claim deductible. Additional guarantees and agreements may be provided by an endorsement to the policy. It is common for endorsements to address the provision of a letter of credit to the insurance company as well as the timing of reimbursements to the insurance company of claims paid under the deductible.

What We Do:  Step One:  Was The Deductible Credit Used In The Premium Filed With The State?   As stated, the deductible credit must be filed with the state insurance departments. Many times insurance companies will ignore the retro factors on file in favor of factors that result in a premium they perceive to be “competitive” with what other companies offer. This practice is not permitted. We will make sure that insurance companies stick to the deductible credit they agreed to through their filing with the state insurance department.   This is no minor matter because separate factors will be filed every year in every state, and each of those state specific deductible credits must be used in the calculation of premium. We know insurance company filings and are comfortable in reviewing them. We have worked on 500+ filings with insurance companies and state insurance departments.

What We Do:  Step Two.  Was Premium Calculated Correctly?  There are many issues relating specifically to premium calculation. Among the most significant are E-mod issues, Classification issues, retrospective rating, audit and high deductible issues. All of these issues can interact in complex ways. State Rating Bureaus maintain several detailed rating manuals including:

  • Basic Manual – contains the rules and procedures relating to the calculation of the manual premium before the application of any adjustments. We understand. We wrote the book.
  • Experience Rating Manual  -  contains the rules and procedures relating to the determination of e-mods. In truth there are very few people, even at your insurance company, who understand all of the details of e-mod determination. We understand. We wrote the book on how e-mods are calculated.
  • Classification Manual – contains the detailed description of each workers compensation classification code. It is the highest authority regarding the determination of how workers should be classified for workers’ compensation. We understand. We wrote the book.
  • SCOPES Manual – contains an easy to understand description of each workers compensation classification code. We understand. We wrote the book.
  • Retrospective Rating Manual  - contains the rules and procedures relating to the retrospective rating formula.  In truth there are very few people, even at your insurance company, who understand all of the details of this formula. We understand. We wrote the book on how retrospective premiums are calculated.

What We Do:  Step Three.  Are the E-mod and Classification Decisions Correct?  The high deductible premium calculation is based on the initial premium estimate. Errors in the calculation of the e-mod or misclassification will also affect the retrospective premium. A discussion of E-mod and classification decisions can be found here.

What We Do: Step Four:  Challenge the Insurer.  If we conclude the insurer has wrongly calculated the high deductible premium, or has unfairly determined the timing or amount of a required letter of credit, we will take the matter directly to the insurance company and insist that they adjust their determinations.  We know insurance companies and are confident in working with them.  We are both former insurance company executives. 

What We Do: Step Five: Advocate Your Case.  Your high deductible insurance policy is a contract between you and your insurance company. If your insurance company is not charging a premium allowed by the policy, the supporting rating manuals, and the filed rating factors, we will advocate on your behalf and take the matter to the next higher authority. We will directly apply our high level firepower to the case.

Ready to Work for You Now. This team is prepared now - as in today – to begin working with you.  Please contact Bill Hager at 561-306-5072 or bhager@expertinsurancewitness.com for more information. To determine whether you are paying too much premium because of erroneous experience mod calculations, too much because of erroneous classifications: in short too much premium.


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