Workers Compensation Insurance | III

what is workers’ compensation insurance?

Employers are legally required to take reasonable care to ensure that their workplaces are safe. however, accidents do happen. when they do, workers’ compensation insurance provides coverage. Workers’ compensation insurance serves two purposes: It ensures that injured workers get medical care and compensation for a portion of the earnings they lose while they are unable to return to work, and it generally protects employers from worker lawsuits. injured while working.

Workers receive benefits regardless of who was at fault for the accident. If a worker dies while working, workers’ compensation (as it is often shortened) provides death benefits for the worker’s dependents.

Reading: How to buy workers compensation insurance

every state is different

Workers’ compensation systems are established by statute in each state. State laws and court decisions control the program in that state, and no two states have exactly the same laws and regulations.

States determine such characteristics as the amount of benefits an employee is entitled to, what disabilities and injuries are covered, how disabilities will be assessed, and how medical care will be provided. Additionally, states dictate whether workers’ compensation insurance is provided by state agencies and private insurance companies or by the state alone. States also establish how claims will be handled, how disputes will be resolved, and can devise strategies, such as caps on chiropractic care, to control costs.

For information about the requirements where you live, visit your state’s department of workers’ compensation website.

If your business expands to another state, you may have to deal with very different rules in the new state. the discussion here covers the general features of workers’ compensation programs.

what injuries are covered?

Injuries sustained by employees on the premises of the workplace or elsewhere while the employee is acting in the “course and scope” of employment are covered if your employer has workers’ compensation insurance. For example, the leading cause of workers’ compensation death claims is traffic accidents that occur when the employee is in a vehicle for work purposes, whether the trip is in the company car or in the vehicle itself. of the employee. accidents driving to and from work are not covered.

In addition to accidental injuries, workers’ compensation covers injuries employees may suffer from other events that may occur while working, including workplace violence, terrorist attacks, and natural disasters.

Workers’ compensation insurance also covers certain occupational diseases and illnesses (defined in state statutes) contracted as a result of employment. for example, employees who work with toxic chemicals can get sick from exposure to the chemicals.

how are injured workers treated?

Injured workers receive all appropriate and medically necessary treatment. With medical costs on the rise, many states have adopted measures designed to control spending. these include utilization management guidelines, which describe acceptable treatment protocols and diagnostic tests for specific injuries.

what benefits do injured workers receive?

Income replacement benefits are based on whether the disability is total or partial and whether it is permanent or temporary. Impairment is generally defined as a reduction in earning capacity, sometimes using American Medical Association criteria.

Most states require that benefits be paid for the duration of the disability, but some do specify a maximum number of weeks, particularly for temporary disabilities. the benefit amount is a percentage of the worker’s weekly wage (current or state average).

Do I have to buy workers’ compensation insurance?

In most states, sole proprietors and partnerships are not required to purchase workers’ compensation unless and until they have non-owner employees. Most states will allow sole proprietors and partners to cover themselves for workers’ compensation if they choose. some states do not require employees to be covered if they are paid only on commission.

Employees are generally defined as persons who perform services at the direction of the employer, by contract, including minors and non-citizen workers.

many states exempt employers with only a few employees from mandatory coverage laws. the threshold for the number of employees that activates compulsory insurance is three, four or five, depending on the state. Texas is the only state where workers’ compensation insurance is truly optional.

In some states, immediate family members of business owners (parents, spouse, and children) who work for the business may not have to be counted as employees in determining whether to carry workers’ compensation insurance. These exceptions generally do not apply to other family members, such as sisters, brothers, or in-laws.

Under some laws, independent contractors are not considered your employees. however, for purposes of workers’ compensation insurance, most states will treat an uninsured contractor or subcontractor or the employees of an uninsured subcontractor as your employee, which means you may be liable if he or she injured while working for you. To avoid any unintended liability, larger companies often require contractors or subcontractors working for them to provide proof that they have workers’ compensation insurance.

Regardless of whether insurance is required and how many employees you have, if an employee protected by state statute is injured or killed while working for you, you may be held legally responsible. A claim for a serious employee injury could bankrupt many small businesses. insurance, through paying premiums for workers’ compensation coverage, provides a predictable cost to manage this risk.

who sells workers compensation insurance?

workers’ compensation insurance is not part of your business owners policy (bop). must be purchased as a separate insurance policy.

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Each state has its own rules about where employers can purchase workers’ compensation insurance. In some states, all employers must purchase their workers’ compensation insurance from a state monopoly insurer, known as a state fund. In several other states, insurance can be purchased from the state fund or from private insurers. in states that do, state funds can serve as an insurer of last resort for businesses that cannot find coverage from a private insurer.

how are premiums set?

premiums are based on industry classification code and employer payroll. premiums for the most dangerous businesses, such as garbage hauling or logging, can be much higher than premiums for an accounting firm.

Location has also become a factor in workers’ compensation premiums. Since the terrorist attacks of September 11, 2001, workers’ compensation insurers have been taking a closer look at their exposure to catastrophes, both natural and man-made. For businesses located in a high catastrophe risk area, premiums may be higher, regardless of the nature of the business itself. Employers with an annual premium above a certain amount are generally eligible for experience qualification, which adjusts the premium up or down based on the company’s claims history relative to other companies in that industry category. companies with higher-than-average claims will pay a higher premium, and those with lower claims will generally pay less.

The experience rating is more sensitive to the number of claims (loss frequency) than to the dollar value of claims (loss severity). This is due to the insurance industry maxim, “frequency breeds severity.” Insurers know from experience that where more accidents occur, there is a greater chance of big losses. a higher number of accidents indicates that, in general, working conditions are not as safe as an environment where fewer accidents occur, even if in a given year the few accidents that did occur were more costly.

what are my workers compensation costs?

Your costs include insurance premiums, payments made toward deductibles, and the administrative costs of handling claims and reporting to the state and your insurer.

understand your workers’ compensation policy

A workers’ compensation policy typically has two parts: “part one, workers’ compensation” and “part two, employer liability.”

Under “first party,” the insurer agrees to pay whatever amount of compensation is required by the state. Unlike other types of insurance, workers’ compensation coverage has no cap or limit on the amount of the policy. the insurance company accepts the transfer of the employer’s entire legal obligation, whatever the employer is legally obligated to pay as a result of the injury.

The “second part” of the policy provides coverage for an employer who is sued by an employee for bodily injury or work-related illness not subject to state statutory benefits. has a monetary limit.

Employers liability also insures an employer in certain other situations. One is called a “third party lawsuit,” where an injured worker files a lawsuit against someone other than the employer (a third party), and that third party then seeks to hold the employer liable. For example, an employee injured while working on a machine could file a lawsuit against the manufacturer of the machine. The manufacturer could then sue the employer claiming that the employer’s modifications to the machine or improper use caused the injury. Another situation in which this liability coverage applies is when the spouse of an injured worker sues the employer for loss of consortium.

your obligations

You are required to keep accident records in most states. You must report work-related accidents to your state workers’ compensation board and your insurer within a specified number of days.

Studies suggest that the faster an insurer receives notification of an injury and can initiate medical treatment and benefits, the faster an injured worker recovers and returns to work. To help get medical treatment for the injured worker faster, some insurers help employers immediately file a “first notice of injury” with the state agency responsible for overseeing the workers’ compensation system, a step that can trigger the claim process.

the importance of getting an injured worker back to work

Long absences from work can have a lasting negative impact on workers’ future employment opportunities and thus their economic well-being. A study of injured workers in Wisconsin by the Workers’ Compensation Research Institute found that the length of time off from work and subsequent periods of unemployment are less for injured workers who return to their pre-injury employer than for those who change employers.

Effective communication by employers is critical to facilitating an injured worker’s return to work. You should explain to workers how the workers’ compensation system works and that they should report an accident immediately and get prompt medical attention.

Your expectations regarding work-related injuries or accidents should be part of the employee handbook (if there is one), passed on to new hires as part of orientation, posted on bulletin boards, and communicated regularly on security reviews.


Regularly communicate with employees who are away from work due to a work-related injury. Workers who know they are noticed, missed, and still a part of the workplace team are often more eager to return. Some insurers will keep employers informed of the progress of the employee’s treatment.

Another aspect of the return-to-work process is successful reintegration into the workplace. Workers’ compensation insurers help you assess the injured worker’s needs and abilities and encourage you to inform workers, prior to any injury, that you will attempt to modify work activities to accommodate individuals with disabilities.

Are my employees covered when they work or travel in other states?

Your workers’ compensation policy covers claims made only in the states listed in the “declarations” of the policy. If an employee is injured while working in another state, and that state has more generous benefits than the states listed on their policy, the employee could file a workers’ compensation claim in the other state and would not be covered by their policy .

The solution is in the “other states” section of the policy, which allows you to list the states in which employees might work from time to time so that claims filed in those states are covered.

The “other states” portion of the policy cannot be used to cover claims in states where coverage must be obtained from the state workers’ compensation fund.

“Other states” coverage is intended to provide protection only for incidental exposures in states where the employer does not do business as of the effective date of the policy. If you establish an operating entity in another state, please notify your insurer, as this state must be added to the “declarations” page of the policy.

factors that affect your premiums

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Workers’ compensation premiums vary from state to state. In states where benefits are more generous, workers’ compensation insurance premiums may be correspondingly higher. In most states, workers’ compensation benefits continue even after the worker begins collecting Social Security and Medicare.

However, benefits are only part of the equation. In some states with low benefits and costs, premiums can be high due to inefficient benefit delivery systems. the generally rising cost of health care also affects premiums. Although states are working to make changes, for the most part, workers’ compensation doesn’t have the kinds of cost control measures that have been applied to health insurance. workers’ compensation claimants do not have to pay deductibles. in many states they can see as many doctors and specialists as they want. There is generally no requirement for doctors to prescribe generic drugs instead of brand-name drugs.

plans or assigned risk pools

A plan or assigned risk pool is a means of providing insurance to businesses that may not be able to obtain workers’ compensation insurance in the private market. High-risk businesses, businesses with a history of many claims, and businesses in new industries with no prior industry claim history are more likely to obtain insurance through the assigned risk plan.

Usually, the employer or agent applies for the plan. The application is then assigned to an insurance company that the state has designated to write the policy. premiums in assigned risk groups often carry a premium over the regular premium rate.

what is a second injury fund?

About half of the states have second-injury funds to encourage the hiring of workers who are partially disabled but still able to work. Employers would be reluctant to hire such workers due to the risk that they could sustain an injury that would combine with the previous injury or condition to cause a disability. without the funds for a second injury, the new employer would be responsible for the full cost of the claim. When a partially disabled employee sustains a second injury, part of the cost of the second injury is allocated to the second injury fund.

Some states discontinued their second injury funds after the passage of the Americans with Disabilities Act (ADA). Although the ADA requires employers to maintain confidentiality about employees’ disabilities, the confidentiality rule does not apply to communications with state workers’ compensation authorities or second injury funds.

What can I do to lower my workers’ compensation premiums?

  • manage your risks
  • take advantage of savings opportunities
  • make sure you calculate your premium correctly
  • raise your deductibles
  • attempt to avoid assigned risk
  • coordinate disability programs
  • Manage your risks: Most small businesses don’t think they can afford to hire a risk manager. however, someone in the business must have ongoing responsibility for loss control and management of workers’ compensation claims. This involves a variety of programs to keep workers safe, medical management of claims, and the early return to work of any injured worker.

    In some states, insurers must provide accident prevention services to employers. Even if the law doesn’t require it, most workers’ compensation insurers can help you improve safety. In some states, employers are required by law to establish safety committees and other programs to address unsafe conditions in the workplace. even when not required by law, safety committees can be very effective in reducing accidents. For example, after UPS established worker safety committees at each of its locations to identify the most common workplace accidents and take steps to reduce them, injuries that caused workers to be absent from work decreased by 59 percent. .

    You may also be legally required to have a written injury and illness prevention program. Again, even if you’re not legally required to do so, having and following a written program can help reduce accidents.

    Take advantage of savings available in your state: Several states allow merit qualification credits. Smaller businesses that normally pay $5,000 or less in premiums may be entitled to a 5 to 15 percent credit if they have not had any lost work time claims for a designated period. in some states there are premium credits for drug and alcohol free work programs and safety programs. Some insurers may offer you a discount if you hire a professional risk management company to help you with your security program.

    Make sure your premium is calculated correctly: Make sure you’ve been placed in the correct industry category. verify that the calculation of the payroll of the insurer adjusts to the payment of overtime and correctly allocate the payroll of the different employees.

    Increase your deductibles – Most states provide optional medical deductibles on workers’ compensation insurance policies as a cost-saving measure. deductibles tend to encourage greater safety awareness on the part of the employer who must pay the deductible amount.

    Try to avoid assigned risk: Reducing your claims is the best way to stay out of the state’s or insurer of last resort’s assigned risk plan, which typically costs more. they may have unknowingly put you at an assigned risk. ask your agent to verify your status.

    If you’ve been assigned a risk, check with your state’s workers’ compensation agency to see if the rates are higher. if so, make a concerted effort to get other insurance. Just because an agent can’t find something better for you doesn’t necessarily mean it doesn’t exist. talk to other agents, research group self-insurance programs that may be available in your state, and talk to others in your industry and other business owners of similar size, age, and risk level.

    coordinate disability programs: This option isn’t available everywhere, but in some states companies are trying to control costs by coordinating workers’ compensation plans, health care medical and disability benefits. Integration of workers’ compensation and other employee benefit programs is a broad concept that ranges from a simple marketing approach that promises savings by using the same insurer for both coverages, to programs that offer a managed care approach to managing benefits. all types of disabilities, regardless of whether they are work-related.

    In addition to limiting overlapping programs and simplifying administration, advocates say the shift to a broad approach addresses the growing difficulty of distinguishing between work-related and non-work-related injuries and illnesses, such as injuries due to repetitive motion claims. and mental stress. improves productivity, since non-occupational disabilities are managed with the same return-to-work approach as work-related cases.

    Can an employee who has an accident sue me?

    Before states adopted the workers’ compensation system in the first half of the 20th century, injured workers sued their employers after workplace accidents. it was a long, cumbersome and expensive process from which the worker had nothing to gain if the court did not find the employer fully responsible for the injury. With so few employers responsible for workplace accidents, supporting injured workers and the families of deceased workers was a social issue.

    The workers’ compensation system was adopted to provide injured workers and their dependents with timely compensation regardless of who was at fault for a workplace accident. As part of the commitment that made the employer responsible for the costs of work-related injuries and illnesses, regardless of fault, the employee gave up the right to sue the employer for injuries. for the most part, the system works as intended. Injured workers accept workers’ compensation payments and do not sue. That’s why workers’ compensation is known as the employee’s “exclusive remedy.”

    However, there are certainly cases where “exclusive remedy” may not apply and injured workers may sue their employers. the conditions under which such lawsuits are legal vary from state to state. In Florida, for example, injured employees can sue their employers in the following situations:

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    • the employer commits an intentional and willful harmful act or engages in conduct that is certain to result in injury or death
    • an employee sexually harasses another employee
    • the employer violates the law that prohibits firing, coercing or intimidating an employee due to a workers’ compensation claim
    • the employer has violated federal law regarding the housing and transportation of migrant workers
    • injury is excluded from workers’ compensation coverage (such as a psychological stress injury claim without any physical harm, a type of claim that is not compensable by workers’ compensation in florida)
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