Ohio Workers’ Compensation

When the BWC switched from the old tabular system to the new MIRA reserving system, the intent was to be revenue neutral.  However, based on a review of thousands of claims from the 2002 through 2007 it appears the switch to MIRA reserving had a far more significant impact on public employers than on private employers. 

From 2002-2004, the BWC calculated reserves for private employers using both reserving methods.  For our sample, the average MIRA reserve was 8.4% higher than the tabular reserves.  From 2005, the BWC just used the MIRA reserving system.  The MIRA reserves from our sample for 2005-2007 was 7.77% higher than the MIRA reserves from 2002-2004.  Assuming the tabular reserves would have remained constant, the average increase in MIRA reserves over tabular reserves from 2005-2007 was 17.53%.

For public employers, the MIRA transition period was from 2003-2005.  During this period, the average MIRA reserve was 58.59% higher than the average tabular reserve.  For 2006-2007, the average MIRA reserve was about the same as it was from 2003-2005.  Therefore, the impact of the MIRA reserving system was more than 3 times as great for public employers than for private employers.

The reason for this is almost solely due to the reserves set for percent permanent partial (%PP) claims and the fact the public employees are much more likely to file %PP claims than private employees.  About 6% of all private claims are coded as a %PP claim, while almost 16% of all public claims are coded as %PP. 

The result of this is quite significant because the average MIRA reserve for %PP claims exceeds $14,000, while the tabular reserves average less than $4,000.  The combined factors of more %PP claims and a much higher average MIRA reserve on those claims resulted in a much greater reserve burden for public employers versus private employers.  The impact of just the MIRA reserving resulted in between an 8%-10% increase in premium for public employers since 2006.  The premium increase for private employers is around 2%-3%.

Next I’ll look to see if the switch from tabular to MIRA created a more accurate reserving system justifying the increase in reserves, especially for %PP claims.

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This is the first of a series of postings regarding the MIRA  reserving system. This first posting will give a brief history of the BWC’s reserving system. Subsequent postings will look at the impact of recent changes in the reserving method on public versus private employers and analyze the efficacy of different reserving methods.

Claim reserves are estimates of future claim costs. Prior to 2002, the BWC reserved claims based on a tabular reserving method. This method took just three factors (the date of injury, the last type of compensation awarded, and the last date the claimant was off work) to calculate the reserve on the claim. This system allowed anyone with a reserve table to determine the reserve on a claim and, importantly, to project future reserves on a claim.

The drawback is that this method was not viewed as being accurate at the individual claim level. For example, it made no distinction between herniated disc claims, which could drag on for years and simple contusions or abrasions. Additionally, claims with ongoing lost time could be subject to quite high reserves. In this scenario, a claimant who happened to be off work on temporary total compensation at the wrong time of the year could have a reserve set at well over $200,000. These extravagant reserves were hard to justify and could be quite damaging to an employer.

In 2002, the BWC decided to transition from the old tabular reserving method to the new MIRA reserving system. The MIRA reserving system looks at scores of variables associated with a claim to determine the most significant cost drivers of a claim. Among the primary cost driver is the diagnosis code, which makes a distinction between, say, herniated discs and contusions. Ostensibly, the MIRA reserving system would more accurately reserve individual claims. The drawback is that the reserve calculation is hidden from employers so there is no way to determine future reserves. And other than the BWC having incorrect information, a wrong diagnosis code for example, employers can not even challenge the reserves established thru this method.

The BWC transitioned private employers from the tabular reserving method to the MIRA reserving method from 2002 to 2004 and public employers from 2003 to 2005. During this transition period reserves were calculated using both methods and the method yielding the lower total reserves for an employer was used in that employers rate calculation.

My next posting will look at the impact the switch from tabular reserves to MIRA reserves had on employers.

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