Moore: Large-Deductible Policies: Are They a Bargain?

Friday, August 3, 2018 | 1

Are workers' compensation large-deductible policies worth a look for cutting costs? One great way to start is by going over the definition of these hybrid-types of policies.  

James Moore

The idea to write this article was generated from quite a bit of buzz on whether high-deductible health insurance policies are a great avenue for providing health insurance to one’s family or business.

Many states have their own sets of rules on large-deductible policies. The National Council of Compensation Insurance (NCCI) basically defines workers' compensation large-deductible policies as having a $100,000 or more deductible.    

Many people in the insurance industry refer to a large-deductible policy as any policy with a $250,000 or higher deductible. I have not seen many policies below the $250,000, but they do exist. 

To write this article, I will have to talk in overall generalities, as there are so many different types of deductible policies, I could write a book on the different ways to underwrite them.  

One misconception is that some companies seem to think they are self-insured of sorts with a large deductible. A few differences between self-insurance and workers' compensation large-deductible policies are your company:

• Has a mod with large-deductible policies; not so with self-insurance (often a big surprise).
• Files are being handled by a carrier, not a third-party administrator; you are still being-insured.
• Still pays a premium or file adjustment fee per $100 of coverage; there are many versions of this.
• Can still “bust your deductible” without realizing it: the nasty aggregate deductible.

An aggregate deductible is defined as the total claims volume deductible, not per claim.  A company may never reach the $250,000 deductible limit. However, a rash of medium-sized claims will go over the aggregate deductible.   

I have seen many large-deductible programs survive for many years. The employers that seem to have troubling policy years are the ones that do not budget in enough for risk management and safety.  

I will not cover how the large-deductible policies are charged, and billed premiums, due to numerous versions. 

The bottom line: Bargains do exist. Make sure you have the right advice before pursuing workers' compensation large-deductible policies. 

This blog post is provided by James Moore, AIC, MBA, ChFC, ARM, and is republished with permission from J&L Risk Management Consultants. Visit the full website at www.cutcompcosts.com.