Workers' Compensation
Richard A. Posthuma, JD, Ph.D., SPHR, GPHR
Learning Objectives
• Overview:
> Know the legal requirements.
> Understand the methods to meet
requirements.
> Know what benefits workers receive.
> Understand what drives employer
costs.
Learning Objectives
• Risk Management:
> Understand methods for WC risk
management:
• Risk avoidance.
• Risk financing.
• Loss prevention.
• Loss reduction.
> Learn effective ways to implement
each method.
Workers’ Compensation Overview
> State laws.
• Texas exception (employers can
opt out).
> Federal government employees and
those in maritime industries have
different laws (e.g., Longshore and
Harbor Workers’ Compensation and
Jones Acts).
Workers' Compensation Overview
• Options to provide coverage (state laws
differ):
> Commercial insurance.
> State funded.
> Risk pools.
> Self-insurance (for larger employers).
Workers‘ Compensation Overview
• Small employers usually buy workers'
compensation insurance.
• Large employers may self-fund and/or
self-administer.
• The employee gets the same benefits;
the difference is in the administration
and cost.
Eligibility for Benefits
• For workers who suffer injury or illness,
the injury or illness must be work-related
“in and out of the course of
employment,” regardless of whose fault
it was. This means the employee cannot
sue his or her employer for pain and
suffering for work-related injuries and
illnesses.
• Usually, the employee’s exclusive
remedy against the employer is wageloss benefits and necessary medical or
rehabilitation treatment.
Workers' Compensation Benefits
• Wage loss: A percentage of the wages that the
employee lost for time out of work.
• States have formulas that calculate wage-loss
benefits based on recent average earnings.
– Example: Last 13 weeks of actual earnings
(including overtime) multiplied by 70 percent,
up to a specified maximum.
> In many states, the wage-loss benefit depends on the
type of disability:
• Permanent total disability (can never do any job).
• Permanent partial disability (can never do some
jobs).
• Temporary total disability (for now, can’t do any
jobs).
• Temporary partial disability (for now, can’t do
some jobs).
Workers’ Compensation Benefits
• Benefits include all reasonably
necessary medical treatment.
• Employers can challenge the
“reasonableness” of treatment.
• Employers can challenge medical
bills for errors or charges in excess
of state guidelines.
> Rehabilitation (therapy, education).
> Death benefits for survivors.
Workers' Compensation Cost
• Employer pays entire cost.
• Factors affecting employer costs:
> Risk-based ratings:
• Percentage of payroll by job
classification.
> Experience rating:
• Based on prior claim experience.
> Other adjustments:
• Volume discounts.
Example of Payroll-Based
Calculation of WC Premium
Job
Classifications
Number of WC Basic
Employees
Rate
Payroll
WC Premium
Office
387
$0.29
$15,480,000
$44,892
Maintenance
275
$4.27
$11,000,000
$469,700
$1.78 $153,040,000
$2,724,112
Retail/Sales
3,826
Warehouse
167
$5.46
$6,680,000
$364,728
45
$9.23
$1,800,000
$166,140
$188,000,000
$3,769,572
Truck Drivers
Total
4,700
Workers' Compensation
and Risk Management
Risk Management Approach
• Risk avoidance: Don’t do operations
that require employees.
• Risk financing: How to pay for it.
• Loss prevention: Reduce the
possibility of worker injuries.
• Loss reduction: Reduce the cost of
injuries.
Risk Avoidance
• Don’t engage in operations that require
employees. This may be difficult
depending on corporate strategy.
• Outsource functions that require
employees in higher-risk occupations.
Make sure that the contractor assumes
the risk of injuries.
• Use contracted labor to shift the risk to
another employer. For example, a
temporary help agency.
Risk Financing
• The cost of WC obligations is effectively
managed.
> Competitive bids for WC coverage.
> Alternative financing arrangements for WC
premiums.
• For example, retrospective rating plans
that reduce premiums when there are
fewer or smaller claims.
> Consideration of cost-effectiveness of
alternatives.
• Insurance, risk pool, self-insurance.
Loss Prevention
• Identify the most likely causes of
injuries.
> Implement cost-effective safety
measures to reduce the likelihood of
these injuries.
• Don’t discriminate or retaliate against
employees who file WC claims (in hiring,
promotion, job assignments, pay, etc).
Loss Prevention
• Frequent sources of injuries:
• Repetitive motion.
• Bending and lifting.
• Falls.
• Pinch-points.
• Vehicles.
Loss Prevention
• Sources of illness (more rare):
• Environmental exposure.
• Psychological trauma.
• Ordinary diseases of life (e.g., influenza,
measles):
• Generally not covered by WC.
Loss Prevention
• Telecommuting:
> Employees who work out of their
homes could be eligible for WC
benefits if their injury occurs as part of
their employment.
> The risk of injury may be low if the
work involves office-type computer
work.
> Nevertheless, employers might
reduce the risk of false claims by
requiring that work be done only in
designated spaces and times.
Loss Reduction
• Assume that workers do get hurt; you
can reduce the cost of their injuries.
• The goal is to manage claims to reduce
overall costs.
Loss Reduction
• Types of Claims:
> Medical only:
• No time lost from work.
> Wage loss:
• Employee misses some time
from work.
• Some companies supplement
wage-loss benefits.
Loss Reduction
• Types of Claims:
• Rehabilitation:
–To help workers recover their
capacity to work.
• Death:
–From job-related causes.
• Specific loss:
–Eye, finger, leg, etc.
Loss Reduction
• Claims can vary in cost; depends on the
amount of payments for:
• Medical expenses.
– All reasonably necessary medical
expenses must be paid for.
– However, there are ways to reduce
these costs.
• Wage loss.
– Get the employee back to work
sooner.
Loss Reduction
• Company doctor.
• Independent medical exams.
• Issues:
> For some types of injuries/illnesses (such as
back pain, headaches, soft tissue), it’s more
difficult to prove or disprove disability or
work relatedness.
• The key questions:
– Is the worker unable to work?
– Is the injury or illness work-related?
> Is expensive medical treatment necessary?
Loss Reduction
• Develop rapport with doctors:
> Requires honest concern for employee
welfare.
> Provide a detailed job description to the
doctor:
• Paper (physical requirements: weight,
motion, frequency).
• Video.
• On-site visits.
• Employers are entitled to receive medical
records related to WC claims, but they should
be kept confidential.
• Focus on rehabilitation.
Loss Reduction
• Light duty, favored, supervised or
transitional work:
> Avoid secondary gain. Secondary gain is
>
>
>
>
the extent to which having an injury serves
some additional purpose (e.g., staying away
from work).
Rehabilitate worker.
Diary files.
Good to be consistent with work-related and
non-work-related assignments (i.e., don’t
make work-related more onerous).
Do not retaliate!
Loss Reduction
Challenge the claim:
• Activity evidence: What activities
was the employee involved in away
from work?
• Private detectives: Hired to gather
evidence refuting the claim of a
disability.
Loss Reduction
• Coordinate benefits:
> Investigate who else could be paying:
• An automobile insurance policy from
another driver?
• The product liability insurance policy of
the manufacturer of the defective product
that injured the worker?
> Second injury funds:
• Some states have funds that will
reimburse employers who have hired an
employee who was injured at a previous
employer’s workplace.
Loss Reduction
• Offsets from unemployment insurance.
Question: Could there be an overlap between
workers' compensation and unemployment
insurance?
Answer: Usually not.
• To get WC benefits, you have to be
unable to work.
• To get UI benefits, you have to be
available for work.
Usually, both of these can’t happen at the
same time.
Loss Reduction
• Propose lump-sum settlements.
• Requires legal oversight.
• May terminate benefits.
• Employers should get:
• A resignation.
• Waiver of any and all other claims.
Other Relevant Laws
• Family and Medical Leave Act:
> Gives qualified workers the right to time off
from work without losing their jobs for
serious medical conditions.
> Applies even for work-related injuries.
> Up to 12 weeks.
• Some employers require employees to
use up their entitlement to FMLA leave.
> After 12 weeks is up, if there is no
reasonable accommodation, the worker may
be terminated.
• Check with your own legal counsel.
Other Relevant Laws
• Americans with Disabilities Act:
> Requires a reasonable accommodation for
disabilities (even if work-related).
• The accommodation must be provided if the:
• Disability is a major life function (e.g., seeing,
walking, hearing); and
• Accommodation is reasonable (i.e., not an undue
hardship on the employer)
– Not too expensive but larger employers need
to spend more
• Employee would otherwise be able to perform the
essential functions of their job; and
• Accommodation will not cause undue risk of harm
to the employee or others.
Summary
• Workers' compensation is legally
required.
• The costs are variable and can be
reduced.
• Employees should be treated with
respect and dignity, and without
retaliation.