Chapter 16: workers compensation and unemployment compensation

quid pro quo

(latin phrase meaning "this for that") give and take of rights and duties between employers and employees

Second injury funds

* fund that reimburses an insurer or employer that pays a workman's compensation benefits to an employee who suffers more than one job related injury* Nature and purpose - its employees with the same income each lost one eye in an industrial accident, the cost of workers compensation benefits for each will be equal - if one of these employees have previously lost an eye, however, the cost of benefits for him or her will be much greater than the other worker - when an employee self is a second injury, the employee is compensated for the disability resulting from the combine injuries Financing - Finance in a variety of ways - some receive Appropriations from the state - others receive money from a charge made against an employer or an insurer when a worker who has been killed on the job does not leave any dependents - some states Finance the fund by annual assessment so ensures and self-insurers

Unemployment compensation

* government programs that pay weekly cash benefits to workers who are in voluntarily unemployed* - purely social insurance program - because of the high risk associated with projected future rates of unemployment and Associated claims, private insurers are not willing to provide this type of insurance

Cost

*Based on payroll* - the premium for Workers Compensation Insurance typically is based on the payroll paid by the employer - a charge is made for each $100 of payroll for each classification of employee - this rate varies with the degree of Hazard of the occupation - large employers can elect to have experience rating, which takes a company's prior losses into account in determining its current rates *Factors affecting rate* - the rate for Workers Compensation Insurance is influenced not only by the degree of Hazard the occupation classification but also by the nature of the law and its Administration and of course prior losses - if the benefits of the law are high, race will tend to be high - if they are low, rates will tend to be loved - no matter is benefits level, it's Administration will affect premium - if those who administer the law or conservative in their evaluation of borderline cases, premium race will be lower in instances where administrators are less circumspect and parceling out employers and insurers money - workers compensation may be a significant expense for the employer - give me any particular love and it's Administration, calls for the crime or influenced by the frequency and severity of injuries suffered by workers covered - the more injuries, the more workers will be receiving benefits - these costs can be reduced by loss prevention and reduction and by self-insuring the risk

How benefits are provided

*Benefits are distributed:* -private insurance -residual markets -state funds -self-insurance -second injury funds

Employers liability (part 2)

*Portion of workers compensation policy that protects against potential liabilities not within the scope of the workers compensation law, arising out of employee injuries* - the insurer agrees to pay damages for which the employer becomes legally obligated because of *bodily injury by accident or disease, including death at anytime resulting there from... By any employee of insured arising out of and in the course of employment by the insured either and operations and estate designated in... The decorations or in operation is necessary or incident thereto* -examples of liabilities covered under part 2 are those to employees excluded from the law, such as domestic and farm laborers. Might be applicable if the injury is not considered work related even if it occurs on the job

State operated compensation funds

*State government agencies responsible for collecting workers compensation funds and distributing benefits* -6 states, the state fund is exclusive: Employers are not permitted to buy compensation insurance from private insurance company but must insure with state fund or self insure - where the state fund is competitive (optional) , employers mat choose to self insure or insure through either the state fund or private insurance

medical

*all laws provide unlimited medical care benefits for accidental injuries* -medical expenses resulting from occupational illnesses may be covered in full for a specified period of time then terminated -doctors who take care of injured employees under employees under workers compensation coverage are asked to try to get employees back to work as soon as possible -the return-to-work objective is to ensure employees presence at work under any capacity, thus incurring less workers compensation losses -one area that causes major increases in the workers comp rate is the cost of drugs

How benefits are financed

*non-contributory* - most unemployment compensation is non-contributory: employees pay all the costs in most States *The federal unemployment tax act (futa)* places a tax on employers at the rate of 6.2% of workers pay in covered jobs, excluding over $7,000 paid to a worker in a year for the purpose of financing unemployment compensation - up to 5.4% can be all set by employers who passed a tax who have been excused through experience rating -so, the federal tax may be only(6.2-5.4=.8%) - revenue from the taxes deposited in the federal unemployment trust fund and credited to the state for the payment of benefits under its plan *experience rating* - they've reduced the contribution of employers whose workers have little unemployment - the theory of this writing system is that an in carriages employees to reduce unemployment and stabilize employment to the extent that they can - one other fact, however, is to make employers interested and disqualified workers who apply for benefits because the benefits paid out of their account reflect their experience under the plane

Income replacement (indemnity benefits)

*reimburse insureds for actual costs incurred for health care up to covered limits in traditional fee-for-service plans* -all workers comp laws provide an injured employee with a weekly income while disabled as a result of a covered injury or disease the amount and duration of indemnity payments depend on the following factors: -whether the disability is total or partial, and temp or permanent - the employees comp -each states max duration of benefits - the waiting period -cost-of-living adjustments

Experience rated premiums

*when a group's own claims experience affects the cause of coverage for Group Insurance - if your firm is large enough to self insure, your workers compensation premium - what you pay this year is influenced by your loss experienced during the past three years - the loss of your fern, the more experience your influences the rate you paid during succeeding years *Retrospective plan* Workers compensation policy that involves payment of a premium between a Max and minimum depending on the insurance loss experience - If an employer wants the current years experience ready to affluence what it pays for workers compensation covered this year you can insure on this plan - regardless of how faverolle your experience is, you must pay at least the minimum premium - regarding regardless of how bad your experience is, you pay no more than the maximum *between the min and Max, your actual cost for the year depends on your experience that year* - if you are conservative with respect to risk, you prefer a low min and a Low max, but that is the most expensive - low minimum and high maximum is cheaper, but this puts most of the burden of your experience on you. If you have an effective loss prevention and Reduction Program, you may choose the himax and save money on your Workers Compensation Insurance In choosing between insurance and Self Insurance, you should consider the experience writing class provided by insurance, as well as the advantage and disadvantages of Self insurance

Loss reduction

- accident frequency cannot be reduced to zero because not all losses can be prevented - after an employee has suffered an injury, action May reduce the laws 1st: immediate medical attention May save a life. Recovery will be expedited - an employer should provide first aid instruction for its employees 2nd: the insure along with them player should manage the care of the injured worker, including referrals to low-cost, high-quality medical providers 3Rd: injured workers should take advantage of Rehabilitation

Insurance or self insurance

- is your firm large enough to self insure, and if it is can you save money by doing so? - unless you have at least several hundred employees and your workers compensation offices have a low correlation with other types of retaining exposures, self-insurance is not feasible - unless Self insurance will save money, it is not worth while - most employers who decide to self insure use third-party administrators to administer the claims or contract with an insurer to provide administrative Services only What are the possible sources for saving money? - does your insurer pay benefits to Liberty - does it administered the program - how large is the premium tax paid by the insurer - how large is the insurance profit on your business as a self-insured firm, you will still provide the benefits specified by the workers compensation laws in the states where you operate - therefore self-insuring reduces benefits only if you or your outside Self Insurance administrator will settle claims more efficiently than your insurer - unless your firm's very large, you probably would decide to buy stop loss insurance for excessive losses, and you will buy insurance for your employers liability would you administer the self-insured program? - most likely you will high and outside and ministrator. The administrative expenses might be similar to those of an insurer - while the workers compensation on the business produces losses and some years and profits and others, over a period of several years, you would expect the insurer to make a profit on your business. You can retain this Prophet by self-insuring

Self insurance

- most state workers compensation laws permit an employer to retain the workers compensation risk if it can be proven that the employer is financially able to pay claims - some states permit the rest to be retained only by employers who furnish a bond guaranteeing payment of benefits - as the number of employees of the firm increases, workers compensation losses become more stable and predictable *factors considered by Regulators in determining whether or not to permit Self insurance* - just how stable losses must be in order for self-insurance to be feasible depends on: 1) the employer's ability and willingness to pay for the loss of that exceed expectations 2) the employer's ability to pay and willingness to pay for losses that exceed expectations captives are also used by many employers of this coverage -reinsurance is the best use with captives - small employers can join together with others, usually from the same industry, and create a group self-insurance program - under these programs, each employer is responsible for paying the losses of the group when necessary, such as in the case of a members and insolvency - the employer's risk is not transfer, only the payments of the losses is shared through the pulling mechanism *group self-insurance members must buy stop-loss coverage and are required to obtain regulatory approval for their existence*

Unemployment: Qualifications & disqualifications for benefits

- to qualify, unemployed workers must fulfill certain conditions - they must first be involuntarily unemployed - then they're required to register for work at a public employment office and file a claim for benefits - they must have learned a specified amount of pay or work for specified length of time, or both - they must be able to work come available for work, and wanted to take a suitable job and if it is offered to them - in Most states, an unemployed worker who is sick and therefore unable to work is not entitled to unemployment benefits *Disqualifications* -Those who quit voluntarily without good cause or who were discharged for just cause. -Those who refuse to apply for acceptable work, or are unemployed because of a work stoppage caused by a labor dispute. -Other causes for disqualification are receiving pay from a former employer, receiving workers compensation benefits, receiving Social Security benefits, or being deemed an independent contractor and therefore not an employer

State laws

- unemployment compensation programs were established as a result of federal legislation - like workers compensation, the Lord transfers to the employer at least positive Financial element of a risk faced by the employee - the firm's risk manager has no choice with regard to how the risk is handled - neither private insurance North self-insurance is permitted - management can reduce the cause, by stabilizing the firm's employment and preventing payment of unjustified benefits *employers subject to tax* - federal tax applies to firm that have one or more employees and each of 20 weeks during a calendar year, or firms that pay $1,500 or more in wages during any calendar quarter - coverage was extended to agricultural employers that have 10 or more employees and each of 20 weeks during the year or that pay $20,000 or more in wages during any calendar quarter - new Provisions to include the Mexican Municipal Employees, as well as employees of nonprofit organizations have also been added

Residual market

- usually employers with large losses, as depicted by high experience ratings, are considered high risk - these employee players encounter difficulty in finding workers compensation coverage - the way to obtain coverage is through the residual or involuntary Market *(a market where Insurance are required to provide coverage on an involuntary basis)* - Insurance are required to participate and insurance are assigned to an insurer and various ways

Degree and length of disability

-*total disability* refers to conditions of an employee who misses work because he or she is unable to perform any of the important duties of the occupation -*partial disability* means the injured employee can perform some but not all ,of the duties of his or her occupation -*permanent total disability* means the injured person is not able to work again -*temporary total disability* means the injured employee is expected to be able to return to work at some future time -partial benefits may be either temp or permanent *temporary partial benefits* are most likely to be made following a period of temp total disability -payments made to an injured employee can perform some but not all work duties -based on difference between wages earned before and after an injury -most laws specify the loss of certain body parts constitute *permanent partial disability* *scheduled injuries*: injuries covered under permanent partial disability (EX: the loss of an arm might entitle him or her to 200 weeks of benefits. No actual loss of time from work or income is required because the assumption is that loss of a body part causes a loss of future income)

Cost-of-living adjustment

-15 jurisdictions have an automatic cost of living adjustments (COLA) for weekly benefits -some take effect only after disability has continued for one or two years -because benefit rates are usually set by law, those rates in jurisdiction that lack automatic increases for permanent benefits became out of date rapidly during periods of inflation

workers comp: coverage

-either inclusive or exclusive *compulsory or elective* a major feature is that only injuries and illnesses that "arise out of and in the course of employment" are covered

history and purpose of workers compensation

-employees were seldom paid for work related injuries -major barrier to payment was that a worker had to prove an injury was the fault of his/her employer to recover damages -reluctant b/c out of fear of losing job

Duration of benefits

-in thirty nine jurisdictions, no limit is put on the duration of temporary total disability -9 allow benefits for less than500 weeks; two specify a 500 week max -limits are seldom reached in practice because the typical injured workers condition reaches "max medical improvement " which terminates temp total benefits earlier -max medical improvement is reached when additional medical treatment is not expected to result in improvement of the person's condition

Rehabilitation

-many workers suffer disability of such a nature that something more than income payments and ordinary medical services is required to restore them, to the greatest extent possible, to their former economic and social situation *rehabilitation is the process of accomplishing this objective and involves the following:* -physical medical attention in effort to restore workers as nearly as possible to their state of health prior to the injury -vocational training to enable than to perform a new occupational function -psychological aid to help them adjust to their new situation and be able to perform a useful function for society -most of the laws require special maintenance benefits to encourage disabled workers to cooperate in rehabilitation program -nearly all states reduced or stop income payments entirely to workers who refuse to participate

State funds

-the third method of ensuring benefit payments to Injured WWorker - similar to private insurers except that *they are operated by an agency of the state government and most are concerned only with benefit payments under the workers compensation law and do not assume the employer's liability risk* - usually must be insured privately - the employer pays the premium or tax to the state fund and the fund and return provides benefits to which injured employees are entitled - some State funds decrease rates for certain employers or classes on employers if their experience Warrants it

Waiting periods

-waiting period for inindemnity payments (but not medical benefits) for temp disability can begin: range is from 3 to 7 days -advantage of giving a financial incentive to work, reducing administrative costs, and reducing the costs of benefits -if disability continues for a specified period,(typically two or four weeks), benefits are retroactive to the date disability began -moral hazard is created among employees who reach max medical improvement just before the time of the retroactive trigger - some employees will malinger long enough to waive the waiting period -Hawaii does not allow retroactive benefits

Accident prevention

1st: consideration is to reduce frequency by preventing accidents -Safety must be a part of your thinking along with the planning and supervising *any safety program should be designed to accomplish two goals*: (1) reduce hazards to minimum and (2) to develop safe behavior in every employee - a safety engineer from the workers compensation insurer can give expert advice and help the program - he or she can identify hazards so they can be corrected - he or she can analyze job safety to determine safe work methods and can set jobs standards that promote safety

Workers compensation issues

Cost drivers and reform Erosion of exclusive remedy Scope of coverage challenging issues faced by the industry: - catastrophe such as terrorism - capacity - ergonomics - adequate Reserves - privacy cost drivers Emma firm - mental health claims *attorney involvement varies substantially among the states. It is encouraged by factors such as the following:* - the complexity of the law - week early communication to Injured Workers - employee distress of employers and insurers - ferry to begin claim payment soon after the start of disability - employee concern that some employers will not rehire Injured Workers - the next issue privacy, pertains to protect protecting individuals health information from being identified and transmitted it is an Industries concern - workers often to see the exclusivity of compensation laws as in equitable As a result workers attempt to circumvent the exclusivity rule: 1) claim that the employer acts in the dual capacity, permitting the employee and action against the employer in the second relationship as well as a workers compensation claim (EX: an employee injured while using a product manufactured by another division of the company might seek products liability claim against the employer) Example of *dual capacity:* an employee of Firestone Tires who uses the employer's Commercial Auto with Firestone Tires to make deliveries. If it's higher exploded, the employee has a workers compensation claim as well as a case against the manufacturer of the tire, his own employer 2) to claim that the employer intentionally caused the injury - employees claim that employers knew of the danger but encourage employees to work in the hazard hazardous environment anyway 3) third party over action - it begins with an employee's claim against a third party, not the employer (eX: the employee may sue machine manufacturer for product liability if the employees injured while using the manufacturer's machine. In turn the third party brings an action against the employer for contribution or indemnification. The action against the employee might be based on the theory that the employer contributed to the loss by failing to supervise its employees properly) *the end result is in a religion of the exclusive remedy rule, as if the employee has sued the employer directly* Original intent of workers compensation laws was to cover only work-related physical injuries - later, coverage was extended to occupational illness is that often are not clearly work for later -Claims for stress and mental health are on the increase

Workers comp insurance

Employers risks can be transferred to an insurer by purchasing a workers comp and employers liability policy *Coverage* the workers comp and employers liability policy has three parts. Under part 1, workers comp, the insurer agrees: _*to pay promptly when due all compensation and other benefits required of the insured by the workers comp law* -policy defines "workers" compensation law" as the law any state designed in the declarations and specifically includes any occupational disease law of that state - the insurer assumes the obligations of the insured ( that is, the employer) under the law and is bound by terms of the law - any changes in the workers comp laws are automatically covered by the policy *Four limitations, or "exclusions" apply to part 1.* They include any payments in excess of the benefits regularly required by workers comp statutes due to: (1) serious and willful misconduct by the insured (2) the knowing employment of a person in violation of the law (3) failure to comply with health or safety laws or regulations (4) the discharge, coercion, or other discrimination against employees in violation of the workers comp law - policy refers only to state laws and that of the District of Columbia ; coverage under any of the federal programs requires special provisions

Unemployment: coverage

Federal law establishing minimum standards for coverage and benefits - today, all states cover state and local government employees, several cover found workers and a few cover domestic workers - in some cases, unemployment compensation is a self-insured in the pool, as is the case with the unemployment compensation of employees of many Texas school districts that are able to use the pool and miniature by the Texas Association of school boards *Designed to relieve workers in certain industries and occupations of part of the economic burden of temporary unemployment* 3 aspects of business benefit payments are important *(1)* amount and duration *(2)* qualifications for benefits and *(3)* disqualifications

Employers risk

Industrial accidents create two possible losses for employers 1) employers are responsible to employees covered by the workers compensation law for the benefits required by law 2) they may become liable for injuries to employees not covered by the law - the risks associated with these exposures cannot be avoided without suspending operations, hardly a practical alternative - we're permitted, self-insurance of this exposure is coming - self-insurance is desirable, in part because of the predictability afforded by legislative benefits - employers can buy coverage,* (called excess loss insurance)* for very large losses similar to the commercial umbrella liability policy

Covered injuries

Most laws provide coverage only for "injuries arising out of and in the course of employment" *this phrase describes two limitations:* 1) injury must *arise out of employment* , meaning that the job environment was the cause 2) injury must occur *while in the course of employment* -loss causing event must take place while the employee is on the job in order to be covered by workers comp - does not apply while traveling the normal commute between home and work *some injuries are explicitly excluded:* caused by willful misconduct or deliberate failure to follow safety rules, those from intoxication, and those that are self inflicted -All work related injuries are covered, even if they are due to employee negligence *Occupational disease* an injury arising out of employment and due to causes and conditions of, and peculiar to, the particular trade, occupation, process, or employment, and excluding all ordinary diseases to which the general public is exposed

Unemployment: Amount and duration

The amount of the weekly benefit payment a worker may receive through Unemployment Compensation varies according to the *benefit formula* - calculation used to determine the amount of the weekly benefit payment a worker may receive through Unemployment Compensation - usually, the amount is about 1/2 of the workers full-time weekly pay within specified limits. The max is low and is easily accessible on the website of your state unemployment compensation agency - Most states have a waiting period- typically one week, -between the time and unemployed worker files a claim for benefits and the time benefits payments begin -This is designed to place the burden of short-term temporary unemployment on the worker as well as to decrease the cost of the plan, then from making possible greater coverage of more significant and employment law offices. -In Most states the max number of weeks that benefits can be pay is 26 period of federal state program of extended benefits make 18 payments for another 13 weeks during periods of high unemployment

Administration

The federal portion of the unemployment compensation insurance program is administered by the employee and training Administration in the Department of Labor -Every state has his own Employment Security Agency - summer independent, others are in the State Department of Labor or some state agency - the agency is responsible for the administration of state employment search offices - claimants apply for benefits and register for employment the same time. The function of the office is to find employment for claimants or provide benefits

Other states insurance (part 3)

This part of the policy provides other states insurance - this protection was available by endorsement -part 1 applies only if the state imposing responsibility is listed in the declarations -allows the insured to list states where the employees may have potential exposure. Coverage is extended to these named locales

Benefits

Workers comp laws provide for four types of benefits: -medical -income replacement -survivors benefits -rehabilitation

workers compensation

a system to enforce a series of sate laws that requires employers to pay workers for their work related injuries and illness with no relationship to who caused the injury or illness

contributory negligence doctrine

defense arguing that an employee was injured through negligence of the employer but was also party at fault -relieved employer of responsibility for the injury

assumption of risk doctrine

defense providing that an employee who knew, or should have known, of unsafe conditions of employment assumes the risk by remaining on the job

fellow-servant rule

defense under which an employee injured as a result of the conduct of a fellow worker cannot recover damages from the employer

compulsory or elective

in all but 2 states, the laws regarding workers comp are compulsory -these two states, (NJ and TX) with *elective laws*, either the employer or the employee can elect to not be covered under the workers comp -an employer who opts out loses the common law defenses mentioned earlier -if an employer does not opt out but an employee does, the employer retains those defenses as far as that employee is concerned -if both opt out, the employer loses the defenses -it it unusual for employees to opt out b/c those who do must prove negligence in order to collect and must overcome the employers defenses

Survivors benefits

in the event of a work related death, all jurisdictions provide survivor income benefits for the surviving spouse and dependent children, as well as burial allowance -the survivor income benefit for a spouse plus children is typically 66 2/3% of workers avg weekly wage

Links between holistic risk pieces and workers compensation and unemployment

injury risk illness risk death risk disability risk unemployment risk Private/Personal Insurance Employer-Provided Insurance/Employee Benefits Social Insurance -workers comp -employment comp

exclusive laws

laws that cover the types of employment under the workers comp except those that are excluded *Excluded:* -domestic service and casual labor (small jobs) -agricultural work, but coverage is compulsory in 27 jurisdictions and entirely voluntary in 4 -some states limit coverage to occupations classified as hazardous -the laws of 49 states apply to all employers in the types of employment covered -other only apply to employers with more than a specified # of employees -any employer can comply voluntarily

inclusive laws

laws that list all the types of employment covered under the workers comp

employers liability

portion of a workers comp policy that protects against potential liabilities not within the scope of the workers comp law, yet arising out of employees injuries

sole(exclusive) remedy

provides that employees cannot (in most circumstances) sue their employers for work related inures, regardless of fault, when covered by workers comp * opponents see several drawbacks of opt-out provisions* - some employers may fail to provide medical benefits or may provide only modest benefits, resulting and cost-shifting to other segments of society - the right of the employee to sue maybe illusory because some employees may have few access and no liability insurance - employees may be reluctant to sue the employer, especially when the opportunity to return to work exist or if family members may be affected - safety incentives may not be enhanced for employers with few assets at risk

common law defense

three arguments that employers utilized to avoid assuming responsibility for employees' work related injuries prior to the establishment of the workers; comp laws: fellow-servant rule assumption of risk doctrine contributory negligence doctrine

Amounts of benefits

weekly benefits for death, disability, and disfigurement are primarily based on the employees average weekly wage *(avg earned income per week during some specified period prior to disability) multiplied by a replacement ratio, expressed as a % of the avg weekly wage* -jurisdictions also set min and max weekly benefits