In Washington State, the workers’ compensation insurance landscape is unique compared to the rest of the country. Almost all employers with operations in the state must have a workers’ compensation account registered with the Washington Department of Labor and Industries (L&I) and pay their insurance premiums directly to the state. To help keep these upfront insurance costs low, employers need to know their Experience Modification Rate (EMR) and how it impacts the amount of insurance premiums they pay to the state. An employer’s EMR can either dramatically lower or dramatically increase these costs.
Before we jump into what an EMR is, let’s review how workers’ compensation insurance works in Washington. Unless self-insured, employers are required to participate in the Workers’ Compensation State Fund, administered by L&I. L&I collects insurance premiums from participating employers and, in exchange, pays for costs associated with the workplace injury and illness claims accrued by covered employers. This type of insurance coverage removes the financial liability that an employer would otherwise have for a workplace injury or illness claim.
While L&I initially assumes financial responsibility for workers’ compensation claims, they indirectly pass the costs to the employer via the employer’s EMR. An EMR is a unique calculation used to adjust an employer’s workers’ compensation insurance rates based on their claims cost history compared to the expected costs for a similarly sized organization in the same industry. The average EMR for all employers is 1.0. As a rule of thumb, an EMR below 1.0 will result in lower insurance rates than average, while an EMR above 1.0 will result in higher-than-average rates. An employer’s goal should be to get their EMR as low as possible to reduce the amount of insurance premium paid to the state.
How is EMR Calculated?
An employer’s EMR is based on a specific period of past claims costs, called the experience period. The experience period starts a year and a half after the claim origination date and lasts three years. The state has selected this period because it gives the most accurate picture of the costs associated with each claim while still being recent enough to reflect the employer’s current business practices. L&I uses this experience period to reference how much workers’ compensation insurance a particular employer used during the period to determine their current insurance needs. The greater the amount of claims costs in the experience period, the higher the employer’s EMR calculation will be. Other factors that influence the EMR include all employee hours worked, the type of work being done, and the type of costs associated with the employer’s claims to name a few. L&I evaluates the experience period annually and assigns employers their adjusted EMR that goes into effect on January 1.
How Can an Employer Lower Their EMR?
Having a low EMR is crucial to controlling workers’ compensation costs. An increased EMR can result in tens of thousands of dollars in additional insurance premiums. The first tool employers can use to lower their EMR is called Return-to-Work. Return-to-Work is when an injured or ill employee is able to return to work, either in their original job or in a lighter, modified job, enabling them to work while recovering from their workplace injury or illness. This approach will prevent Time Loss from being paid to the employee.
Time Loss is a benefit paid by L&I to an injured or ill employee who is unable to work due to their injury or illness and therefore is not paid their normal wages by the employer. Time Loss significantly influences EMR calculations, and avoiding it will have the most impact on keeping an EMR low. Employers can avoid Time Loss by keeping impacted employees working in a light or modified duty position and paying their normal wages. Not only will this lower insurance costs, but it will also help the employer meet production demands and can help the worker recuperate faster. If an employer is unable to find a light, modified position for the employee, paying the employee their normal wage while the employee is at home recovering is another cost mitigation strategy called Kept-on-Salary (KOS). Time Loss is prevented when KOS is utilized, but it should never be a blanket strategy to keep costs low. Instead, employers should evaluate each case to identify how long the employee may be on leave and if KOS would be cost-effective.
Managing risk through effective safety programs is a proactive strategy employers should also consider to lower their EMR. While there is inherent risk in many industries, an effective risk management approach can help prevent workplace injuries or illnesses. Preventing claims and thus not using workers’ compensation insurance will help keep an employer’s EMR low or at least help lower it. Effective safety programs can help reduce the potential for catastrophic claims where a Permanent Partial Disability (PPD) Award could be issued. A PPD Award is given to afflicted employees who’ve suffered a workplace injury or illness that has permanently modified their body or caused a permanent loss of bodily function. A PPD Award compensates the employee for the loss, and they will not be able to file for future claims on the body part unless there is a worsening or a new injury. Because PPD Awards are another driving factor in increasing an employer’s EMR, there is extra incentive to incorporate risk management and safety programs to help prevent these incidents.
If an employer can avoid Time Loss and PPD Awards, it can qualify for a special status called Claims Free Discount. If an employer can maintain three consecutive years without Time Loss or PPD Awards payments on any claim, the Claims Free Discount status is applied to their EMR calculation. The discount status lowers an employer’s EMR to the lowest allowed rate for an employer their size in their industry.
Lowering and maintaining an EMR can be a multifaceted challenge. Members of Archbright’s Retrospective Rating or ReClaim programs have access to a dedicated team of professionals working on the many pieces of managing EMR. The Archbright Claims Team works to close claims efficiently, ensuring the injured or ill worker receives the care they need, and the employers’ best interests remain a focus. In addition, each employer in the programs has an assigned Loss Control Analyst who monitors the financial aspect of their claims and can advise on necessary mitigation measures to help reduce EMR-related costs. Most participants in the programs also have access to a team of Safety consultants who can assist with safety concerns, program implementation, and risk management initiatives. Employers who are interested in learning more about these services can contact firstname.lastname@example.org.
Archbright members have access to tools and resources in mozzo to help them convert positions to light duty, including job description templates for injuries to specific body parts, an Employers Guide to Workplace Injuries, and Common Work Restrictions For General Injury Types. Archbright members with additional questions or who need assistance with workplace violence programs can contact our Safety Hotline through email or chat.