If you’re involved in a business that has employees, you’re familiar with your obligation to help workers who get hurt on the job. But you may feel less familiar with the ins-and-outs of workers’ compensation – the laws and insurance.
Let’s focus on understanding the question, “What is workers’ compensation?” and everything that entails. Such as:
- Do you even need a workers’ compensation policy?
- How exactly do these insurance plans work?
- What does the law say?
- How can you control the costs of being insured and manage your claims well?
Let’s take a close look at what workers’ compensation is and what you need to do to ensure your business is protected.
What is workers’ compensation?
Workers’ compensation provides benefits to employees who suffer workplace injuries or illnesses. These workers might receive:
- Payment of medical bills related to their on the job injury
- Death benefits
- Lost wage replacement (usually two-thirds to seventy percent of the employee’s average weekly wage)
- Permanent partial or permanent total disability benefits
- Vocational rehabilitation
Employers can fund these benefits in one of three ways:
- Obtaining coverage from a state-operated insurance fund (required in North Dakota, Ohio, Puerto Rico, the U.S. Virgin Islands, Washington and Wyoming)
- Buying a policy from an approved private insurance company
- Self-insuring (practiced mostly by large companies in states where it’s permitted)
Workers’ compensation insurance premiums are based on payroll and the accident history of a company.
If your business doesn’t carry workers’ compensation insurance or doesn’t meet your state’s workers’ compensation laws and regulations, you may be subject to paying for these benefits out of your regular operating budget along with paying any penalties imposed by your state.
How do workers’ compensation laws work?
Workers’ compensation laws are in effect in every state, the District of Columbia and Puerto Rico. The federal government provides similar coverage for civil, interstate railroad and maritime employees.
Although the various state and federal laws have broad differences, principally in their benefit provisions, most acts have some common features:
Benefits are provided for accidental injury.
An employee is entitled to statutory benefits from the employer when he or she suffers a personal injury or contracts an illness arising out of and in the course of employment. Part One of a workers’ compensation insurance policy covers this statutory liability without a set limit.
1. Covered employees are defined by law.
Only employees, as defined by law, are covered; independent contractors are not covered.
2. Fault is not generally an issue.
If the injury is related to the employment, it doesn’t matter who caused the injury; the employee is awarded benefits.
The employee’s contributory negligence doesn’t lessen their right to benefits, and the employer’s complete freedom from fault does not lessen its liability.
3. Employees give up the right to sue their employer.
Workers’ compensation is a quid-pro-quo system under which the employee gives up the right to sue the employer for damages (i.e., lost wages, medical payments, pain and suffering) for any work-related injury in exchange for receiving benefits.
In rare instances, an employee may be able to sue their employer in civil court. Part Two of a workers’ compensation policy – employers’ liability coverage – provides protections in those situations. Excess umbrella coverage should also be considered to cover claims with financial exposure above the Part Two limits.
4. Employees retain the right to sue negligent third parties.
The employee maintains the right to sue any third party whose negligence may have caused the injury. The proceeds of any such suit are usually applied first to reimburse the employer for benefits paid to the employee.
5. State agencies administer the system.
The responsibility for the administration of a workers’ compensation system usually resides in the hands of a commission or board.
The rules of legal procedure, evidence and conflict of law are relaxed to best achieve the purposes of the law: providing benefits to employees injured on the job.
6. Employers are required to be insured.
Most states legally require employers to get insurance to cover their statutory workers’ compensation obligations.
Do small companies need workers’ compensation insurance?
In general, if you have employees who aren’t owners of your company, you most likely need workers’ compensation insurance.
And even if you operate in a state where it isn’t a legal requirement to hold insurance, you’re still liable under the workers’ compensation laws for injured workers and thus, financially responsible.
How can workers’ compensation costs be controlled?
Since premiums are partially based on your accident history, promoting workplace safety is a smart way to control your company’s workers’ compensation costs.
Here are a few ways you can create a safer workplace:
1. Develop a safety-first culture.
Show employees that the company cares about preventing accidents:
- Involve employees in creating safety programs.
- Make people accountable.
- Protect your safety programs from budget cuts.
2. Develop a workers’ compensation team.
Build a team that includes:
- Risk managers
- Human resources staff
- Benefits administrators
- Employee counselors
- Frontline supervisors
3. Set up a special task force to address safety and workers’ compensation issues.
Include equal representation from non-management employees, use a co-chairmanship arrangement and have senior executives in attendance.
This task force should:
- Conduct safety audits
- Review and develop systems for reporting problems
- Review injury reports and claims
- Provide feedback to each department about safety awareness
4. Review your workers’ compensation treatment program.
In that review:
- Utilize case management.
- Render high-quality care.
- Discourage an adversarial atmosphere.
5. Examine attitudes toward injured employees.
Avoid the perception of being insensitive and unconcerned:
- Don’t blame employees for their injuries.
- Be supportive.
- Consider full pay for short periods to develop good will.
Managing workers’ compensation claims
Organizations with organized claims and disability management programs have lower rates of lost work time, reduced costs and less attorney involvement in their workers’ compensation claims.
1. The supervisor’s role
Typically, managers and supervisors relay most of the information during the claims process, providing:
- The injured employee with information about the claim
- The claims division of the organization
- The insurer with information about the injury and otherwise coordinating the information flow
It’s important for the supervisor to provide, as soon as possible, complete and accurate information about the accident or injury (including the initial report from the doctor) to everyone responsible for reporting to the insurance carrier.
The insurance carrier should be notified and be able to contact the injured worker’s treating physician within the first 24 hours.
Why is it important to notify the insurance carrier within 24 hours?
Even a day’s delay can distort memories, and important details may be forgotten. Also, workers’ compensation payments to injured workers have to be made, by law, within a certain period (often within 14 days), and penalties can result if payments are delayed due to lack of information.
Additionally, the insurance carrier sets up reserves based upon the information it receives, and if it doesn’t receive complete and accurate information quickly, it may set inappropriate reserves on a claim.
This can have a negative impact on an organization’s insurance premiums, particularly if reserves are set too high.
2. Reporting systems
An easy-to-use system gets better results. Reporting relevant information to the claims personnel and the insurance carrier doesn’t have to be a complicated process. In fact, the easier the procedure, the more likely that people will use it.
If your organization’s reporting procedures are difficult or complicated, see if they can be streamlined so that information passes quickly from employee to manager to the claims handlers.
A genuine concern for employees translates into quick reporting of claims and fast delivery of services. This leads to more efficient use of medical care and shorter periods of disability. Lower loss costs – the cost to the insurer to cover and investigate a claim – mean lower workers’ compensation costs.
As a manager or supervisor, relaying information and showing concern makes good economic sense.
3. Medical care providers
Establish a relationship with the treating physician. Even if your organization has not prearranged a medical provider, you can educate the treating physician about the workplace.
That information will help get the employee back to work because the physician will know the employee’s job responsibilities. Quality medical care is provided when the physician has worksite knowledge, specific job knowledge and can match the worker to the job.
A relationship with the treating physician will allow you to get full reports faster following the initial diagnosis that determine:
- Nature and extent of injury
- Estimated course of recovery
- Estimated return-to-work date and plan
- Modified duty restrictions
4. Medical cost control
One thing to keep in mind when reviewing the medical costs involved in workers’ compensation is that the kinds of incentives to keep costs down that exist in health care generally aren’t present in workers’ compensation.
Rather, providers who are reimbursed 100 percent for their workers’ compensation patients have little incentive to control costs. Some studies have shown that for apparently identical injuries, the treatment given in workers’ compensation cases exceeds that given in non-compensation cases.
To control costs:
- Monitor the medical treatment given.
- Ask what services were rendered, if the services were required and whether the charges were appropriate for the service.
- Look at what kind of monitoring currently exists.
Many workers’ compensation insurance carriers and third-party claims administrators have implemented cost-control measures that have been applied to health benefits plans. These kinds of programs can include:
- Claims administration audits
- Hospital and medical bill review
- Utilization review (review of and participation in treatment decisions, such as elective surgery or long-term treatment programs)
- Review of physician practice patterns (e.g., which medical providers were used, what their treatment patterns looked like, how long they considered injured workers disabled, and how losses compare to other similar organizations, etc.)
- Medical fee schedule compliance
- Use of HMOs, PPOs, etc.
- Precertification of hospital stays
- Rate negotiations with health-care providers
- Coordination of benefits with existing group health programs
Not all these options are available in every state. For example, some states don’t allow employers to require injured workers to use particular health care providers, such as HMOs and PPOS, in workers’ compensation cases. Similarly, not every state has fee schedules against which medical costs can be compared.
5. Injured worker relations
Stay engaged with employees who miss work due to an on-the-job injury. Let them know they’re valued and remain part of the organization while they’re out.
Consider a formal modified duty return-to-work program. Doing so is a win-win for injured workers and the employer, enabling employees to return more quickly and contribute what they can to the employer. Returning injured employees to work quicker also reduces claim costs by reducing the amount of temporary total disability benefits paid.
As you can see, the answer to the question, “What is workers’ compensation?” is dense. But it’s important to take the time to truly understand, because it can help ensure your business is adequately protected in the event of an accident.
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