Topic 12. Workers and Unemployment Compensation BUS 200 Introduction to Risk Management and Insurance Jin Park

Overview Introduction Workers Compensation History Coverage Benefits How Benefits Are Provided Issues in Workers Compensation Unemployment Compensation Laws and Coverage How Benefits Are Provided

An Introduction about … Workers and Unemployment Compensation State mandated coverages Exclusively related to the work place Social insurance programs No contribution by employees

W/C History Before the implementation of W/C law (statues), employees were seldom paid for work-related injuries. Employees were reluctant to sue his/her employer Fellow workers typically refused to testify on behalf of an injured co-worker Employers could use three common law defenses The fellow-servant rule The doctrine of assumption of risk The doctrine of contributory negligence

W/C History Workers Compensation Statute Starting Wisconsin in 1911, all states enacted workers compensation statute by W/C statue obligates employers, regardless of fault, to pay specified medical, disability, rehabilitation, and death benefits for their employees’ job-related injuries and diseases. In return, employees relinquish their right to sue their employer.

W/C Coverage Inclusive vs. Exclusive All employments vs. some exceptions Agricultural workers and domestic service workers (Indiana) Gross payroll of $20,000 to all employees (Kansas) More than three employees (Michigan) Compulsory vs. Elective W/C coverage is mandatory in all but NJ and TX. Covered Injuries Occupational injury, occupational disease, or resulting death Arise out of employment In the course of employment Regardless of employee negligence

W/C Benefits Medical Benefits No deductible, No coinsurance Full medical benefits. No time or monetary limitations. (IL) Income Replacement Disability Income Benefits (or Indemnity Benefits) for wage loss A form of deductible, a waiting period, exists. Scheduled injuries (Permanent, Temporary) Total Disability or Partial Disability COLA Within minimum and maximum benefits

W/C Benefits Rehabilitation Benefits Death Benefits (Survivor Benefits) Flat amount of burial expense (IL: $4,200, WI:$6,000) Partial replacement of the worker’s former weekly wage Children until age 18, but until age 25 if full-time students Children receive benefits beyond age 18 if physically or mentally disabled. IL: 66.67%, but not more than $250,000 or 20 years of compensation.

How W/C Benefits Are Provided Employees do not contribute directly to this cost. Private Insurance Workers Compensation and Employer’s Liability Insurance (aka: W/C Insurance) Part I: Workers’ Compensation  Compensation and benefits required by workers’ compensation law Part II: Employer’s Liability  Protects against potential liabilities, not within the scope of W/C law, yet arising out of employee’s injuries Part III: Other States Insurance  Employers may extend coverage for their employees injured while working out of state,

How W/C Benefits Are Provided Residual (or Involuntary) Markets Assigned Risk Plan and Assigned Risk Pool To provide W/C for those employer who can not obtain W/C from a voluntary market State Funds State operated W/C provider  Competitive State Funds – California, Pennsylvania  Monopolistic State Funds – Ohio cf: Employers’ Mutual Insurance Companies

How W/C Benefits Are Provided Self-insurance or Self insured pools Employers post a surety bond with the W/C administrative agency of the state Need to show the ability to administer all W/C related functions. TPA Excess Insurance Aggregate excess (stop loss) insurance Specific excess insurance Who can form self-insurance Financially stable Large number of employees Losses reasonably stable Losses can be predicted with some accuracy

Factors Affecting W/C Costs Payroll Degree of hazard of occupational classification Nature of the law and its administration Prior losses

Issues in W/C 2003 Rising medical costs Medical costs are more than 50% of W/C claim Reserve deficiencies Claims from Set. 11 terrorist attack D&O claims Outstanding asbestos claims Insurer’s financial deterioration/downgrades Reserve deficiencies Poor investment return Residual market growth

Issues in W/C 2003 Declines in claim frequency Mostly due to emphasis on workplace safety Increased use of robotics and modular design Improved construction techniques Advances in ergonomic design A changing regulatory environment State Regulation/Federal Chartering HIPAA privacy legislation

Unemployment Compensation State Laws Employers Subject to Tax Coverage Approximately 97% of civilian workforce State benefit formulas determine the amount of benefits received Most states have maximum of 26 weeks Federal extension may continue coverage for another 13 weeks

Unemployment Compensation Qualification for Benefits Involuntarily unemployed Must register for work Must file a claim for benefits Level of pay or length of time requirements before unemployment Able and available to work

Unemployment Compensation How Benefits Are Financed Employers pay all costs in most states Federal Unemployment Tax Act 6.2% of workers’ pay, excluding anything over $7,000 per year Each state has its own Unemployment Trust Fund All states have experience rating