How Workers Compensation Insurance Works

How Workers Compensation Insurance Works

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When employees become injured or sick because of their work, workers compensation insurance pays vital benefits to those employees. Workers compensation benefits include medical treatment and on-going care, payments to cover lost wages and even death benefits.

In most states, businesses are required to buy workers compensation for their employees and just having one employee can be enough to trigger a workers comp requirement.

Brief Facts About Workers Comp

• Workers compensation programs were established by state statute or within state constitutions beginning in 1911
• Today, each of the 50 states and the District of Columbia has its own workers compensation program
• With the exceptions of Texas and Wyoming, workers compensation insurance coverage is mandatory in all states
• Agricultural workers, domestic employees and independent contractors are generally excluded from a workers comp insurance requirement
• Total workers comp benefits paid were $62.9 billion in 2018, according to a study by the National Academy of Social Insurance in November 2020

What Does Workers Comp Insurance Cover?

Let’s take a closer look at the benefits covered by workers comp insurance.

• Medical expenses including hospital visits, medications and emergency surgeries are all covered by workers compensation.
• Lost wages are partially covered when the employee needs time away from work to recover from a work-related illness or injury.
• Disability benefits are available if the injury caused a partial or permanent disability.
• Ongoing care costs such as physical therapy are covered by workers compensation.
• Death benefits typically include funeral costs and survivor benefits for the worker’s family.

Workers comp benefits are paid no matter who was at fault. And workers compensation laws typically prevent employees from suing their employers for a work-related injury or illness.

Where to Buy Workers Compensation Insurance

Need to buy workers compensation insurance for your employees? You’ve got different options depending on your state: You might buy workers comp from private insurance companies or purchase it from a state-run agency—or you might have both options.

Private workers compensation insurance companies set their own prices and approve or reject customers. You may get a better price from a private insurer than from a state fund.

If you are not able to purchase the workers compensation coverage that you want from a private insurer, you may want to check out a state-funded program.

In a competitive, state-funded workers comp program, private insurers and state-funded programs compete for customers.

In monolithic, state-funded workers comp programs, businesses have no choice but to get workers compensation coverage from a state-funded program. Ohio, North Dakota, Washington and Wyoming are examples of states with monolithic state-funded programs for workers compensation.

How Much Does Workers Compensation Cost?

Workers comp premiums are based on the job classifications of employees and these classifications reflect the riskiness of the job. For example, a construction worker or electrician would be considered high-risk jobs. Other high-risk jobs include police officers, firefighters, lumberjacks and telecommunications repair workers.

The payroll of the business and any past workers comp claims also impact workers compensation premiums.

Workers comp insurance costs an average of $1 for every $100 in payroll, according to The Hartford. This average varies considerably by state.

“If there is confusion about workers comp, it’s usually around how the premium is determined in part by the number of employees on the payroll,” says Andrew Dalton, assistant vice president for The Hartford’s small commercial workers compensation line of business. “Each year, state law typically requires every workers comp insurance company to perform an audit of the premium paid.”

“It’s important to keep in mind that this audit is required and it’s important to be certain that the business owner is accounting for their employees throughout the year,” Dalton says.

The audit looks at the past year’s payroll for the business and determines whether premiums were over- or under-collected, or just right. It also determines what the next year’s premium should be. This audit can result in the business owner getting a refund or credit or owing more on their workers comp premium.

Does Workers Compensation Cover Covid-19?

Depending on your state and occupation, you may be eligible for workers compensation for Covid-19 if you were exposed to the virus at your workplace. According to the National Conference of State Legislatures:

• Seventeen states and Puerto Rico have taken action to extend workers compensation coverage to include Covid-19 as a work-related illness.
• Several states have enacted legislation for Covid-19 workers comp coverage for certain types of workers. Minnesota, Utah and Wisconsin limit coverage to first responders and health care workers. Illinois, New Jersey and Vermont cover all essential workers. California and Wyoming cover all workers.
• California and Kentucky have taken executive action to offer coverage to other essential workers such as grocery store employees.

How To File a Claim for Workers Compensation

The first step in filing a workers comp claim is for the employee to report their work-related illness or injury to the employer.

Next, the employer should notify the insurance provider and the state workers compensation board if required.

In addition, the employer will need to report severe workers comp injuries to the Occupational Safety and Health Administration.

Workers comp claims can be disputed if an employer does not believe the injury or illness was caused by work. And the employee may need to appear before a workers compensation board to make their case for receiving workers compensation benefits.

Risk Control for Workers Comp Claims

By working to control your business’s risk of workers comp claims you can keep control of future premiums.

“There’s a lot that can help a business owner control their risk associated with employee injuries,” says Dalton. “You don’t want to leave these things to chance and you want to be certain you have safety protocols and procedures and that your business has taken steps to reduce the kinds of things that can cause injury.”

Training employees on workplace safety is a key approach to minimizing worker injuries and accidents. Many states offer workers compensation insurance discounts if the business implements a workplace safety program. This safety program could include:

• Written safety policies and safety rules
• Safety inspections
• Preventative maintenance
• Safety training
• First aid

Get Expert Help

“The best way to be certain you’ve got the right insurance for your business, including workers comp, is to speak with a licensed, independent agent,” says Dalton at The Hartford. “They work every day to understand what’s right for every kind of business that’s out there. Business owners have a lot to keep track of and insurance is one of those things that they need to consult an expert.”