Workers' Compensation

How Mergers and Acquisitions Impact Workers’ Compensation Premiums

How Mergers and Acquisitions Impacts Workers' Compensation Premiums
Reading time 5 Mins
Published on Aug 20

The business world is built on mergers and acquisitions. In 2018, there were nearly 13,000 M&A transactions in the United States, with the value of announced mergers across the globe totaling over $2.5 trillion in just the first half of the year. According to Deloitte’s The state of the deal: M&A Trends 2019 report, 79% of executives believe that mergers and acquisitions will increase in 2019.

Mergers are complicated and there are hyper-specific nuances each deal. Negotiators have to think about issues such as corporate culture, finances, and big-picture projects. Many businesses neglect to consider their benefits when they prepare for a merger or an acquisition. That can be a big mistake. Not only do mergers and acquisitions impact your employees, they impact their benefits and your premiums. So, when you make that big purchase and acquire a brand, you may notice an expensive bill from the Ohio Bureau of Workers’ Compensation (BWC) sitting in your mailbox.

Here’s what you need to know about your workers’ compensation premiums in relation to mergers and acquisitions (M&A).

How M&A Impacts Premiums

While the differences between mergers and acquisitions are vastly different, their impact on your workers’ compensation premiums can be nearly identical. For example, whether you merge or acquire an existing company, the BWC will combine the experience of both companies to determine workers’ compensation rates. While your company may have a stellar workers’ compensation history, the company you acquire may have bad experience.

Unfortunately, the BWC will simply merge your good experience with their bad experience, which will likely cause your rates to go up. The BWC will take the coverage history, claim history, and program status of both companies into account when they determine your rates. For many businesses, increased premiums can come as a surprise after a merger. Luckily, this is something that can be mitigated if you plan accordingly and discuss all potential M&A activity with your TPA.

Understanding M&A and Group Rating Programs

Any business that’s looking into a M&A needs to immediately notify the administrator of their group rating program. The company with which you are negotiating a merger or acquisition needs to be analyzed by the administrator. Remember, the BWC will merge your experience, so it’s critical that your group rating administrator has time to go over specifics.

New entries into your group rating program will impact every other member of the group and a company with bad experience can do massive damage to a group’s premiums. In fact, one company with bad experience can cost other members of the group thousands in premium increases — even if, at first, the potential increase seems to be minor.

Remember, group rating programs often contain hundreds of millions of dollars in payroll. Tiny changes can have big impacts.

How TPAs Like Sheakley Can Help You Through the M&A Process

Your TPA can act as your guiding light during the M&A process. At Sheakley, we help businesses do all of the following during and before the M&A process:

  • Identify the claims history, program fit, and balances with either the BWC or attorney general of the company in question.
  • Help you calculate costs and program fit post-merger
  • Assist you in identifying necessary M&A price adjustments in combination with existing claims history and balances
  • Calculate the big picture deal and discuss all potential issues and costs with you pre-merger.

Not only will Sheakley help you understand the nuances involved in M&A’s and workers’ compensation benefits — but we help clients calculate the costs associated with the M&A. This includes reviewing the target company’s existing history with the BWC as well as their overall posture within the context of your group rating program.

Mergers and Acquisitions Workers’ Comp FAQs

Is there a way that I can structure my deal that protects me against workers’ compensation liability?

  • No! Unfortunately, it is almost impossible to structure your deal in a way that prevents the BWC from merging your histories together. In Ohio, the BWC can transfer claims despite the merger type. Even if you aren’t onboarding any new employees, you will still receive claims history for employees that never set foot in your building. Simply put, the BWC will get their money if it exists.

Why did my workers’ compensation rates increase after my recent M&A?

  • The Ohio Bureau of Workers’ Compensation (BWC) transferred the claims history from the business you acquired to your company. This is standard practice in Ohio, and it’s an extremely common problem with M&A. Since many acquisitions involve failing companies, there’s an increased chance of troubling experience with the BWC on that company’s record.

Am I still eligible for a group program after my merger or acquisition?

  • It will depend. Your group program’s administrator will determine your fit based upon your impact on other members of the group. Your company may have to agree to indemnify and hold harmless other members of the group if you’re acquiring a company with a troubled history.

Read This If You’re in the Midst of a Merger or Acquisition!

If you’re currently in the process of a M&A and you need HR professionals and an expert TPA to help you through the process, contact us! Don’t let another company’s claims history cost you big in the long-run. We’ll help you prepare for the M&A and protect your interests!

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