Workers Compensation
Workers compensation covers medical bills, lost wages, and rehabilitation costs for employees who are injured or become ill while working. It also provides death benefits to the families of employees died on the job.
Workers Compensation Benefits
- Medical treatment for an injured employee
- Observance of state regulations
- Additional job displacement benefits
- Benefits for permanent disability
- Benefits for temporary disability
- Death benefits
What Exactly Is Workers Compensation Insurance?
Workers compensation insurance provides coverage for employees who are injured on the job or suffer from a job-related sickness. The employee may claim payment of compensation for wage replacement, medical treatment, and disability or vocational rehabilitation resulting from job-related accidents and diseases. For employers, covering is protection against liability resulting from various work-related scenarios.
How Are Workers Compensation Settlements Paid?
Lump sum payment:
The employee receives a single payment for all medical expenses and benefits covered by the claim. In some states, they may be required to agree not to pursue future compensation for the injuries.
Structured payment:
The employee will be paid on a regular basis over a set length of time. They could include a separate medical account for future medical expenses.
Workers Compensation Analysis
All firms suffer from the high cost of workers compensation and are better off if the injury and illness rates, as a whole, decline. There are also indirect and hidden costs associated with injuries and illnesses. In the past decade, the average cost of a serious workers compensation injury has risen over 300% for lost wages and over 400% for medical costs. As a nation, businesses are paying billions of dollars for workers compensation related expenses.
How Much Does It Cost in Business?
Clearly, the costs of workers compensation have risen steadily through the years both the number of claims and the average costs per claim have increased. Moreover, the costs of both the medical and disability components of workers compensation have increased at rates far greater than inflation. These rapid rates of increase have caused many states to focus on ways of reforming the system, including ways to provide greater incentives for employers to reduce accidents and injuries. A few specific cost drivers affect workers compensation, all of which are addressed in other sections of this book, with recommended methods of countering their upward trend. But it is important to understand early on their contribution to the rising costs of workers compensation and to understand that they have a synergistic relationship.
Increased wages
As wages increase, workers compensation premium also increases. If wages increase 10%, the premium will increase proportionately. When employees receive lost-wage benefits, they are compensated a percentage of their salary (determined by individual state laws). Therefore, as salaries increase, lost-wage benefits increase.
Longer time off the job
Typically, lost-time benefits are not paid unless an employee misses an established number of days of work due to the injury. Unfortunately, this appeals to some employees as an opportunity to remain off work the appropriate amount of time to qualify for lost-time benefits. Obviously, this involves an individual’s integrity, but it also involves the company’s philosophy and approach to early-return-to-work policies and procedures.
Medical costs
These costs have risen dramatically, and, in somecases, increased diagnostic tests and treatments have been rendered. Medical costs now exceed 40% of all benefits paid (for work-related injuries, all medical costs are paid).
Litigation
Because of the dollars involved and the ambiguities in many areas of the workers compensation laws and regulations, many claims are contested by employees, employers, and insurance companies. The cost of these legal proceedings and the fees paid to attorneys add to the cumulative expense of workers compensation.
Administrative costs
As premiums increase, as workers compensation payments increase, and as litigation increases, administrative costs increase. Also, as premiums increase there exists the probability that the profit realized by the insurance provider will increase.