When reviewing a workers compensation insurance quote, you may notice that a ‘base rate’ and ‘net rate’ are listed (please note ‘net rate’ may also be shown as ‘interim billing rate’ or ‘final billing rate’). In many cases, this may cause confusion, as many people do not understand the difference between the two. The following is a brief explanation of the two rates.
First, the base rate, in simple terms, is the rate filed, by the carrier, with the Department of Insurance. Each carrier must file a base rate per classification, which may include class codes not offered within a particular state. For example, class codes 5140 and 5190 relate to electrical work within building in the state of California. Thus, every carrier transacting workers compensation in California must file a base rate for class codes 5140 and 5190. More specifically, as an example, carrier A may file a base rate for class 5140 at $8.00 and class 5190 at $5.00. In turn, the base rate is the starting point for carrier A’s quote, as the carrier must use the base rate to calculate the manual premium (prior to any discounts or surcharges).
Please note that it should be noted, prior to explaining net rates, that not all quotes will include a net rate. In some cases, the carrier will quote using base rates only. In California, this tends to be rare, but it does happen in some cases.
The net rate, also know as interim billing rate or final billing rate, is the rate that the employer will pay in each class code. The net rate is calculated by using the base rate, then applying an experience rating modifier (if applicable), a schedule rating factor (if applicable) and, in some cases, a premium discount factor. Further, some carriers will provide a net rate after taxes and fees, thus providing total cost associated with each classification.
Please remember, as mentioned is previous articles, that payment plans vary by carrier, and net rates will also vary depending on the pay plan selected. In order to avoid an overload of information, this would best be explained once a quote is provided.
Hopefully, this article helped to clear some confusion surrounding the topic of base rates vs net rates. If you have further questions, do not hesitate to call us at 858-277-1585, or CLICK HERE FOR BETTER RATES