The trusted source for
healthcare information and
Which of these 3 plans is your company on?
Here are definitions of three types of workers' compensation insurance policies, according to Christine R. Zichello, RN, COHN-S, CSHM, ARM, FAAOHN, senior risk control specialist at PMA Insurance Group's Mount Laurel, NJ, branch office:
• Guaranteed or fixed cost plans. As the name implies, these "guarantee" a "fixed" premium that the organization will pay for a policy regardless of the frequency or severity of losses that occur during the policy period. The guaranteed cost premium for most large organizations is based on standard industry rates, subject to state approval, that are adjusted upward or downward based on an organization's past loss experience.
"This practice is known as experience rating and carriers use it to determine an organization's 'experience modification factor,'" says Zichello. "Ultimately, the main advantage to these plans is the fixed premium. An organization knows exactly how much its insurance will cost."
• Incurred loss and paid loss retrospective programs.
In retrospectively rated insurance programs, the premium is determined at the conclusion of the policy period based on the actual incurred loss experience for the year. With incurred loss programs, the retrospective premium is adjusted annually until all claims are paid and closed, and the ultimate program cost to an organization can be limited on a specific maximum basis.
"While paid loss programs also determine the premium retrospectively until all claims are paid and closed, they also offer installment plan payment options to reduce an organization's initial cash outlay," says Zichello.
• Large deductible programs.
Under these programs, organizations identify loss exposures, retain them, and formulate a plan to pay for and handle those retained losses. "In other words, organizations maintain their risks as opposed to transferring them to an insurance carrier," says Zichello.
Organizations may purchase excess insurance from a carrier in order to transfer the risk of the high-severity portion of their losses. For example, an organization might have a high deductible up to $500,000. Should one claim exceed that cost, the amount over $500,000 would be paid to the excess insurance carrier.
"When an organization has a large deductible plan, it generally obtains certain services that an insurance company would normally provide as part of the insurance program, such as risk control and claims administration," says Zichello.