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Experience Rating Split Point Change FAQs

Tuesday, June 12, 2012
Written By
Kory Wells

Last updated: August 30, 2012

Here at Zywave we’re getting lots of questions about the 2013 change to the workers’ compensation experience rating split point. As the effective date of this change draws near, I wanted to address a few of the common questions we’re hearing:

Signs at a crossroad
The split point change is probably the most significant event in workers’ compensation experience rating in 20 years. No wonder there are a lot of questions!

Has the split point change been approved in my state?

Here’s the approval status of the split point change (as of July 12, 2012 – we’ll keep this updated as states announce their decisions):

  • The change has been approved by all states that utilize NCCI, with the exception of Massachusetts, where the change is still pending. (Note that Indiana, Massachusetts and North Carolina use NCCI for interstate rating but have their own bureau for intrastate rating. IN and NC have approved the change.) 
  • Missouri has approved a modified plan in which the increase occurs over 4 years, with the first year split point set at $7,500.
  • The independent states of Michigan, Minnesota and Wisconsin have approved the change. In New York, the NYCIRB actuarial committee has approved the 2013 change to a $10,000 split point, although it states that further study is needed for increases in subsequent years.
  • The independent state of Texas, which uses rating methodology similar to NCCI’s, has not posted information on their website concerning the change.

It’s worth mentioning that the NCCI states of Alaska, Georgia and Louisiana are also implementing the experience rating adjustment for medical-only losses along with the split point change on their respective effective dates. Read more

The split point change is not likely to be an issue for agents and brokers and their clients in the following states:

  • California. Although its rating methodology is somewhat similar to NCCI’s, California had a split point increase in 2010, so another significant increase in 2013 seems unlikely.
  • Delaware, New Jersey and Pennsylvania. These states have independent bureaus that use rating methodology that is different from NCCI’s.
  • North Dakota, Ohio, Washington and Wyoming. These are monopolistic states in which employers must obtain workers’ comp through a state fund or self-insure, where permitted.

When exactly does the change take effect?

Plan changes, including the new split point and also a new capped mod formula, take effect on each state’s loss cost/rate filing effective date. Many states have a 1/1/2013 rate filing, so by autumn we should be seeing those rates published.

Will the rates be changing more than usual because of the split point change?

In states that approve the change, the ELRs (expected loss rates), D (discount) ratios, ballast and weighting values will be adjusted as they usually are each year. Additionally, since expected losses are split into primary and excess portions based on the D-ratio, resources from the bureaus have indicated that the D-ratios will have an additional adjustment in 2013 to correspond to the new split point.

Will some interstate mods in 2013 use both the new and old split point?

This is a good question, and the short answer is yes. Let’s look at a hypothetical example of an interstate mod for a business with operations in Tennessee and neighboring Kentucky.

Let’s say the mod is effective 6/1/2013.

Tennessee has approved the new split point effective 3/1/2013, so on the 6/1/21013 effective date of this hypothetical mod, Tennessee 3/1/2013 rates and the 10,000 split point would apply.

Kentucky has approved the new split point effective 10/1/2013, so on the 6/1 effective date, the change would not be in effect. Therefore Kentucky 10/1/2012 rates and the 5,000 split point would apply.

While it may seem a bit strange to see different primary loss amounts for losses in different states, it’s something to get accustomed to going forward, as the split point will continue to increase in 2014 and 2015, and will also be indexed for claim inflation in 2015 and beyond.

Will the new split point for a state be “retroactive” to all losses in the mod?

Sometimes people wonder if a new rule, such as the split point change or the implementation of the ERA medical-only reduction, will apply only to losses effective as of a certain date, but that’s not the case. The same split point will apply to all losses in the mod for a given state and effective date, regardless of when in the experience period those losses occurred.

When will new split points be available in ModMaster so I can know how a mod is going to change?

For any given state, the new split point will become active in ModMaster at the same time we update the 2013 rates for that state. As our longtime partners know, we update rates promptly as they are published by the bureaus. Until rates are available, users should input all available data as usual and use the Mod Projection feature in ModMaster to estimate the impact of the new split point on a  2013 mod. (The projection feature is also available for mods effective in 2012.)

Let me know – here in the comments, or by email – what other questions you have about this significant experience rating plan change and how it is being implemented in ModMaster.

– Kory Wells, WorkCompEdge Blog Editor

© 2012 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

For further information:

On NCCI.com:

Understanding NCCI’s Filed Experience Rating Plan Changes – Item E-1402.

On the WorkCompEdge blog:

How Will Mods Change Under New NCCI Plan Recommendations?

New Report Estimates Mod Change Due to 2013 Split Point Value

6 responses to “Experience Rating Split Point Change FAQs”

  1. Hi Kory. Thank you for the updates. I was wondering if NY had any further hurdles in approving the change or if the Actuarial Committee was the last one. Also do you know if MA has a timeline for review/approval?

    • Hi, Michael,

      Thanks for stopping by. I have not heard any more about either of these states – nor have some of our industry colleagues I’ve checked with. If there are any “insiders” who read this and want to add to the discussion, I welcome it!

      All best,

      Kory

    • Hi, Tami,

      We are processing 2013 rates – and the new split point – as they are published. NCCI has recently released Missouri (which is in ModMaster now with its split point of $7,500) and New Mexico, which will probably be available later today (9/17) or certainly by tomorrow morning. Check the “Message Center” on right side of the home page of ModMaster to watch for notifications of all rating data updates.

      Thanks for reading!

      Kory

  2. What is the split point for OR and when is it effective? Also, will the Max Debit Modification (Cap) Formula change as well? Please explain. Thanks!

    • Hi, Kristine,

      Pardon my delay in replying…I was out of the office last week. The split point change of $10,000 goes into effect 1/1/2013 for Oregon; in fact, the 2013 rates were very recently published and are now available in ModMaster, if you use our software. The capped mod formula changes effective 1/1/2013 as well:

      Before 2013: 1 + [ 0.00005 x (E + 2E/G) ]
      Effective 2013: 1.10 + 0.0004 x E/G

      where E is total expected losses and G is average claim cost. NCCI recommended the change because the current formula can produce a very low cap for small risks (generally 1,000 to 10,000 in expected losses, according to the NCCI graphs). This means:

      – Employers who are small risks and currently have a limited mod may see their mod increase
      – Other employers who are relatively larger risks and currently have a limited mod may see their mod decrease

      I hope that helps. Thanks for reading!

      Kory

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