| Q: | Why is the plan being updated? |
| A: | The goal of the research was to enhance plan performance through improved predictive accuracy that incentivizes workplace safety. The last major update to the current Experience Rating Plan (ERP) was in 2004. Research identified opportunities to improve the current plan and to improve the cohesiveness between the Merit Rating and Experience Rating plans. |
| Q: | Is the formula changing? |
| A: | No. While other formulas and approaches were analyzed, it was determined that the current formula could be sufficiently optimized to achieve the target performance metrics. Also, some of the formulas in other states were comparable to the PA formula as credibility levels approach 100%. The current formula is [Ap x C + E x C x L + E(1.000 – C)] / E, where Ap = Actual Primary Loss, E = Expected Loss, C = Credibility, and L = Limitation Charge. |
| Q: | What key components are changing in the new plan? |
| A: |
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| Q: | How do these changes improve plan performance? |
| A: | By introducing a Maximum Modification formula and reducing the eligibility level, this will result in a better transition for risks that move between the Merit and Experience Rating plans. It also limits debit modifications for the smaller more volatile risks with expected losses between $10,000 and $25,000 compared to the current plan. Also, the introduction of the variable split point improves stability and allows for the application of higher credibility values on the Actual Primary Losses (Ap) to improve performance across all risk sizes. Lastly, the new capping rules ensure a reasonable level of stability for year-to-year changes. |
| Q: | How will mods change? |
| A: | As with any new plan, this question is difficult to answer as there will be modifications that don’t change very much (between +/-10%), some that go up by more than 10%, and some that go down by more than -10%. Statewide, more risks will see modification reductions compared to increases, however changes will be greater for both the best and worst performing risks (i.e. risks with debits will often see larger debits and risks with credits will see larger credits). |
| Q: | What will my current mod be under the new plan? |
| A: | There is a Modification Calculator Tool published on our website that allows users to enter exposure and loss data and shows how their mod will change under the new plan. |
| Q: | How does the new max mod and capping process work? |
| A: | The Maximum Modification formula will be used which increases with higher Expected Losses. If the indicated modification is higher than the Maximum Modification, then the final published modification will be the Maximum Modification. In addition, any other larger single year increases will be limited in cases where the indicated modification or the Maximum Modification results in a change above +40% compared to the prior medication factor. In these situations, the final published modification factor will the resulting modification factor capped at 40% above the prior modification. |
| Q: | How will mods change for smaller risks? |
| A: | For the risks that are currently Merit rated, risks getting a Merit mod of 0.95 will generally see a lower credit mod and for risks that are getting a 1.05 debit mod will generally see a larger debit, however they might be subject to the Maximum Modification. Due to the Maximum Modification formula, risks with Expected Losses of $25,000 or less will no longer have modifications above 2.10. |
| Q: | What is the new plan eligibility amount? |
| A: | The minimum premium requirement is being reduced to $5,000 from $10,000. The premium requirement is based on premium developed by the audited payrolls or other exposures of the experience period, extended at current PCRB Loss Costs. The premium requirement for Merit Rating will be for risks that generate less than $5,000 on the same basis as stated above. |
| Q: | Why was the eligibility amount changed? |
| A: | The new ERP was designed to perform better for both larger and smaller risks. The Merit rating plan is a very basic plan intended for only the smallest of risks. Testing on risks between $5,000 and $10,000 showed that the new ERP performed well. In addition to performance, a lower eligibility threshold in conjunction with the use of Maximum Modifications allows for a better transition between the Merit and Experience Rating plans for the smaller risks. Due to statutory limitation, the Merit rating plan could not be eliminated entirely. Even with the lower eligibility amount, 63% of the statewide risks would remain Merit rated. |
| Q: | What happens if I am no longer Merit rated? |
| A: | Small risks that now meet the lower $5,000 ERP eligibility threshold will get an Experience rating factor instead of a Merit rating factor. |
| Q: | Is the mod worksheet changing? |
| A: | Yes, the modification worksheet has been refreshed and enhanced. Changes in format were made to make it easier to read and more consistent with some other states. New information was added such as a listing of all individual losses rather than only the losses that were above the spit point/loss limit and a modification “Status” to show if the modification has been revised. |
| Q: | How can I understand the new terminology used in the worksheet? |
| A: | A Glossary of Terms can be found within the Experience Rating Plan section of the PCRB website, www.pcrb.com, with definitions of all terminology found on the worksheet. |
| Q: | How does the 2-year transition period work? |
| A: |
For a 2-year period, (April 1, 2024- March 31, 2026) the current capping rules would apply in addition to the use of the new Maximum Modification formula. The current capping rules utilize both +/-25% swing limits and a secondary capping rule (a rule that produces a mod of 1.0 in cases where the current mod is a debit mod, above 1.0, but the indicated mod is a credit mod below 1.00 and the -25% swing limit capped mod would still results in a mod above 1.0. |
| Q: | What happens after the 2-year transition period? |
| A: | After the 2-year transition period, only the new capping rules apply (maximum modification and +40% swing) and the +/-25% swing limits and the secondary capping rule no longer applies. |
| Q: | Will the new ERP impact the class loss cost values? |
| A: | Yes. When the new experience rating plan is filed with a target effective date of 4/1/2024, the corresponding loss costs filed for 4/1/2024 will be adjusted (“off balanced”) to make the ERP changes revenue neutral. For example, if the new ERP plan results in average experience modification factors that reduced premiums by 5%, then the average loss costs will need to increase by 5% to achieve no overall change in premium due to the implementation in the new plan. If it is assumed that the overall loss cost indication change was -6% in this example, then the final filed overall change to loss costs with the implementation of the new experience rating plan would be roughly -1% (-6% plus the 5% off-balance). |
| Q: | Is there any change in how recoveries under subrogation rights or from third parties are handled for Experience Rating? |
| A: | No. With the approval of PCRB Filing No. 323, ratable losses that enter the plan formula will be reduced by the subrogated amounts and then limited by the split point if applicable. |