Workers’ compensation insurance provides compensation to employees for loss of income and for medical payments when they’re injured on the job. Most employers are covered by a state workers’ comp law. Benefits are funded by state insurance pools, employers’ own self-insurance or private insurance carriers.
Since employers ultimately bear the expense of workers’ comp benefits, it’s smart to understand how the system works and the proactive steps you can take to control costs.
Workers’ comp is a no-fault insurance system.
That means that to collect benefits, injured workers don’t have to prove that they’re completely free from fault or that the employer is at fault.
Also, workers’ comp is an “exclusive remedy” system. That means, in exchange for the expectation of benefits, workers can’t bring a civil lawsuit against an employer to collect damages for work-related injuries. (Typically, the law makes exceptions in cases where an employer intentionally causes the injury or the injury is caused by a third party.)
What workers can receive
Each state’s workers’ comp law has different rules regarding coverage, benefits, premium rates and insurers. Your cost for workers’ comp insurance depends on your company’s industry classification (riskier business = higher rates) and loss experience (more injuries = higher rates), as well as on rates set by state law.
When a worker is injured, your coverage will pay for visits to an approved doctor, a hospital stay, surgery, prescription drugs and medical devices.
Payments for lost wages usually begin after an employee has been off the job for more than seven days. In most states, the payment amount is calculated based on the worker’s average weekly wage for a period before the injury occurred, limited by the state’s average weekly wage as set by law. The result? Payments typically equal about 66% of the worker’s average weekly pay.
Trimming workers’ comp costs
The rapid rise in workers’ compensation costs beginning in the 1980s (from $23 billion per year then to more than $100 billion in recent years) prompted HR pros and compensation and benefits managers to become more knowledgeable and involved in cost control.
“While significant reforms have recently been made in many jurisdictions and costs have been brought under better control, it is unlikely that this involvement will end, as evidenced by the considerable interest in workers’ compensation in the human resource and compensation professional journals in recent years,” according to the Society for Human Resource Management.
How can you significantly reduce the cost of your workers’ comp premiums? By following a program of accident prevention, better claims management and prevention of fraud and abuse.
Specific steps you can take:
• Establish an accident prevention program. Many states offer free consultations with safety and health specialists who will come to your workplace to design specific accident prevention programs.
• Investigate all accidents. You can’t design an accident prevention program unless you know the source of the accidents, what types of accidents most frequently occur and which ones are the most severe. Keep records on all accidents, not only the ones resulting in claims. (Your OSHA records are the place to start.)
• Report accidents promptly. The sooner you file an accident report, the sooner your employee will be evaluated, treated and returned to work. Delays in employer reporting result in employees contacting lawyers and litigating claims. Employers usually have 10 days in which to file an accident report.
• Stay in touch with injured workers and their doctors. Follow the progress of workers’ recovery. This will help you design an appropriate return-to-work program.
• Follow the progress of workers’ claims. Doing so will help you detect errors, fraud and abuse.
• Use return-to-work/light-duty programs. These are one of the most effective ways to reduce your workers’ compensation costs. If an employee is too severely injured to return to regular work, make sure you have transitional or light-duty alternatives available. Work with your insurance carrier to design a light-duty program.
Online resources: Workers' compensation
Access links to each state’s workers’ comp agencies and laws here.
Also, you’ll find a detailed discussion of workers’ comp issues on the Insurance Information Institute site.
