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eLearning Series:
Your Most Popular Insurance Questions
Answers For Health and Home
Insurance
( 50 articles
in this series )
Workman’s Compensation:
Who
Actually Pays for It?
Workman’s compensation insurance, also known
as “workman’s comp”, is a state-mandated insurance
program designed to protect workers who have been injured on
the job
or rendered ill because of workplace conditions. All companies,
with a few exceptions, are required to maintain this type of
insurance coverage no matter where they are located – all 50
U.S. states require it. Although some details of workman’s
compensation coverage may differ slightly from state to state,
the basics are fairly uniform.
Workman’s
compensation insurance typically consists of two parts:
compensation for the worker and employer’s liability
coverage. The first covers the injured worker’s medical bills,
rehabilitation costs, lost wages and most other costs directly
related to the injury, even if the injury was the employee’s
fault. Employer’s liability, on the other hand, covers the
employer’s legal costs should an employee bring suit against
the business.
The
location and size of the business will determine what sort
of workman’s compensation policy an employer must carry. Most states allow employers to purchase their plans through
a traditional insurance company. There are some states, however,
that require the insurance be purchased exclusively through
programs run by the state itself. North Dakota, Ohio, Washington,
West Virginia and Wyoming all require the use of state-run
workman’s compensation programs. Puerto Rico and the U.S. Virgin
Islands require this type of plan as well. Not all states that
provide a state-run plan, however, demand that the companies
within their jurisdiction use it exclusively. Arizona, California,
Colorado, Idaho, Maryland, Michigan, Minnesota, Montana, New
York, Oklahoma, Oregon, Pennsylvania and Utah all sponsor workman’s
compensation plans that compete with programs in the private
sector.
In some U.S. states, a
company that is big enough and reputable enough may create
its own workman’s compensation fund, without
having to go through either the state or a private insurance
carrier. The states that allow this option are: Arizona, California,
Colorado, Hawaii, Idaho, Kentucky, Louisiana, Maine, Maryland,
Minnesota, Missouri, Montana, New Mexico, New York, Oklahoma,
Oregon, Pennsylvania, Rhode Island, South Carolina, Texas and
Utah. Any company that is self-insured in this manner, however,
must be authorized by the state.
Cost to the Employer
No matter where the coverage comes from, workman’s compensation
insurance is expensive for an employer. Indeed, American businesses
pay over $100 billion in premiums each year. The coverage
is wholly paid for by the employer, who is prohibited from passing
any portion of the expense on to his or her employees.
The
cost of workman’s compensation insurance is dependent upon
many factors. One important factor has to do with the
classification of employees. Some employees are more expensive
to cover than others because their jobs are considered more
hazardous. For example, it costs more to cover a roofer than
it does to cover a secretary because the roofer’s job duties
require more potentially risky behavior.
Two other important factors that determine the rise or fall
of workman’s compensation premiums are: the existence and implementation
of a company’s safety programs and its history of accident
and injury. If an employer shows a concern for workplace safety
and can prove that concern by keeping accidents down to a minimum,
then the likelihood of a rise in premium rates is minimal.
Keeping Costs Down
There are many ways in which an employer can make sure that
he or she is getting the lowest workman’s compensation premium
rate possible. The easiest way is for the employer
to make sure that all workers are classified correctly. The premium
rate for each classification is different – depending on the
risk associated with it – and even the slightest error in classification
can cost an employer dearly. For example, keyboard use is considered
a somewhat risky behavior because of the possibility of developing
carpal tunnel syndrome. If an office worker who does not use
a keyboard is mistakenly classified as one who does, then the
employer could be paying an unnecessary premium.
Another
method of keeping workman’s compensation premium costs
down is for the employer to institute safety programs,
seminars
and workshops. Very few employees purposefully injure themselves
in order to obtain benefits. Sometimes workplace injuries are
simply the result of an unaware and uneducated workforce. So,
if an employer’s concern for workplace safety is evident and
ever-present (posters, signs, announcements, etc.), safety
issues are more likely to remain on the minds of the employees
and accidents are less likely to occur – fewer accidents man
lower premiums. An employer’s overt preoccupation with safety
also lets the insurance carrier know that he or she is doing
everything possible to enforce employee safety. This often
leads to lower premium rates as well.
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SolveYourProblem.com : 2005
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