Who Pays for Workers Compensation Insurance?
Workers' compensation is a benefit designed to replace income lost due to injury and recovery time. It also limits lawsuits against an employer from injured employees. State laws dictate the requirements employers must meet to obtain and maintain coverage for workers' compensation. Employers pay for the policy, but there are funds set up in various states that pay out benefits to injured workers.
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Buying Insurance
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Companies in every state are required by various state laws to purchase a workers' compensation policy from an insurance company. Workers' compensation insurance is offered by most property and casualty insurers; however, insurance companies are not required to provide the policy and can decline to issue it to any customer. Companies that do not carry workers' compensation insurance can face fines and be responsible for paying benefits to an injured employee out of pocket.
Insurance Pools
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Companies that cannot obtain a workers' compensation policy from a private insurance company should contact state workers' compensation insurance pools. These insurance pools receive funding from all insurance companies that are licensed to write workers' compensation. Many insurance companies include a state insurance pool fee on every workers' compensation policy that they sell.
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Cost Determination
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The cost of workers' compensation insurance is determined in a variety of ways. Insurers typically have a database of specific occupations that contain codes reflecting the risk associated with a particular job. Jobs that are considered high risk are going to cost an employer more to insure. Policy costs are also determined by the amount of previous lost time claims filed by an employer.
Premium Factors
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The number of part-time and full-time employees and the payroll amount are both used to calculate the premium. Insurers may offer discounts for workplace safety measures, such as ensuring a drug-free workspace or establishing safety programs. Premiums for insurance pool policies generally cost about the same as those for policies offered by a private insurer.
Claims
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Insurance companies collect premiums that are then used to pay workers' compensation insurance claims. Insurers pay specific policy benefits that have been mandated by state law. Benefits typically include payments for reasonable and necessary medical costs. Other benefits paid by an insurer include temporary wage loss and death benefits if an injured employee dies.
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