Experience Modification Rate (Explained with Tips to Control)

By: Kenny Young, CSP, ARM, AINS, CEAS

There’s a lot of info on the internet about experience modification rate (EMR) but a lot of it is confusing while still lacking very pertinent information. I believe in dealing in specifics because details are the difference between success and failure. Hopefully I can do this in a way that your eyes don’t glaze over, but I can’t promise anything. If you help understanding, then feel free to email us!

The EMR is a multiplying factor that insurer’s use to calculate worker’s compensation premium based on your claims experience. It can play a significant part in the pricing of your work comp premium and is really the only part you have control over. Insurance carriers file price ranges for each job class code with the state they can give debits or credits, such as schedule credits, to price your account. Schedule credits/debits are discretionary premium adjustments, either up or down, based on individual risk characteristics of your business. For instance, if the underwriter feels you have a lights out safety program then they can give you a schedule credit to lower your premium. You have some control on your ability to obtain schedule credits but typically we refer to EMR as being the real controllable piece.

An EMR is essentially a calculation determining actual losses compared to expected losses looking back over a 3-year period, not counting the previous year. 2018’s EMR consists of policy years 2016, 2015, and 2014. I’d show you the formula, but I don’t want your brain to explode. You mostly need to understand that if you exceed your expected losses based on your industry then your EMR goes up.

The other part to understand is primary losses versus excess losses. A lot of what I read is how one big claim ruins an EMR. In reality, several small to midsize claims can trash your EMR even more. Did you know that the EMR calculation discounts “excess” costs from losses? “Primary” losses are the amount of a claim weighted more heavily. These are the losses under the split point. The split point is currently $16,500 (2018). Any loss over the split point is excess and discounted in your EMR calculation.

Injury History 1 Injury History 2

$9,000 claim $19,000 claim

$10,000 claim

$19,000 applied to primary $16,500 applied to primary

$2,500 applied to excess

In the example above, Injury History 1’s $19,000 in claims will be more detrimental to the employer and be heavier weighted in the EMR calculation. This is important to understand because the split point was only $5,000 in 2013 and had been that way for a long time, meaning that employers are seeing claims that used to be charged with a lot of excess as primary now. The split point will continue to raise with claim inflation. Unfortunately, expected primary losses didn’t rise at the same rate as the split point so several businesses saw EMR jumps even though they had similar losses to the past.

After the calculation, you get your factor. An EMR of 1.0 is “average” for your industry. Here is my opinion of EMR ranges and classifying them.

• Excellent: 0.40 – 0.75
  
• Good: 0.76 – 1.00
  
• Average to at Risk: 1.01 – 1.25
  
• At Risk to Poor: 1.26 +
  

Flashing lights don’t typically go off in my head as an issue requiring consideration until I see a 1.10+. This is mostly because small business can see a single event significantly impact their EMR and make it jump.

Here’s how EMR factors into your worker’s compensation premium:

$200,000 base WC premium x 1.0 EMR = $200,000 WC premium

$200,000 base WC premium x 0.75 EMR = $150,000 WC premium

$200,000 base WC premium x 1.25 EMR = $250,000 WC premium

Ways to Better Control EMR

1. The most important way is to improve your safety program. Focusing on prevention is the key. The rest of these tips are after the fact.

2. Verify proper injury coding (medical only versus indemnity) and subrogation errors.

3. Get employees prompt treatment and report quickly.

4. Take advantage of network partnerships of your insurance carrier to lower procedure costs and improve outcomes.

5. Monitor open claim reserves and have them reviewed for accuracy ahead of NCCI submission for your EMR. If they can be lowered, then great!

6. For business purposes, you may entertain chargebacks of premiums or losses to departments, locations etc. so they are held accountable for their own injuries.

7. Get injured employees back to work. There are all sorts of information out there on how it reduces medical, legal etc. bills. But did you know that only 30% of medical only costs (70% discount) get calculated into your EMR?