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OhioBWC - Basics: (Policy library) - File

Deductible Program

 

Policy Name:

Deductible Program

Policy #:

EP-04-01

Code/Rule Reference

ORC 4123.29(A)(3); OAC 4123-17-72, Appendices A, B, C, D, E, and F; OAC 4123-17-74, Appendices A, B, and C

Effective Date:

July 1, 2016

Origin:

Employer Policy

Supersedes:

The Deductible Program policy dated September 4, 2014.

History:

Revised August 11, 2016; July 25, 2015; April 6, 2015; March 18, 2010. New policy issued September 22, 2009.

Review Date:

July 1, 2021

 

 

I.       Policy Purpose

 

The Ohio Bureau of Workers’ Compensation (BWC) will permit employers to participate in the Deductible Program in accordance with the applicable laws and rules.

 

II.     Applicability

 

This policy applies to employers, authorized representatives, BWC Employer Programs, and BWC Field Operations.

 

III.    Definitions

 

A.     Aggregate stop-loss limit: An option available under the Large Deductible Program. The limit caps an employer’s total deductible liability for the program year to three times the deductible amount.

B.     Base rate: The rate that employers who are not experience rated pay as a percentage of their payroll.

C.    Coverage period: The twelve (12) month period beginning July 1 through June 30 for private employers, and January 1 through December 31 for public employers. The deductible selected by the employer will apply only to claims with a date of injury within the coverage period defined in the deductible agreement.

D.    Deductible: The maximum amount an employer participating in the Deductible Program must reimburse BWC for each claim that occurs during the policy year.

1.     Small deductible: A deductible less than or equal to $10,000.

2.     Large deductible: A deductible greater than $10,000.

E.     Experience rated premium: The premium obligations of an employer for the policy year, excluding Disabled Workers’ Relief Fund (DWRF) and administrative cost assessments. This may include any experience rated premium related to policy combinations.

F.      Premium: Money paid (due) from an employer for workers’ compensation insurance. It does not include money paid as fees, fines, penalties or deposits.

IV.   Policy

A.     Eligibility Criteria: To qualify the employer must:

1.     Be a private employer (PA) or public employer – taxing district (PEC) in the State Insurance Fund.

2.     Have active coverage as of the application deadline.

3.     Be current as of the application deadline with respect to all payments due BWC as defined in OAC 4123-17-14.

4.     Meet lapse requirements for the deductible level selected:

a.     If the employer selects a small deductible the employer must not have cumulative lapses in workers’ compensation coverage in excess of forty (40) days within the twelve (12) months preceding the application deadline, except:

i.       For the policy year starting July 1, 2015, a PA employer must not have cumulative lapses workers’ compensation coverage in excess of forty (40) days within the prior nine months.

ii.      For the policy year starting January 1, 2016, a PEC employer must not have cumulative lapses workers’ compensation coverage in excess of forty (40) days within the prior nine months.

b.     If the employer selects a large deductible, the employer must not have cumulative lapses in workers’ compensation coverage in excess of fifteen (15) days within the five years preceding the application deadline.

5.     As of the application deadline, the employer must have reported actual payroll for the preceding policy year and paid any premium due upon reconciliation of estimated premium with actual premium no later than the due date. An employer will be deemed to have met this requirement if BWC receives the payroll report and the employer pays the premium due before the expiration of the grace period, if any.

6.     Demonstrate the financial strength and ability to make payments based upon in-depth credit and financial reviews.

B.     The following employers are not eligible for the Deductible Program:

1.     State agencies.

2.     Self-insuring employers.

C.     Application and renewal requirements.

1.     The application deadline for private employers (PA) is the last business day of January, preceding a policy year that begins July 1. The program runs for a single policy year (July 1 to June 30).

2.     The application deadline for public employers - taxing districts (PEC) is the last business day of July preceding a policy year that begins January 1. The program runs for a single policy year (January 1 to December 31).

3.     New applicants to the program must submit an Application for Deductible Program (U-148) to BWC along with any other documentation required for enrollment in the Deductible Program by the application deadline. An employer may also apply online at www.bwc.ohio.gov .

4.     BWC will not permit an employer to enroll in the Deductible Program outside the established deadlines, except that BWC will allow an employer establishing a policy in Ohio for the first time to submit a deductible application to BWC within thirty (30) days of obtaining coverage.

5.     Renewal in the Deductible Program at the same level for each subsequent policy year is automatic, subject to review by BWC of the employer’s continued eligibility and creditworthiness. An employer participating in Large Deductible must submit an annual updated financial statement by the application deadline.

6.     An employer may change its chosen deductible level for a subsequent policy year by submitting a written application or by applying on-line through www.bwc.ohio.gov by the application deadline. The change in deductible level is subject to review by BWC of the employer’s eligibility and creditworthiness.

7.     An employer that is participating in the Deductible Program will not be automatically renewed for the program if it applies for Group Experience Rating or Group Retrospective Rating for the upcoming policy year. If the employer does not pass eligibility requirements for Group Experience Rating or Group Retrospective Rating for the upcoming policy year, BWC will evaluate the employer for re-enrollment in the Deductible Program.

D.    BWC evaluation of application.

1.     Employer’s ability to make payments.

a.     An employer that applies for either the Small or Large Deductible Program may request that a parent company’s financial strength be utilized in evaluating the employer’s financial strength and ability to make payments. The parent company must meet financial criteria for the Deductible Program and execute a contract of guaranty with respect to the employer’s participation in the program.

b.     BWC may require an employer to adopt additional risk mitigation measures as a precondition for participation in the program. These measures may include, but are not limited to:

i.       An alternative payment plan.

ii.      Providing securitization in the form of a letter of credit or surety bond. A cash deposit, certificate of deposit, or private express trust is not security.

iii.     For employers electing a large deductible, selection of an aggregate stop-loss limit.

2.     Obtain credit scores.

a.     Employers satisfying BWC’s eligibility criteria will be submitted to Dun and Bradstreet (D&B) to obtain credit and financial stress scores. For an employer applying for the Large Deductible Program, BWC may obtain additional credit information from other established vendors.

b.     D&B’s commercial credit score identifies businesses that are likely to become delinquent in their payments, while the financial stress score identifies businesses likely to cease operations over the next twelve (12) months. Credit and financial stress scores are rated on a numeric scale of 1 through 5.

i.       1 = Low Risk.

ii.      2 = Low-Medium Risk.

iii.     3 = Medium Risk.

iv.    4 = Medium-High Risk.

v.      5 = High Risk.

 

 

 

Credit Score

1, 2, or 3

Credit Score

4 or 5

Financial

Stress

Score

1, 2, or 3

LOW RISK

Healthy companies that are prompt payers, less likely to experience financial distress.

LONG TERM RISK

Companies that are less likely to experience financial insolvency, but are not prompt in paying obligations. These companies appear to have the financial wherewithal to pay promptly.

Financial

Stress

Score

4 or 5

SHORT TERM RISK

Companies with some negative information that may pose a short term risk.

WATCH LIST

Unhealthy companies that are not prompt payers and are more likely to experience financial distress.

 

3.     Small Deductible Program.

a.     For employers applying for a small deductible, the following criteria will be used in evaluating their financial ability to participate in the program.

i.       Employers in the Low Risk Classification will be approved for all deductible levels.

ii.      Employers in the Short Term Risk Classification will be approved for $500 and $1,000 per claim deductible levels.

iii.     Employers in the Long Term Risk Classification will be approved for deductible levels up to and including $2,500 per claim.

iv.    Employers in the Watch List Classification will be denied participation for all deductible levels.

4.     Large Deductible Program.

a.     Employers participating in the Large Deductible Program represent increased financial risk to the State Insurance Fund (SIF). Employers that choose a large deductible will undergo in-depth credit and financial review to help mitigate the increased financial risk to the SIF and avoid losses associated with the program. Employers enrolling in a Large Deductible Program must submit financial information to BWC during the enrollment period preceding each policy year the employer elects to participate.

b.     Employers choosing a deductible level of $25,000 or $50,000 must submit reviewed or audited financial statements for the three most recent fiscal years. The financials must be prepared in accordance with Generally Accepted Accounting Principles (GAAP).

c.      Employers choosing a deductible level of $100,000 or $200,000 must submit audited financial statements for the three most recent fiscal years. The financials must be prepared in accordance with GAAP. Initial applicants must submit financial statements for the three most recent fiscal years.

d.     Employers must submit their most recent financial statements for each subsequent year to be considered for renewal in the program.

e.     The submitted financial statements will be further reviewed and analyzed to identify indicators of any increased financial risk that an employer might represent to the system, including, but not limited to:

i.       Audit opinions.

ii.      Violation of debt covenants.

iii.     Disclosure of contingent liabilities.

iv.    Total assets and the composition of assets.

v.      Trends in profitability, leverage, debt coverage, liquidity, and growth.

f.       All information from the financial analysis and the D&B scoring will be considered in assessing the employer’s application for participation in the Large Deductible Program.

E.     Operation of program.

1.     Deductible amounts.

a.     The deductible is the maximum amount an employer participating in the program must reimburse BWC for each claim that occurs during the policy year.

b.     The employer will choose one deductible amount for all claims with dates of injury during a one year coverage period, subject to the deductible limitations of its Dun & Bradstreet commercial credit score.

c.      Per claim deductible amounts:

i.       Small Deductible: $500; $1,000; $2,500; $5,000; and $10,000.

ii.      Large Deductible: $25,000; $50,000; $100,000; and $200,000.

d.     For an employer selecting a small deductible, the employer cannot choose a deductible amount that exceeds 25% of the experience rated premium obligation during the most recent full policy year.

e.     For an employer selecting a large deductible, the employer cannot choose a deductible amount that exceeds 40% of the experience rated premium obligation for the most recent full policy year.

f.       For self-insuring employers re-entering the state insurance fund, BWC will use the paid workers’ compensation benefits from the last full policy year in place of experience rated premium.

g.     An employer establishing a policy in Ohio for the first time may apply for the Small Deductible Program. The employer’s deductible shall not exceed 25% of the employer’s expected premium. The estimated payroll from the U-3 application will be used to calculate the employer’s expected premium.

h.     BWC may estimate a full year’s premium if only a partial year is available or if no premium is available for the most recent full policy year.

2.     Annual aggregate stop-loss limit.

a.     An employer may request an annual aggregate stop-loss limit in combination with large deductible levels. However, BWC may reject the employer’s request if the employer would receive a credit that exceeds the maximum aggregate stop-loss liability. If the employer’s request for the aggregate stop-loss limit option is approved, BWC will limit deductible billings for injuries which occur during the associated policy year to three times (3X) the deductible level chosen.

b.     Selection of the annual aggregate stop-loss limit will reduce the premium credit. BWC may require an employer in a Large Deductible Program to adopt an annual aggregate stop-loss limit as an additional risk mitigation measure. See section IV.D.1.b of this policy.

3.     Credits.

a.     BWC will apply the premium reduction directly to the base rate established for the policy year for base rated employers or after the modified premium rate is established for experience-rated employers.

i.       Small deductible premium credits are set forth in OAC 4123-17-72, Appendix A (PA employers) and Appendix B (PEC employers).

ii.      Large deductible premium credits are set forth in OAC 4123-17-72, Appendix D (PA employers) and Appendix F (PEC employers).

b.     The premium reduction will be applied prior to any other premium adjustments. The premium reduction does not apply to the Disabled Workers’ Relief Fund (DWRF) or administrative expenses.

c.      BWC will calculate the premium reduction according to the deductible amount chosen by the employer, the applicable National Council on Compensation Insurance (NCCI) hazard group, and the primary manual classification of the employer as of the end of the enrollment period for that year. NCCI hazard groups are set forth in OAC 4123-17-72, Appendix C (PA employers) and Appendix E (PEC employers).

i.       BWC will use payroll and the associated experience premium for the rating year beginning two years prior to the period the employer is seeking to enroll in the Deductible Program to determine the primary manual classification and hazard group.

ii.      For an employer establishing a policy in Ohio for the first time, BWC will use estimated payroll to determine primary manual classification and hazard group.

4.     Claim costs.

a.     BWC pays all medical and indemnity claims costs.

b.     The employer will be billed monthly for all claim costs paid by BWC, including costs charged to the surplus fund, up to the deductible level.

c.      The employer must pay all deductible amounts billed by the invoice due date. Deductible billings are subject to the same provisions as other monies owed to BWC, including interest or penalty, and including certification to the Ohio Attorney General’s office for collection.

d.     The employer will continue to be billed for claim costs incurred until the deductible amount is reached, regardless of when payment was made by BWC and even if the claim is out of the employer’s experience period.

e.     The employer is liable for the full deductible on any claim that arises during a policy year in which the employer was in the Deductible Program.

f.       For small deductible levels, the amount to be included in the employer’s experience for a policy year will be any claims costs for injuries incurred in that policy year, less any deductible billed to the employer. For large deductible levels, BWC will include the entire cost of the claim in the employer’s experience for the appropriate policy year.

5.     An employer participating in the Deductible Program may participate in other compatible BWC rate programs. Employer program compatibility is outlined in OAC 4123-17-74, Appendix C.

F.     Removal / Exit from program.

1.     BWC will remove an employer from the Deductible Program during the current policy year for failure to file an annual payroll report and pay any premium due within the grace period (see OAC 4123-17-16(D)(1)(a)), BWC will require the employer to:

a.     Continue to pay claim costs for all injuries incurred from the beginning of the policy year through the date of removal from the program, until the selected deductible amount is reached.

b.     Be experience-rated, without the deductible credit, from the date of removal from the program through the remainder of the policy year.

2.     BWC may remove an employer from the Deductible Program with thirty (30) days written notice to the employer for any of the following reasons:

a.     The employer participates in any plan or program that is not compatible with the Deductible Program.

b.     BWC certifies a balance due from the employer to the Attorney General, unless the employer is current on the payment schedule for any part-pay agreement that was entered into for payment of premiums or assessment obligations.

c.      The employer makes direct payments to any medical provider or to any injured worker for compensation associated with a workers’ compensation claim. Effective with the policy year that starts July 1, 2012, an employer that is participating in the Deductible Program may pay salary continuation on claims incurred on or after July 1, 2012.

d.     The employer engages in misrepresentation or fraud in conjunction with the program application process.

3.     BWC Employer Programs Unit will investigate allegations or documentation that the employer engaged in any of the actions listed in F.2.a to F.2.d. If removed from the program, the employer may file a formal complaint through BWC’s adjudication process.

4.     An employer is not permitted to withdraw from the Deductible Program during the policy year and no changes shall be made with respect to any deductible amount selected by the employer within the policy year.

5.     Employers wishing to withdraw from the program for the upcoming policy year must notify BWC in writing by submitting notice prior to the start of the policy year.

G.    Resolution of complaints.

1.     Employer complaints should be processed under the General Employer Complaint Policy.

2.     Specific extenuating circumstances that apply to the Deductible Program:

a.     Inaccurate information on employer’s credit report or financial data.

i.       Extenuating Circumstance: Employer protests BWC’s denial into the program, or where BWC limits the amount of deductible the employer is eligible for, due to inaccurate information in the employer’s credit report obtained by BWC or in the financial data submitted by the employer to BWC. It is the employer’s responsibility to correct any errors by either contacting the credit reporting service or providing BWC with accurate financial data. If BWC subsequently approves the employer, the employer will be entered into the program retroactive to the beginning of the current policy year.

ii.      Supporting documentation: Once the information is corrected, it is the employer’s responsibility to provide BWC with the updated information (e.g. a new credit report or corrected financial data).

b.     Employer applies for the Deductible Program after being denied participation in a non-compatible program.

i.       Extenuating Circumstance: Employer applied for and was denied participation in a non-compatible program, and subsequently applied for, and is accepted in, the Deductible Program. The employer then appeals its rejection for the non-compatible program.

ii.      If the employer’s appeal for the non-compatible program is granted, the program at issue in the adjudication decision will be considered the employer’s choice of program participation and the employer will be removed from the Deductible Program. Any money the employer reimbursed to BWC will be returned to the employer.

c.      Employer has applied for Group Retrospective Rating or Individual Retrospective Rating and the employer has concurrently applied for the Deductible Program.

i.       Extenuating Circumstance: Employer has applied for, and been accepted into, the Deductible Program but has also applied for either Group Retrospective Rating or Individual Retrospective Rating, and BWC delays issuing a final decision on the employer’s eligibility in these retrospective rating programs until after the start of the rating year. The employer must not have contributed to BWC’s delay in issuing its decision.

ii.      If an employer’s application for either of these retrospective rating plans is approved after the start of the rating year, the employer will be offered the opportunity to choose which program it desires to participate in (Deductible Program or Retrospective Rating).

iii.     Supporting Documentation: The employer will have thirty (30) days from date of notification by BWC to provide BWC a written decision as to which program it desires to participate in. Failure to provide BWC with a written decision within thirty (30) days will result in the employer remaining in the Deductible Program for the remainder of the current rating year.

d.     New employer succeeds a predecessor that was a participant in the Deductible Program.

i.       Extenuating Circumstance: A new employer, having coverage in Ohio for the first time, succeeds a predecessor employer that was a participant in the Deductible Program in either the current or prior policy year(s). Per OAC 4123-17-72(L)(1), the successor employer is responsible for any and all existing or future liabilities arising from the predecessor’s participation in the Deductible Program.

ii.      In this situation, BWC will allow the successor employer thirty (30) days to apply for the Deductible Program from the date it was notified by BWC that it was not a participant in the Deductible Program. Notice to the successor employer includes, but is not limited to, any of the following:

a)     A letter from BWC notifying the succeeding employer that it is not a participant in the Deductible Program and must apply for the Deductible Program within thirty (30) days of the postmark on such letter.

b)     The first payroll report issued to the succeeding employer where there is no credit given for participation in the Deductible Program.

iii.     Note: the successor employer must still meet all other eligibility requirements at the time of application in order to qualify for the Deductible Program.

H.    Combinations and experience transfers.

1.     Predecessor: Enrolled in Deductible Program currently, or in prior policy years

Successor: New entity

a.     Action: BWC will send notice to the successor employer outlining options and responsibilities for the program. The successor may apply for the Deductible Program within thirty (30) days of the notice. The successor will be liable for all of predecessor’s liabilities while predecessor was enrolled in the Deductible Program.

2.     Predecessor: Not enrolled in Deductible Program.

Successor: Enrolled in Deductible Program

a.     Action: Successor automatically remains in the Deductible Program and any claims incurred on/after the combine date are in the Deductible Program.

3.     Predecessor: Enrolled in Deductible Program

Successor: Not enrolled in Deductible Program

a.     Action: Successor policy is not enrolled in the Deductible Program. The successor will be liable for all of predecessor’s liabilities while predecessor was enrolled in the Deductible Program.

I.       Scenarios

1.     An employer was in the Deductible Program from July 1, 2009, to June 30, 2010. In January 2014, the employer receives a deductible bill invoice for a claim with a date of injury of August 1, 2009. Since the 2009 claim has passed out of the employer’s experience, does it still owe the deductible?

a.     Yes, the employer is liable for the entire amount of the deductible limit, regardless of when BWC pays the medical or compensation.

2.     An employer was billed and paid deductible billings on a claim where the claim allowance was subsequently overturned. How will this be handled?

a.     The amount of deductible paid by the employer will be refunded to the employer. Note: The claim must be in a final denied status. The refund will be credited to the employer’s policy and offset by any billings that are due. If BWC owes the employer, a refund will be issued.

3.     An injured worker is set up overpaid on a claim that is in the Deductible Program. What is the impact to the employer?

a.     BWC will refund the overpaid amount to the employer. The refund will be credited to the employer’s policy and offset by any billings that are due.

4.     An employer was billed and paid deductible billings on a claim where a subrogation amount was recovered from a third party. How will this be handled?

a.     BWC will consider subrogation collections from a third party under the following conditions:

i.       The amount collected from a third party exceeds total incurred cost (actual claim cost if the claim is closed).

ii.      The claim is inactive by reserving standards – twenty-four (24) months with no payments.

b.     The amount refunded to the employer may not exceed the total deductible amount paid on the claim.

5.     The employer fails to pay the deductible billings. What is the impact to its coverage status?

a.     BWC will not lapse an employer if it fails to pay deductible billings. However, the employer will be subject to any interest or penalty provisions to which premiums are subject, including certification to the Attorney General’s Office for collection.

6.     Does the employer have to reimburse BWC for the full amount of the chosen deductible before any amounts are charged to the surplus fund for vocational rehabilitation or for handicap reimbursement?

a.     Yes, per OAC 4123-17-72(J), BWC pays all claims costs and the employer is responsible for reimbursing BWC for all claims costs until the deductible amount is reached.

7.     The employer was in a PEO, but has terminated this relationship. When the employer applies for the Deductible Program, how will its premium be calculated and the maximum deductible amount determined?

a.     Upon termination of the PEO relationship, payroll will be moved back to the client employer for experience purposes. The employer’s qualifying deductible will be based on the premium it would have paid, based on experience payroll.


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