A new client, has asked me to review their recent final audit, and reclassification by the Workers’ Comp carrier.
The policy period is Jan 27, 2013 to 2014, and the client is a small medical device manufacturer. The Workers’ Comp policy was issued using one class code, 8859, Computer Programmers! While lower rated class codes are often used on medical device startups while in R&D, 8859 is never one of them.
In the process of completing the audit for the period, the auditor from the carrier discovered the misclassification. Three new classes have been added to the policy, including the new primary class code, 3572, Medical Device Mfg.
Here’s how the Worker’s Comp Carrier handled it:
- They computed the audit based on the correct classifications, generating a premium of $10,977. The client had been billed only $1,575 during the policy term.
- They then computed the audit based on the old classification, 8859, generating a final audit bill of $2,819.
- They credited the client $8,159, the difference between the correct audit amount of $10,997, and $2,819.
According to my premium audit guru this WC carrier handled this exactly right. They must report to the WCIRB with the correct class codes. But as a result of AB 1914, after the policy has run through expiration, they can’t bill the change in the class code at audit. They can only do that prospectively.
My friend went on to say that once the policy is issued, the WC carrier has 90 days to ‘discover’ a classification correction and implement it at policy inception. After 90 days, they can make a class code change on the policy, but only after notice to the employer, and only from the point of the discovery of the incorrect class code.
This law (AB 1914) was implemented in order to correct a situation in which a WC carrier at its election could legally go back up to 3 years, and recapture premium based on the “correct classification.”
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