Ohio Workers’ Compensation

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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On Wednesday, November 14th, a first in BWC history took place in the BWC’s auditorium in Columbus, Ohio.  For over three hours, sixty (60) employers and trade association representatives appeared before the members of the BWC Board of Directors’ Actuary Committee to offer public comment and input to the members of the Board in attendance.   One Hundred Fifteen (115) additional witnesses submitted written testimony only.  The Committee had requested public testimony in response to the BWC Administrator’s proposal to decrease the maximum available credibility discount to employers in the Ohio group rating program from 90% to 80%.  BWC alleges group-rated companies are actuarially being subsidized by non-group-rated companies by an estimated $200 million a year.  At the September board meeting, at the request of the Administrator, the Board had referred the matter to the Actuary Committee for study and to recommend a maximum discount percentage.

(Continued)

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