1. Guaranteed Cost Program

The Client Company pays a premium to an Insurance Company or State Compensation Insurance Fund (SCIF) who in turn pays all Medical, Indemnity and Litigation costs associated with that Clients Company’s claims for the 12 month period following.

*CA Class Codes are assigned to the company according to a master list and the job functions of the employees. A premium is set for each class code per $100 of payroll by the Insurer based on their filed rates. (Appendix A page 27)

*After calculating the premium for each Class Code, the premium is adjusted by an experience modifier calculated annually by the Workers Compensation Insurance Rating Bureau (WCIRB) based on actual losses in the past,. If you have high frequency of loss and or catastrophic losses, you will have a high experience modifier. If your loss activity is low, the experience modifier will be low. The average experience modifier for all companies is 100%.

*A table published two times each year, January and July, by the WCIRB, called the Pure Premium Table, shows the cost per $100 of employee income for each class code for losses. This Chart is the basis for the rates that are filed each year by the Admitted Insurance Companies who sell Workers’ Compensation Insurance in CA. Simply stated, the Insurance Company adds the Pure Premium Rate, administration costs and a profit motive together and files that rate with the CA Department of Insurance (DOI) for each Class Code they wish to insure each year.

*Those filed rates can be compared for each Class Code by Insurance Company at the CA DOI web site.

http://www.insurance.ca.gov/docs/FS-WC227.htm

A deductible, usually 10% of the Annual Premium, is deposited with the Insurance Company or SCIF.

*Each month the Client Company reports their payroll and pays the pre-designated premium for each class of employee payroll and adjusts the total by the Client Companies assigned Experience Modifier. An example of a Monthly Workers’ Compensation Insurance Payroll Report is attached.

*When an employee has an injury it is reported to the insurance company by the Client Company and the insurance company begins to pay for the claim. The Client Company does not participate in the payments for the claim other than the Guaranteed Cost Premium that was agreed upon with the Insurance Company for which the deposit was made and their premiums paid monthly.

If losses are greater than the premium paid by the Client Company, the Insurance Company take the loss. If the losses are average or less than average for the Client Company, the Insurance Company breaks even or makes a profit.

At the end of each year the Insurance Company audits the Client Company actual payroll. Any adjustments to the premium paid are collected at this time.

It is the responsibility of the Insurance to manage the tail for the claims. The tail is a period of 22 years from the notice of first claim.

*It would behoove the Client Company to ask the Insurance Companies who want to insure them what the work load is like for the claims representative that will be representing them. If the number of claims the claims representative at the Insurance Company has is high, it can affect the efficiency and add cost to the loss and that will affect the Client for three years hence in their Experience Modifier Calculation. It also affects the time it takes to close the claims which is critical at the annual Uniform Statistical Reporting meeting. All claims that are not closed have a more significant affect of the experience modifier than those that are closed.

*Under SB 899, rules for the new Medical Provider Networks have been established. State Compensation had their MPN approved and it incorporates both the Kaiser Network they had before and an integrated number of medical providers from the Blue Cross Network in order to meet the distance requirements.