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Workers Compensation
Basic Overview
Workers Compensation Insurance is basically a form of no-fault insurance. It
gives employees the right to collect from their employers for injury, disability,
or death when the incident occurs within the course of employment. Workers
Compensation laws are designed around the idea that employers should be
charged with the cost of most work-related injury or occupational disease
regardless of who is at fault. Therefore, there is no assumption of risk or
contributory negligence. In return, these benefits are the exclusive remedy
available to employees against employers for injuries covered by WC laws. In
other words, employees cannot sue employers in court to obtain additional
compensation.
Benefits Provided
Workers Compensation laws vary from state to state, but in general, the
benefits fall under one of four categories:
Disability/Loss of Income: This benefit basically compensates employees
who are unable to work as the result of a work-related injury. It replaces a
portion of the lost income, not all.
Medical: This benefit pays for the costs of various medical services required
because of an employment related injury. There is no upper limit or time
period limit for which these expenses will be paid.
Survivor/Death: This benefit pays the surviving spouse, children, or other
relatives of an employee when the employee's death is the result of a
work-related injury. In general, this compensation includes a weekly stipend
and a stipulated sum for funeral expenses.
Rehabilitation: This benefit basically compensates employees for the cost of
medical rehabilitation, such as physical therapy, due to a work-related injury.
It can additionally provide for vocational rehabilitation, such as retraining for
a different/new occupation. The expenses mest be reasonably justifiable.
Compensible Injuries
Work-related injuries, in regards to workers compensation laws, must arise
out of employment and arise in the course of employment. Three factors are
used to determine if the injury arose in the course of employment- time,
place, and circumstances. As such, the injury must occur during working
hours (during the time that work is actually being performed for the purposes
of employment), and occur at the place of employment or where employment
duties are actually being performed.
Workers Compensation Insurance is basically a form of no-fault insurance. It
gives employees the right to collect from their employers for injury, disability,
or death when the incident occurs within the course of employment. Workers
Compensation laws are designed around the idea that employers should be
charged with the cost of most work-related injury or occupational disease
regardless of who is at fault. Therefore, there is no assumption of risk or
contributory negligence. In return, these benefits are the exclusive remedy
available to employees against employers for injuries covered by WC laws. In
other words, employees cannot sue employers in court to obtain additional
compensation.
Benefits Provided
Workers Compensation laws vary from state to state, but in general, the
benefits fall under one of four categories:
Disability/Loss of Income: This benefit basically compensates employees
who are unable to work as the result of a work-related injury. It replaces a
portion of the lost income, not all.
Medical: This benefit pays for the costs of various medical services required
because of an employment related injury. There is no upper limit or time
period limit for which these expenses will be paid.
Survivor/Death: This benefit pays the surviving spouse, children, or other
relatives of an employee when the employee's death is the result of a
work-related injury. In general, this compensation includes a weekly stipend
and a stipulated sum for funeral expenses.
Rehabilitation: This benefit basically compensates employees for the cost of
medical rehabilitation, such as physical therapy, due to a work-related injury.
It can additionally provide for vocational rehabilitation, such as retraining for
a different/new occupation. The expenses mest be reasonably justifiable.
Compensible Injuries
Work-related injuries, in regards to workers compensation laws, must arise
out of employment and arise in the course of employment. Three factors are
used to determine if the injury arose in the course of employment- time,
place, and circumstances. As such, the injury must occur during working
hours (during the time that work is actually being performed for the purposes
of employment), and occur at the place of employment or where employment
duties are actually being performed.
Forms of Disability
There are four types, or levels, of Workers Compensation Disability-
Permanent Total, Permanent Partial, Temporary Total, and Temporary Partial. A
Permanent Disability is one that will affect the employee for the rest of his/her
life, and a Temporary Disability is one that will eventually go away.
The difference between a Total and Partial Disability varies from state to
state, and depends on whether the state classifies the injury as Industrially
Disabled or Medically Disabled. Industrially Disabled refers to the employees
loss of earnings whereas Medically Disabled refers to the physical condition
that affects the employees ability to function.
Ratings and Classifications
Workers Compensation coverage is rated on the basis of an employers'
payroll. Rate classifications are based on the type of work performed by the
employees and their relative exposure to work-related risks. For any one
employer, therefore, there can be several classifications.
Since the employer does not always know at the policy inception what the
exact payroll will be, all premiums can be subject to an annual audit in which a
final premium is determined.
If an employer has a loss history that is better than average, an Experience
Modification Factor will be applied to the premium. Contrarily, if an employer
has a loss history that is worse than average, a surcharge will be added.
There are four types, or levels, of Workers Compensation Disability-
Permanent Total, Permanent Partial, Temporary Total, and Temporary Partial. A
Permanent Disability is one that will affect the employee for the rest of his/her
life, and a Temporary Disability is one that will eventually go away.
The difference between a Total and Partial Disability varies from state to
state, and depends on whether the state classifies the injury as Industrially
Disabled or Medically Disabled. Industrially Disabled refers to the employees
loss of earnings whereas Medically Disabled refers to the physical condition
that affects the employees ability to function.
Ratings and Classifications
Workers Compensation coverage is rated on the basis of an employers'
payroll. Rate classifications are based on the type of work performed by the
employees and their relative exposure to work-related risks. For any one
employer, therefore, there can be several classifications.
Since the employer does not always know at the policy inception what the
exact payroll will be, all premiums can be subject to an annual audit in which a
final premium is determined.
If an employer has a loss history that is better than average, an Experience
Modification Factor will be applied to the premium. Contrarily, if an employer
has a loss history that is worse than average, a surcharge will be added.
As previously mentioned, this is an adjustment that is made to the Workers'
Compensation insurance premium of companies that meet or exceed a
certain thresholds. Typically, a company that has been paying $5,000 in
premium for the past few years or has paid $10,000 or more in a single recent
will be calculated for such a company based on prior years' payroll and loss
data, essentially comparing the loss data of that particular company to
average loss data for all other employers in that state who share the same
classification codes.
One common misconception is that these factors are calculated by the state.
In most states, this is not the case. Experience modifications are calculated
by rating bureaus. Most states use the NCCI for this work, but a few states,
such as California, have their own rating bureau. California utilizes the
WCIRB.
Another common misunderstanding is that the experience modification
factor compares a company's past premiums with past losses. It does not.
Instead, the formula compares actual reported loss information for that
particular employer with average loss data for all employers in that state who
are also in the same classification codes.
In general, experience modification factor calculations use data from three
prior policy years, but sometimes they can also be calculated using fewer
policy periods. The usual window used for the payroll and loss data goes
back four years for the first policy year, and also includes the next two policy
years. The most recently-completed policy year is excluded from the window.
For example, a mod effective July 1, 2008 would use policy data from the
policies effective in 2004, 2005, and 2006.
Compensation insurance premium of companies that meet or exceed a
certain thresholds. Typically, a company that has been paying $5,000 in
premium for the past few years or has paid $10,000 or more in a single recent
will be calculated for such a company based on prior years' payroll and loss
data, essentially comparing the loss data of that particular company to
average loss data for all other employers in that state who share the same
classification codes.
One common misconception is that these factors are calculated by the state.
In most states, this is not the case. Experience modifications are calculated
by rating bureaus. Most states use the NCCI for this work, but a few states,
such as California, have their own rating bureau. California utilizes the
WCIRB.
Another common misunderstanding is that the experience modification
factor compares a company's past premiums with past losses. It does not.
Instead, the formula compares actual reported loss information for that
particular employer with average loss data for all employers in that state who
are also in the same classification codes.
In general, experience modification factor calculations use data from three
prior policy years, but sometimes they can also be calculated using fewer
policy periods. The usual window used for the payroll and loss data goes
back four years for the first policy year, and also includes the next two policy
years. The most recently-completed policy year is excluded from the window.
For example, a mod effective July 1, 2008 would use policy data from the
policies effective in 2004, 2005, and 2006.
Medical Provider Network
In 2004, the state of California passed legislation (labor code 4600 ET SEQ)
requiring the establishment of the medical provider network. Basically, this
network gives employers greater control over the costs of treating injured
employees. As such, all work related injuries must be referred to a physician
in the network.
In 2004, the state of California passed legislation (labor code 4600 ET SEQ)
requiring the establishment of the medical provider network. Basically, this
network gives employers greater control over the costs of treating injured
employees. As such, all work related injuries must be referred to a physician
in the network.
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