Rating Bureau News: Pennsylvania, NCCI

Pennsylvania revision to Experience Mod

It’s been almost two decades since the Experience Rating Plan (ERP) was changed in Pennsylvania and the changes that are coming are big. The Pennsylvania Insurance Commissioner has approved, as filed, the Pennsylvania Compensation Rating Bureau’s (PCRB) ERP revisions that are designed to make the experience mod function more effectively and more accurately capture an employer’s loss experience. The changes will increase the number of employers that qualify for experience rating and will impact employers across the state beginning April 1, 2024.

David Leng, Chief Risk Officer of the Duncan Financial Group in Irwin, PA, a member of Keystone, an instructor for the IWCP, and a member of the PCRB Classification and Rating Committee, notes that under the present system, the bureau actuaries determined that best-performing employers were in effect subsidizing the worst-performing employers when it came to the experience rating system. The changes should make the formula more equitable with best-performing employers getting better mods and poor performers getting worse mods. Those in the middle are likely to see minimal impact.

While the formula is not changing, here are some of the key changes:

• Creditability: The PCRB increased the “creditability factor” for all employers, the mathematical weight of an employer’s own history used in the calculation. Translation – this means that the Minimum Experience Modifier (when an employer has $0 in claims) will be going down for all employers, but the impact of each claim dollar an insurance company pays or reserves for employee injuries will be greater. Although every employer will have a new, lower starting point, it will cause your experience modifier to climb faster than it did before for a same sized injury cost.
• Eligibility: Currently, risks over $10,000 in state rate manual premium are experienced rated. This will drop to $5,000, reducing the number of risks that are Merit Rated. Mr. Leng notes it’s projected 21,000 to 22,000 employers that currently do not have an experience rating will get one.
• Claim Caps: The current ERP caps all claims at $42,500, regardless of the size of the employer or amount of the claim. The new plan will use a sliding cap, based on expected losses.
• Swing Limits: Currently, “swing limits” allow changes (up or down) of no more than 25 percent of the prior experience mod, with a “secondary cap” to reset a mod to 1.0 if it should be a credit, but the cap prevents it. This is increasing to +40 percent with no limit on a downward swing and a maximum mod calculation similar to NCCI. To minimize disruption, this change will not take effect until April 1, 2026.
• Maximum Modifier: To prevent an employer’s experience modifier from becoming excessively large, Pennsylvania will be introducing a formula that will cap the highest experience modifier an employer can have. This will benefit the smaller employers more than the larger ones. Businesses shifting from Merit Rating to Experience Rating will have a maximum of 1.100 to 1.300 compared to the +5 percent they might be charged under the old system. The formula quickly climbs so it will not impact mid-to-large companies.

The experience mod plays a critical role in workers’ compensation premium calculations as well as the bidding process. It’s important to understand how these changes will affect your business and we are here to help.

Reclassified class codes

Each year, the National Council on Compensation Insurance (NCCI) issues a report on the most reclassified governing class codes from the previous year. Governing class code, as defined in NCCI’s Basic Manual for Workers Compensation and Employers Liability Insurance (Basic Manual), is the basic classification at a specific job or location (other than a standard exception code) that produces the greatest amount of payroll. If a company is moved to a more expensive governing class code, it will lead to a significant premium increase from the prior year.

Not surprisingly, for several years class code 8810 (clerical), which has the lowest rates, and code 8742 (salesperson or collectors – outside) have topped the list for the most frequent reclassified codes. Somewhat ironically, insurance companies are the most frequently reclassified from these codes. NCCI explains there was a change in the classification system in 2012 with the establishment of code 8723 for insurance companies.

Third on the list was store, grocery, retail, code 8006. About 37 percent of policies were reclassified to Code 8033 – store, meat, grocery, and provisions, combined, retail not otherwise classified (NOC). While both codes apply to retail stores that sell grocery items, the key distinction is in the handling or sale of cured or fresh meats, fish, or poultry.

Fourth, landscape gardening and drivers employees (code 0042) were commonly reclassified to Code 9102 (lawn maintenance, commercial or domestic and drivers) because the work they performed was better described as maintenance operations and not new landscape installations. NCCI notes, however, code 0042 and code 9102 may be assigned to the same employer, provided they maintain verifiable payroll records.

Code 3632, machine shop NOC, moved up one notch to number 5 in 2022. It was typically reclassified to Code 3612, pump manufacturing, because it was a more accurate description of the work. NCCI notes that it is “imperative to verify that another classification code does not specifically describe an employer’s business before assigning an NOC code.”

Completing the top ten list:

6. Code 9015, building or property management – all other employees reclassified to code 9012, building or property management – property managers and leasing agents and clerical, salespersons.

7 & 8. Codes 8017 store – retail NOC and 8018 store – wholesale NOC reclassified to Code 8010, store – hardware.

9. New to the list is code 9014, janitorial services by contractors – no window cleaning above ground level and drivers, reclassified to code 9017, residential cleaning services by contractor – inside.

10. Code 7219, trucking NOC – all employees and drivers, reclassified to code 7225, automobile towing and drivers.

Classification codes are incredibly complex with nearly 700 different codes available, but they are a major determining factor of an employer’s premium so it’s critical to get it right. As Certified WorkComp Advisors (CWCA), we are trained, certified, and mentored by the Institute of WorkComp Professionals (IWCP), well versed in the rules of workers comp, and here to help.

Automatic gratuities and service charges

In June, NCCI filed proposed changes to the Basic Manual for Workers’ Compensation and Employers Liability Insurance clarifying that any nondiscretionary costs charged to consumers, such as service charges and automatic gratuities, are included in payroll. The change would affect 32 states and the District of Columbia. Traditional tips, which are provided to servers at the discretion of the consumer, would not be included in the change. NCCI has proposed that the changes be effective for new and renewal workers’ compensation policies issued on or after Jan. 1, 2024.

Legislative trends

According to a recent report, as of July 31, NCCI tracked 809 state and federal bills that could impact workers compensation, with 143 enacted. Workplace-related mental injuries, marijuana legalization, independent contractors/gig economy, and single-payer health insurance are the top themes. Connecticut, Idaho, Missouri, Nevada, Tennessee, Texas, Virginia, and Washington enacted legislation addressing compensability for workplace-related mental injuries. Colorado, Florida, Minnesota, and Washington enacted legislation related to mental injuries and workers compensation. Bills are pending in California, Illinois, New York, Pennsylvania, and Wisconsin.

Kentucky is the only state to enact legislation this year addressing marijuana reimbursement. It legalized the medical use of marijuana but does not require a workers compensation carrier or self-funded employer to reimburse a person for associated costs. Legislation is pending in Massachusetts (H 1949) and Pennsylvania (HB 1079) that would allow reimbursement for medical marijuana. New York is considering legislation (A 4713/S 2568) that would deem medical marijuana a prescription drug for workers compensation purposes.

NCCI also monitored 236 proposed workers compensation-related regulations. As of July 31, 83 of those proposed regulations were adopted. As in prior years, medical cost containment was the top theme of the regulations adopted, including medical fee schedules and treatment guidelines. Several of the adopted regulations addressed claims reporting requirements and court hearing rules and procedures.

The first part of the report discusses legislative activity by geographical zone and state, and the second part provides additional details on the topics of interest. In addition, there are links to interactive dashboards for Enacted Legislation and Loss Cost/Rate Filing.

For more information, schedule a meeting with one of our professionals today.