The workers’ compensation law in each state outlines the indemnity benefits for lost time and wages that injured workers may receive. The extent of benefits received varies by state, but injured workers are typically entitled to benefits that equal a percentage of their wages, with different income replacement benefits for total and partial disabilities. Most states require employers to purchase workers’ compensation insurance once the number of employees exceeds a certain threshold, which is often three, four, or five employees. Several factors influence how workers’ compensation operates for the insurance providers and beneficiaries, as noted below.
Definitions
The state-to-state variance in the definitions of “employee” can affect who is covered by workers compensation insurance. Most states define “employee” as a person “performing services at the direction of the employer, for hire, including minors and workers who are not citizens.” Some states, for example, do not count the immediate family members of a business owner as “employees” for workers’ comp purposes. Some states will treat uninsured contractors, subcontractors, or employees of uninsured subcontractors as the employees of an insured business, making that business liable for workers’ comp claims filed by those employed by uninsured contractors.
Financial Considerations
In most states, employers and insurers bear the costs of workers’ comp programs. Employers pay premiums that are based on that employer’s industry, payroll, number of employees, number of claims filed, and other factors, with premiums for coverage in dangerous industries greatly exceeding premiums in safer industries. States determine how workers’ compensation schemes are to be funded. In some states, employers must purchase their workers’ comp insurance from a state monopoly insurer, known as a “state fund.” Other states allow employers to buy insurance from either the state fund or private insurers. Still others implement a combination of both approaches, where state funds serve as an insurer of last resort for businesses that private insurers refuse to cover. States also establish procedures to handle claims, resolve disputes, and control costs. Some states have established “utilization management guidelines” that outline accepted treatment protocols for specified injuries.
Workforce Mobility
The increasing mobility of the workforce has created challenges for businesses that operate in different states, because employers that operate in multiple states are liable for operating properly under different workers’ comp systems. Also, increasing worker mobility has led to higher administrative costs for plan managers. Technologies like mobile communications blur the line between work and pleasure by allowing more work to occur outside the workplace, and some of these technical advances give rise to workers seeking compensation for new types of workplace accidents. A worker might seek compensation after being involved in a traffic accident while using mobile communications for work after hours, for example. With employees working in several locations, it is difficult for employers to determine an accurate concentration of risk.
Long-Tail Risks
Long-tail risks involve claims that insurers must continue to cover years after a worker first contracts a disease or sustains an injury on the job. Long-tail risks often involve medical exposure. Long-tail risks can occur when injured workers are unable to recover from their injuries due to complications or suffer side effects from their treatment, like the development of an addiction to opiates used to treat chronic pain. In these situations, insurers may suffer huge losses to cover claims that seemed small at first. A workers’ comp scheme may be exposed to increasing costs for many years after the original illness or injury first occurred. A different type of long-tail risk might involve a worker who was exposed to asbestos but filed the initial claim years after first showing symptoms of asbestosis, or a worker who showed symptoms and filed a claim soon after his exposure to asbestos, but whose medical expenses became larger as his condition worsened.
Major Loss Events
Major loss events like terrorist attacks and natural disasters can put immense strains on workers’ compensation schemes. These events, though uncommon, can cause significant losses even when they occur outside the workplace and are unrelated to the actual work of the business. The 2010 Brussels train collision and the 2011 Joplin, Missouri tornado are two examples of high-loss events. In the Brussels train collision, 18 died and 162 were injured after two passenger trains collided near Brussels, Belgium. Since Belgian workers’ comp covers injuries sustained while commuting and the collision occurred during the morning commute, many of the injured and families of the deceased filed workers’ compensation claims and received benefits. The Joplin, Missouri tornado that left 161 people dead and 990 injured was another major loss event that created workers’ comp issues. Even though the storm struck on a Sunday when only a few people were at work, employees were injured or killed after leaving evacuation zones to help survivors, assist in the clean-up efforts, or look for coworkers at their places of employment. Some injured workers and their dependents filed workers’ comp claims. Even though Missouri’s Workers’ Compensation Act specifically excluded “injuries caused by an Act of God,” many insurers accepted the claims to avoid public outcry and show their solidarity with the victims.