Workmen’s Compensation Insurance Law – Know Your Facts

What is workmens compensation law?

  • Since its inception in the 1920s, workmen’s compensation insurance has been state regulated. As a result, each state has its own body of workmens compensation law. The goal of each workmens comp system is the same, to reduce disputes and litigation arising from work-related injury and illness. Today, only Texas has an “elective” workmens compensation law.
  • By law, workmen’s comp is always no-fault insurance, meaning employers must cover occupational injury or illness even if the employee is at fault. Employees, in other words, do not have to prove employer negligence to collect benefits. However, some states will deny claims for injuries that are not “accidental.”

What do workmens compensation laws cover…

  • Every state’s workmen’s compensation laws cover employee medical expenses (due to work-related injury and illness), a portion of lost wages (due to temporary or permanent disability), basic rehabilitative services, and spousal death benefits. The extent these benefits are offered varies from state to state.
  • Most workmens comp laws require insurance companies to provide “full medical benefits” to injured/ill employees. In other words, most state laws do not set time or monetary limits on workmen’s comp medical coverage. Exceptions are Arkansas, Florida, Hawaii, New Jersey, Ohio, Montana, and Tennessee.
  • All workmens compensation laws require insurers to pay a portion of lost wages due to a work-related disability. Regardless of disability classification, carriers are generally required to pay no less than 66 2/3 of a claimant’s lost wages up to a set dollar maximum for the duration of their disability or a set number of weeks. Only Arizona (55 percent) and Massachusets (60 percent) workmen’s compensation laws have wage percentages below 66 2/3 percent. Colorado, Florida, Nevada, North Dakota, Ohio, and Washington do not set percentages.
  • Every state law requires disability claims to be defined as “temporary” or “permanent.” Additionally, they must be classified as “partial” or “total.” These classifications determine the claimant’s weekly indemnity or disability payment for lost wages.
  • In most states, employees select their workmen’s comp physician, either a personal doctor or one from an agency or employer list. Other states allow the employer to select the injured employee’s medical examiner. This is true of 20 states, including Alabama, California, Colorado, Florida, Iowa, Michigan, Missouri, New Jersey, New Mexico, the Carolinas, Utah, and Vermont.

    How are workmens compensation systems funded?

    • Workmen’s comp benefits are financed three basic ways: By a non-profit state fund, a private insurance company, or by an employer or group of employers, referred to as self-insurance or group self-insurance. Traditionally, self-insurance has been reserved for large, highly capitalized companies. However, some states are now allowing smaller companies in like industries to collectively fund self-insurance plans, enabling members to meet the necessary financing requirements, yet also manage risk.
    • Not all states permit all three structures. Some states, such as North Dakota, are state fund “exclusive,” meaning private insurers cannot sell workmen’s comp in the state. Others such as California are “competitive,” allowing private insurers to compete against the state fund. Still others, such as Illinois, have no state fund and require employers to buy workmens compensation insurance from a private insurer. To review your state’s rules.

    Dos and don’ts of workmens comp…

    • Research if your state law allows companies to purchase workers compensation from private insurers. If so, use the Internet to compare workmen’s comp policies and request policy quotes.
    • Select a workmens compensation insurance agent who is familiar with your industry and appropriate carriers. A good agent will uncover discounts and advocate for you during premium negotiations.
    • Keep an eye on your insurance premiums. Make sure your business is not being misclassified, causing premium increases. There are some 600 (NCCI) workmens compensation classifications, which group businesses with similar hazard exposures together. Each classification is assigned a risk rate (loss cost), which directly affects a company’s premiums.
    • Strive to keep your workplace free of hazards to avoid workers comp claims. Also, make safety a priority, posting appropriate safety procedures and precautions.

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