Workers' compensation is a great insurance choice intended to protect both employers and employees should an illness or accident arise while on the job. Each state has its own rules and regulations that employers must follow to ensure proper coverage is provided for injured employees.
This type of insurance can provide both medical and wage benefits to the people who are injured or become ill at work. The coverage is mandated by each state and the wage and medical benefits vary by state. Workers’ compensation is considered a social insurance as it relies on a social contract between management and labor, wherein exchange for purchasing workers’ compensation insurance, business owners are protected from civil suits from their workers who become injured on the job.
All states, with a small number of exceptions, require businesses with employees who are not owners, to purchased workers’ compensation coverage for those employees. Businesses that fail to provide workers’ compensation coverage can face severe and costly repercussions including payment of claims out of pocket, fines and possible imprisonment, as well as possibly losing the right to conduct business in the state. Common examples include injuries that have resulted from a slip or fall, a strain on the body from heavy lifting, or an accident while operating machinery. Workers’ compensation provides medical expenses, lost wages, and rehabilitation costs to employees who are injured or become ill “in the course and scope” of their job. It also pays death benefits to families of employees who are killed on the job.
The cost of workers' insurance is determined based on similar businesses in each state, that exhibit comparable workplace injury patterns and costs, which are grouped into “classes.” Rates are determined for each class based on the prior five years of loss costs for all businesses within that class. This provides an equitable system where rates are charged comparably with the actual loss experience of the class of business. Economic factors for each state are then overlaid onto this data to determine the rate for each class in a given state.
A system called “experience rating” allows for modification of the class rates based on the loss history of an individual business. This system provides business owners a significant amount of control over the cost of their workers’ compensation premium – safe businesses are rewarded with lower premiums and unsafe businesses are penalized with higher premiums.