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Policy Name:
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Deductible Program
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Policy #:
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EP-04-01
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Code/Rule Reference
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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
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Effective Date:
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July 1, 2016
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Origin:
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Employer Policy
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Supersedes:
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The Deductible Program policy dated September 4, 2014.
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History:
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Revised August 11, 2016; July 25, 2015; April 6, 2015;
March 18, 2010. New policy issued September 22, 2009.
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Review Date:
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July 1, 2021
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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.
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Credit Score
1, 2, or 3
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Credit Score
4 or 5
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Financial
Stress
Score
1, 2, or 3
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LOW RISK
Healthy companies that are
prompt payers, less likely to experience financial distress.
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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.
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Financial
Stress
Score
4 or 5
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SHORT TERM
RISK
Companies with some negative
information that may pose a short term risk.
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WATCH LIST
Unhealthy companies that are
not prompt payers and are more likely to experience financial distress.
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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.