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Written by: John Tomei
In these challenging economic times, which include inflation and rising costs of workers’ compensation coverage, one way employers can reduce their workers compensation insurance coverage costs is to request the inclusion in their policies of deductible provisions. In addition to premium cost savings, deductible plans can improve employers’ cash flow, provide increased tax deductions, and allow for more control over workers’ compensation costs.
An excellent source of information regarding workers’ compensation insurance deductibles can be found in the North Carolina Rate Bureau’s North Carolina Workers Compensation Basic Manual, particularly in Rule 5 – Policy and Endorsements, sections of which are referenced in italics below. Rule 5 – Policy and Endorsements of the North Carolina Workers Compensation Basic Manual
In North Carolina, each insurer transacting or offering to transact workers’ compensation insurance in North Carolina may offer deductibles to employers. Deductible coverage is affected by attaching the Benefits Deductible Endorsement, WC 00 06 03 to the policy. However, it is important to know that an insurer is not required to offer a deductible to an employer.
To the extent an insurer is agreeable to offering a deductible to an employer, deductibles may be available for total combined medical and indemnity benefits in amounts of $100, $200, $300, $400, $500, $1,000, $1,500, $2,000, $2,500, and $5,000 per claim. A selected deductible applies on a per claim basis. More specifically, the deductible must apply separately to each claim for bodily injury by accident or disease.
A deductible does not affect the claims adjustment process. If a claim occurs, the insurer will investigate the injury, pay providers for medical treatment, and make disability payments to eligible workers. The insurer will then bill the employer for the deductible portion of the claim. As noted in the Manual, the claim is first paid by the insurer, which will then be reimbursed by the employer for any deductible amounts paid by the insurer. The employer is liable for reimbursement up to the limit of the deductible chosen. The payment or nonpayment of deductible amounts by the employer to the insurer is treated under the policy insuring the liability for workers’ compensation in the same manner as payment or nonpayment of premiums.
The applicable loss elimination ratio (LER) represents the percentage of losses removed when an employer is responsible for losses up to the deductible amount. LERs vary by deductible amount and hazard group. As one might expect, the LER is a key variable used in determining the policy premium credit.
So, the good news for employers in North Carolina is that deductibles are permissible, with varied amounts, on a per claim basis. The insurer pays the claim, and then seeks payment of its deductible from the employer thereafter. If the employer does not repay the insurer for the deductible amount paid by the insurer, then it is treated as non-payment of a premium. Understandably, the amount of the deductible has an impact on the loss elimination ratio (LER), which is used to calculate the policy premium credit.