Workers’ Compensation Basics

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Workers’ Compensation Overview

 Brief history  Purpose  Structure of policy  Premium components  Experience rating  Controlling costs 2

History

 Spindletop erupted in 1901  Transformed Texas economy  System created in 1913  Employers can opt out 3

History

 System declared broken in 1987  Texas Workers’ Compensation Act passed in 1989  System revised in 2005  Networks authorized 4

Workers’ Comp Today

 State-regulated  No-fault  Protects employers, employees 5

Policy Structure

Workers’ compensation coverage:  Pays benefits to injured workers  Provides for lifetime benefits if necessary Employers’ liability coverage:  Protects employers from lawsuits  Gross negligence exception 6

Premium Considerations

 Exposure  Safety program  Loss experience  Experience modifier (E-Mod) 7

Purpose of E-Mod

 Adjust premium to reflect loss experience  Reward good experience  Penalize bad experience  Incentive to encourage return-to-work  Incentive to reduce losses 8

Basic E-Mod Formula

Actual Losses (Anytown Drillers) Expected Losses (all drillers) = E-Mod 9

Base Premium

Class code 6216 8810 Description Drill site prep $8.64 $500,000 $43,200 ($8.64 x $5,000) Clerical Rate Payroll Base premium $0.29 $250,000 $725 (0.29 x $2,500) Base premium = $43,925 ($43,200 + $725) 10

A B C

Impact of E-Mod on Premium

Company Base Premium E-Mod Final Premium $43,925 $43,925 $43,925 1.00

.70

2.00

$43,925 $30,747 $87,850 11

Reduce Your Costs: Prevent Accidents Identify and control hazards:  Conduct a thorough review  Use job safety analyses  Secure management commitment  Establish employee accountability 12

Reduce Your Costs: Prevent Accidents Teach safe behaviors:  Start day 1  Follow up  Take a walk  Stress accountability 13

Reduce Your Costs: Prevent Accidents Track trends:  Work toward constant evolution  Watch for problem areas  Remember near misses 14

Reduce Your Costs: Prevent Accidents Identify and address root causes:  Investigate accidents and near misses  Don’t mistake symptoms for root causes  Remember the goal 15

Reduce Your Costs: Manage Claims Direct costs – paid by carrier  Benefits paid to injured worker  Other costs associated with handling and processing claim 16

Reduce Your Costs: Manage Claims Indirect costs – paid by employer  Repairing damaged equipment  Hiring extra help  Lost production  2x direct costs ($2/$1) 17

Direct costs 18 Indirect costs

Reduce Your Costs: Manage Claims Direct cost Indirect cost Total cost Indirect costs $15,000 At a 4% profit margin, additional sales necessary to cover: $250,000 Total costs $5,000 $10,000 ($2/$1) $375,000 19

Reduce Your Costs: Manage Claims Reduced revenue = reduced operating capital  Delay in equipment updates  Reduction in salaries  Lack of raises  Elimination/reduction in safety incentives 20

Reduce Your Costs: Return-to-Work What’s in it for employers?

 Reduce costs  Maintain production  Promote employee morale 21

Reduce Your Costs: Return-to-Work What’s in it for injured workers?

 Make more money  Recover faster  Steer clear of the disability mindset  Maintain job skills 22

Reduce Your Costs: Networks

Network goals:  Improve care  Focus on return-to-work  Control medical costs 23

Reduce Your Costs: Safety Groups

Safety groups offer:  Specialized safety programs  Dividend potential  Premium discounts 24

Workers’ Compensation Recap

Workers’ compensation basics:  Covers injured workers’ medical expenses  Replaces a portion of lost wages  Protects employers from unlimited liability exposure 25

Recap

Remember:  Loss experience affects cost  Employers can control costs  Report all accidents 26

Return to table of contents Go to next presentation 27

Questions?