OhioBWC - Basics: (Policy library)

OhioBWC - Basics: (Policy library) - File

Policy Name:	Retrospective Rating
Policy #:	EP-18-02
Code/Rule Reference	Ohio Revised Code (ORC) 4123.29(A)(3); and Ohio Administrative Code (OAC) 4123-17-03, 4123-17-41, 4123-17-42, 4123-17-43, 4123-17-44, 4123-17-45, 4123-17-46, 4123-17-47, 4123-17-48, 4123-17-49, 4123-17-51, 4123-17-52, 4123-17-53, and 4123-17-54, including all appendices.
Effective Date:	July 1, 2022
Approved:	Rex Blateri, Chief of Employer Services
Origin:	Employer Policy
Supersedes:	Retrospective Rating policy effective July 1, 2021.
History:	Revised July 1, 2022; February 16, 2022. New Policy issued December 14, 2020.
Review Date:	July 1, 2027

I. Policy Purpose

The Ohio Bureau of Workers’ Compensation (BWC) administers the Retrospective Rating program, also known as the Individual Retrospective Rating Program, in accordance with all applicable laws and rules.

II. Applicability

This policy applies to BWC Employer Programs, Actuarial, Business Consulting, private employers (PA employers), public employer taxing district employers (PEC employers), and their authorized representatives.

III. Definitions

A. Annual evaluation: Formerly known as the Retrospective Rating Policy Year Statement, a statement of claim costs and premium posted to the employer’s online account through the Individual-retrospective annual evaluation service offering on BWC’s website.

B. Evaluation period: The ten-year period beginning with the first day of participation in the policy year. Annual evaluations occur during the evaluation period. At the end of the evaluation period, final settlement is made.

C. Final settlement: The final determination of premium for a policy year including any remaining reserves for claims occurring in the policy year. The final settlement occurs at the end of the evaluation period and ends any future retrospective liabilities for the year of participation.

D. Incurred losses: Indemnity payments, medical payments, and reserves, excluding any losses where COVID-19 was contracted by an injured worker as defined in OAC 4123-17-03(G)(4) and excluding any losses where a student is a participant of the Employers Providing Work-Based Learning Pilot Program as defined in OAC 4123-17-03(G)(5). Reserves are assigned at the end of the evaluation period.

E. Loss conversion factor: The percentage applied to the paid losses and claims reserves to cover the associated Health Partnership Program (HPP) costs.

F. Minimum premium: The cost chargeable to an employer independent of claims costs of the employer during the retrospective policy year.

G. Maximum premium: The employer's experience-rated premium multiplied by the maximum premium percentage selected by the employer.

H. Per claim limit: The maximum chargeable costs for each claim incurred during the retrospective-rated policy year, as selected by the employer. The per claim limit is not reduced by any of the following:

1. Disability relief;

2. Subrogation recovery;

3. Non-at-fault motor vehicle accident claims surplus fund charges; or

4. The Enhanced Care Program.

I. Retrospective policy year: The policy year beginning July 1 and ending June 30 for PA employers and the policy year beginning January 1 and ending December 31 for PEC employers.

J. Retrospective premium: The compilation of minimum premium, all medical costs, indemnity, and any remaining reserves at the end of the ten-year evaluation period. Surplus fund charges in claims are not charged to the employer.

K. Retrospective Rating Minimum Premium Percentages Table: Tables set forth in the appendices to OAC 4123-17-53 and OAC 4123-17-54 which define Retrospective Rating premium ranges, minimum premium percentages, maximum premium percentages, and claim limits for Tier I and Tier II PA employers and Tier I and Tier II PEC employers.

L. Tier I: Retrospective Rating program level available to employers meeting all BWC requirements and demonstrating financial strength and stability.

M. Tier II: Retrospective Rating program level available to employers that do not meet Tier 1 requirements but do meet other requirements as specified by BWC.

IV. Policy

A. Eligibility criteria.

1. For both Tier I and Tier II plans, as of the application deadline, a PA employer or a PEC employer must meet the following:

a. The employer must be current with respect to all payments due BWC as defined in OAC 4123-17-14.

b. The employer must not have cumulative lapses in workers’ compensation coverage in excess of fifteen (15) days within the last five rating years.

c. The employer must timely report actual payroll for the preceding policy year and pay any premium due upon reconciliation of estimated premium and actual premium. An employer will be deemed to have met this requirement if BWC receives the payroll report and the employer pays any premium associated with such report before the expiration of any grace period. See the Payroll True-Up policy for additional information.

d. The employer must be in an active policy status. “Active policy status” does not include an employer with a coverage status of “no coverage” or “lapsed.” BWC may waive this requirement for a new business entity moving into Ohio.

e. The employer must have estimated experience-rated premium for the Retrospective Rating year greater than or equal to the minimum experience-rated premium threshold listed in the Retrospective Rating Minimum Premium Percentages Tables.

i. If the estimated premium is less than the minimum experience-rated premium threshold listed on the Retrospective Rating Minimum Premium Percentages Tables, BWC will reject the application.

ii. If the actual premium falls below the minimum premium range, the Retrospective Rating plan remains in effect. The minimum premium is based on the minimum experience-rated premium threshold multiplied by the appropriate minimum premium percentage for the hazard group, claim limit, and maximum premium percentage selected.

2. The following employers are not eligible for the Retrospective Rating program:

a. State agencies; and

b. Self-insuring employers.

3. Employers may participate in other compatible BWC programs concurrent with participation in Retrospective Rating as set forth in OAC 4123-17-74, Appendix C.

4. Additional criteria for Tier I PA employers.

a. The employer must submit audited financial statements prepared in accordance with generally accepted accounting principles (GAAP) to satisfy financial standards demonstrating strength and stability. A subsidiary employer may use their parent company’s GAAP audited financial statements with the submission of a contract of guarantee executed by the parent company.

b. The fiscal year end date for the most recent financial statements must occur within twenty-four (24) months of the application deadline to be considered.

c. The financial requirements BWC will review include, but are not limited to, the following:

i. The employer’s trend of operating profit for a minimum of three years;

ii. The employer’s trend of net income for a minimum of five years;

iii. The employer’s trend of return on equity of at least ten percent;

iv. Significant asset size of the employer in the state of Ohio;

v. A total liabilities/equity ratio no greater than four to one;

vi. The employer’s debt structure, including but not limited to current versus long term debt, and recent drastic changes in debt;

vii. The employer’s retained earnings trend;

viii. Whether the employer has significant fluctuations in specific balance sheet numbers from one year to the next; and

ix. The employer’s bond rating.

d. The employer must demonstrate the ability to maintain its financial viability and to cover all costs of the Retrospective Rating plan through closure, in the event of a catastrophic or severe workers’ compensation loss. BWC’s financial review determines if the employer meets this requirement.

e. The employer cannot have entered into a part-pay agreement for payment of assessments due the state insurance fund for the past three rating years preceding the beginning of the retrospective policy year. Alternatively, the employer may provide a letter of credit, from a BWC-approved financial institution, equal to the maximum premium for the applicable policy year. The letter of credit is held for the duration of the evaluation period.

5. Additional criteria for Tier I PEC employers.

a. BWC will obtain audited or reviewed financial statements prepared in accordance with GAAP, that are available on the state of Ohio auditor’s website. BWC reserves the right to obtain additional financial information from the employer

b. BWC reviews the financial statements to verify the employer satisfies financial standards demonstrating strength and stability. The criteria BWC will review include, but are not limited to, the following:

i. Significant asset size of the employer in the state of Ohio;

ii. The employer’s debt structure, including but not limited to current versus long term debt and recent drastic changes in debt;

iii. Whether the employer has significant fluctuations in amounts reported on the balance sheet and statement of operations from one year to the next; and

iv. The employer’s underlying or uninsured bond rating.

c. The employer must demonstrate the ability to maintain its financial viability and cover all costs of the Retrospective Rating plan through closure, in the event of a catastrophic or severe workers’ compensation loss. BWC’s financial review determines if the employer meets this requirement.

d. The employer cannot have entered into a part-pay agreement for payment of assessments due the state insurance fund for the past three rating years preceding the beginning of the retrospective policy year.

e. The employer making its initial application cannot be under fiscal watch or fiscal emergency pursuant to ORC 118.022, 118.04, or 3316.03 as of the application deadline for Retrospective Rating.

6. Additional criteria for Tier II employers.

a. A PA employer must submit audited financial statements prepared in accordance with GAAP and comply with section IV.A.1.

b. BWC will obtain a PEC employer’s audited or reviewed financial statements prepared in accordance with GAAP or other comprehensive basis of accounting as permitted in Ohio Auditor of State bulletin 2005-002 from the state of Ohio auditor’s website. BWC reserves the right to obtain additional financial information from the PEC employer.

c. A PA employer or a PEC employer must demonstrate the ability to sustain losses that are at the maximum claim limit for the Retrospective Rating plan and still maintain its financial viability.

B. Application requirements.

1. An application for Retrospective Rating is applicable to one policy year. Continued participation for subsequent years requires the filing of an application and meeting eligibility requirements each year.

2. A PA employer must file an Application for Retrospective-Rating Plan for Private Employers (U-20) by the last business day of January, preceding a policy year that starts July 1.

3. A PEC employer must file an Application for Retrospective-Rating Plan for Public Employers (U-21) by the last business day of July, preceding a policy year that starts January 1.

4. The application must be completed in its entirety.

5. All required information must be filed with BWC by the application deadline. PEC employer financial statements must be posted to the state of Ohio auditor’s website by the application deadline.

6. Any changes to the original application must be filed prior to the application deadline. Any changes must be completed in writing, signed by an officer of the employer. The latest timely filed application form received by BWC is used in determining the premium obligation.

C. Operation of program.

1. Initial computation.

a. BWC determines the employer’s hazard group as follows:

i. The employer’s experience rated premium is totaled for each hazard group for the most recently completed policy year. For an employer new to Ohio without reported payroll, the employer’s hazard group is based on the employer’s Application for Ohio Workers’ Compensation Coverage (U-3).

ii. The employer’s hazard group is the group with the highest percentage of premium for the most recently completed policy year. Hazard group are defined in OAC 4123-17-72, Appendix C, for PA employers, and Appendix E, for PEC employers.

b. BWC notifies the employer of the estimated minimum premium percentage based on the employer’s selected claim limit, maximum premium limit, and payroll.

c. The employer’s estimated minimum premium on the notice of estimated annual premium is calculated using the minimum premium percent and the premium size factors described in OAC 4123-17-03.3.

2. An employer participating in Retrospective Rating is required to pay the following:

a. Minimum premium.

i. The minimum premium is determined by the assigned hazard group, the per claim limit selected by the employer, the maximum premium limit selected by the employer, and the employer's base-rated or experience-rated premium.

ii. The minimum premium includes employer contributions to cover Division of Safety and Hygiene costs, surplus costs, the cost of losses exceeding the per claim and maximum premium limitations, and the HPP costs associated with losses exceeding the per claim and maximum premium limitations.

iii. The minimum premium is subject to the premium size factors set forth in OAC 4123-17-03.3.

iv. The minimum premium due will not be less than the minimum experience-rated premium threshold times the minimum premium percentage for the employer’s hazard group, claim limit, and maximum premium percentage.

v. If the estimated premium is greater than or equal to the minimum experience-rated premium threshold listed on the Retrospective Rating Minimum Premium Percentages Tables, but the actual experience-rated premium is less than the minimum experience-rated premium threshold listed, the minimum premium due is the minimum experience-rated premium threshold times the minimum premium percentage.

vi. The minimum premium is due and payable even if the employer has no claim costs during the evaluation period for the applicable policy year.

vii. The minimum premium is recalculated at the time BWC processes the annual evaluation.

b. Premium based on paid losses. The employer must pay for any compensation and medical payments made in covered claims. Billings to the employer are sent annually for ten years to collect for these medical and compensation payments.

c. Premium based on claim reserves. The employer must pay the value of the claim reserves on claims evaluated as of the end of the tenth year.

d. Premium for HPP costs on retained losses. During the evaluation period, an employer must pay an additional premium based on the loss conversion factor. Each policy year has a specific loss conversion factor, determined before the start of the policy year, which applies for the ten-year retrospective period.

3. Surplus charges in claims are not charged to the employer.

4. Individual claim costs are limited to the per claim limit selected by the employer. The usual experience rating limitations do not apply.

5. The maximum premium is limited to a percentage of the employer’s base-rated or experience-rated premium, as selected by the employer.

a. Premium based on losses, reserves, and HPP costs charged to the employer cannot exceed the maximum premium minus the minimum premium.

b. The maximum premium is subject to the premium size factors set forth in OAC 4123-17-03.3.

6. Premiums associated with HPP costs are not allocated to individual claims, and therefore are not considered when evaluating whether an individual claim has reached the per claim limit.

7. Premium adjustments.

a. BWC annually, throughout the evaluation period, provides the employer’s annual evaluation within approximately four months following the end of the policy year.

b. The annual evaluation includes the employer’s total retrospective rated premium based on incurred losses and audited payroll. The cost of permanent total disability claims and death claims is charged to the employer as the payments are made and included in the annual evaluation.

c. If the retrospective premium paid is greater than the retrospective premium due as of the prior evaluation date, the difference is credited to the employer and applied to any outstanding balance prior to issuing a refund.

d. If the retrospective premium due is greater than the retrospective premium paid as of the prior evaluation date, the difference must be paid to BWC within forty-five (45) days of the due date listed on the invoice billing the additional retrospective premium, or the employer is subject to penalties as set forth in OAC 4123-17-48.

e. Values used in an annual evaluation will not be revised for any reason other than clerical error. BWC must be notified of any such errors, in writing, within sixty (60) days after the due date listed on the invoice billing the retrospective premium.

f. Premiums are subject to minimum and maximum premium limitations as selected by the employer.

8. Final settlement.

a. The retrospective plan terminates at the end of the tenth-year determination of retrospective premium.

b. BWC establishes reserves for the employer’s claims.

c. BWC uses the annual evaluation to notify the employer of reserve balances.

d. The employer must pay BWC the final settlement calculated, subject to the minimum and maximum of the plan selected, within forty-five (45) days of the due date listed on the invoice billing the additional retrospective premium.

e. The final determination of retrospective premium is not to be revised for any reason except clerical error.

9. Penalties. Any employer failing to file a payroll report or failing to pay premium when due, as prescribed by OAC rules 4123-17-14, 4123-17-14.2, 4123-17-46, and 4123-17-47, is penalized in accordance with OAC 4123-17-16. All premium due as a result the selection of Retrospective Rating, including the minimum premium, and premium resulting from annual evaluations, is included as premium and subject to penalty if not paid when due.

10. Disability relief, as permitted under ORC 4123.343 and OAC 4123-3-35, is applied to reducible claim costs as limited by the per claim limit selected by the employer.

D. Terminations, transfers, and removals.

1. An employer may not retroactively include claims experience in a Retrospective Rating plan, exclude claims experience from a Retrospective Rating plan, or voluntarily terminate a Retrospective Rating plan during the evaluation period.

2. Terminations and transfers are processed pursuant to OAC 4123-17-51.

3. An employer that fails to timely report actual payroll for the preceding policy year and pay any premium due upon reconciliation of the estimated premium by the expiration of the grace period will be:

a. Removed from Retrospective Rating and billed their full experience-rated premium subject to the provisions of OAC 4123-17-03; and

b. Liable for costs of claims that occurred prior to the date of removal.

E. Resolution of complaints.

1. Employer complaints are processed under the General Employer Complaint Policy.

2. BWC has not identified any program-specific extenuating circumstances that apply to the Retrospective Rating program.