Workers’ compensation insurance is essential for protecting your employees and your business. However, the costs associated with it can often strain a company's financial health. Many businesses are unaware of a vital cost-control mechanism available in numerous states: the Experience Rating Adjustment (ERA). When properly utilized, ERA can significantly lower your workers' compensation premiums.
This blog will demystify how ERA works, outline its financial benefits, and guide you on optimizing its use to ensure your business reaps the full advantages.
What is Experience Rating Adjustment (ERA)?
The Experience Rating Adjustment (ERA) is a provision in workers' compensation insurance that alters how medical-only claims affect your experience modification factor (mod). Your mod factor directly impacts your premiums, so a lower mod typically means lower costs.
Under the ERA program, medical-only claims (injuries that don't require the employee to miss work beyond the state-mandated waiting period) are discounted by 70% when calculating your mod. This reduction rewards businesses for quickly reporting and managing claims efficiently, reducing overall insurance costs.
Why Does ERA Exist?
ERA was introduced with two goals in mind:
1. Encouraging Prompt Reporting
Quick injury reporting ensures employees receive timely medical attention, leading to better recovery outcomes.
2. Promoting Effective Claims Management
Businesses that focus on proactive claims management are rewarded with lower premiums, creating an incentive for a safer work environment.
How ERA Impacts Your Workers' Compensation Costs
To better understand ERA’s financial significance, let's break it down with a comparison of two scenarios with identical claim amounts but different classifications.
Scenario 1: Medical-Only Claim
- Medical cost: $5,100
- Lost-time cost: $0
- Impact on mod calculation: $1,530 (medical claim cost discounted 70%)
- Estimated premium cost over three years = $4,830
Scenario 2: Medical + Lost-Time Claim
- Medical cost: $5,000
- Lost-time cost: $100
- Impact on mod calculation: $5,100 (no discount applied)
- Estimated premium cost over three years = $16,125
Difference: The ERA discount in Scenario 1 saved the business over $11,000 in premiums over three years even though the total claim costs were nearly identical.
The Role of Waiting Periods in ERA
One of the keys to leveraging ERA effectively lies in understanding waiting periods. These are the state-defined waiting durations before injured employees become eligible for wage-loss benefits.
If an employee returns to work within this period, the claim remains medical-only and qualifies for the 70% discount under ERA.
Common Waiting Periods by State
- 3 Days: Some states require three consecutive days before lost-time benefits apply.
- 5 Days: This slightly longer timeframe still allows ample opportunity for medical-only claims.
- 7 Days or More: Longer waiting periods provide more chances to utilize return-to-work strategies to keep claims medical-only.
By leveraging a well-structured return-to-work program, businesses can ensure employees return quickly, maximizing ERA benefits.
States with ERA Provisions
Availability of ERA varies across states, making it crucial to understand where this provision applies.
States with ERA:
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Illinois, Indiana, Michigan, Texas, Virginia, Wisconsin, and more.
States Without ERA:
New York, New Jersey, Pennsylvania, Delaware, Washington, Ohio, North Dakota, and Massachusetts.
For companies operating across multiple states, knowing whether ERA is applicable in your regions is vital for crafting a strategic insurance approach.
Eight-Point ERA Optimization Checklist
Are you fully leveraging ERA for cost control? Use the checklist below to find out:
1. Know the ERA Status of Your State
Confirm which of your operating regions offer ERA and what its requirements are.
2. Audit Claims for Proper Discounts
Ensure medical-only claims are correctly discounted under ERA.
3. Compare Medical-Only vs. Lost-Time Claims Costs
Understand how different claim types affect your mod calculation and premiums.
4. Monitor Claims' Financial Impact
Use detailed projections to see how claims influence your overall costs.
5. Keep Injuries Medical-Only Whenever Possible
Implement proactive return-to-work policies to avoid claims slipping into lost-time territory.
6. Engage Employees Early After Injuries
Open communication lines ensure employees feel supported and incentivized to return sooner.
7. Audit Experience Mod Factors Annually
Spot errors in mod calculations that could cost your business unnecessarily.
8. Model Potential Financial Outcomes of Claims
Utilize tools to visualize various scenarios and optimize decision-making.
Building an Effective ERA Strategy
Taking full advantage of ERA requires strategic planning and diligent execution. Here are some actionable steps to help you build an effective ERA strategy for your business.
1. Train Supervisors on Quick Injury Reporting
Supervisors play a pivotal role in ensuring all injuries are reported promptly, which is essential for managing them effectively.
2. Create a Strong Return-to-Work Program
Predefine modified-duty policies to shorten employee recovery time and meet waiting-period return deadlines.
3. Partner with Occupational Medicine Providers
Work with healthcare professionals who understand workplace injuries, helping employees recover faster and reducing long-term costs.
4. Review Claims Data Regularly
Analyzing trends in claim frequency and severity allows you to improve your safety protocols over time.
5. Educate Your Team on ERA Benefits
Internal education ensures everyone from HR managers to safety professionals understands the importance of ERA and their role in maximizing it.
The Long-Term Benefits of ERA
Effective utilization of ERA doesn’t just benefit your bottom line; it also creates a safer workplace, improves employee satisfaction, and enhances productivity. By fostering an environment where injuries are managed efficiently, businesses benefit from healthier teams and reduced financial burdens.
Take Control of Your Workers' Compensation Costs Today
Missing out on ERA opportunities could mean leaving significant money on the table. Use the tips and strategies outlined here to maximize your savings and protect your workforce.
At Winter-Dent, we specialize in helping businesses like yours navigate complex workers' compensation programs. Through our complimentary 4Sight™ MOD Analysis, we can audit your current ERA usage, identify areas for improvement, and provide actionable strategies.
Reach out to Mark Gilliland today at Mark.Gilliland@Winter-Dent.Com to get started.
