Workers Compensation and Health Insurance

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Workers' Compensation

So far, we have concentrated upon how the various types of personal health care coverage work. Outside of-or in addition to-those types of coverage is a health care romancing mechanism that comes from the corporate world: workers' compensation.

Workers' comp programs are designed to provide a satisfactory means of handling occupational injuries and disabilities. As a consumer, you'll probably never buy a workers' comp policy, but you may care a lot about how the system works if you're ever hurt on the job.

Workers' comp is administered on the state level. And every state requires employers to provide some form of workers' comp benefits for their employees. Some history helps explain why the programs are so important.

The industrial revolution gave birth to new industries and brought together great numbers of employees: unskilled, undisciplined-and often selected without regard to character. Workers were exposed to hazards not in existence before, such as rapidly moving power belts, moving machine parts, hot or molten metals, poisonous gases and chemicals.

More often than not, workers toiled in places that were poorly lighted and ventilated. Labor was plentiful, wages were low; and workers were exhausted from long hours on the job.

Industrial development proceeded rapidly, though at the expense of the workers. An industrial accident could leave a worker injured with little or no recourse in response to injuries or lost wages. During the 19th Century, if you were injured on the job you only had one source of redress against your employer: Institute a suit under common law:

There were no written laws or statutes with regards to the employer/employee relationship. Common law cases favored the employer-the only way you could recover money for injuries was to prove that the injuries were due to your employer's negligence.

Negligence was defined as "the lack of that degree of care that a person of ordinary prudence would exercise under like or similar circumstances." In this case, person refers to employers-but it's a good idea to keep in mind, generally.

When an injured employee could establish that injuries were the result of the employer's negligence, damages could be recovered. However, the common law in existence during this time allowed the employer three defenses against negligence suits brought by employees for injuries sustained in the course of employment. The three common law defenses were:

• assumption of risk
• contributory negligence

The contributory negligence defense held that even if the employer violated his duty to provide a safe workplace and was negligent, the injured employee was not entitled to recover damages if the employee's own negligence had contributed to the injuries.

The contributory negligence concept evolved into comparative negligence, or consideration given to the extent to which each party's negligence contributed to the injury. That remains a big employment issue today.

The third principle, the fellow-servant rule, stated that an employer was not liable for an injury to an employee injured solely as a result of the negligence of a fellow servant (that is, a fellow employee), who was acting within the scope of his or her employment. This was an often-used argument.

Needless to say, getting your employer to pay during the industrial revolution wasn't exactly a piece of cake. This inability increased the number of industrial injuries and diseases and resulted in a large number of compensated workers and their families. Eventually, this began to pose serious social problems and impact the nation economic health.

Today, with the enactment of workers' comp laws, things are done somewhat differently. Now; the law holds that the employer shall assume the costs for benefits that the law says the employee is owed.

You-the employee-pay nothing for this protection. Your employer includes the cost of workers' comp benefits in the price charged for products or services just as he includes other operating costs-such as salaries, rent, telephone expenses, supplies and other operating and production expenses.

This coverage isn't completely free. In most situations, employees have given up their right to file suit against employers for workplace injuries in exchange for the benefits. Some classes of employees are exempt from the laws, and suits may still be filed for damages which are not covered by the compensation law: In those cases which do fall outside the law; the three common law defenses are still available to the employers.

The workers compensatiol1, system benefits both you and your employer even though your employer loses the right to defend himself in cases where he may not have been negligent, that can predict the costs necessary for employee injuries by mens compensation, insurance premium. In most states, he can eyen reduce the insurance premium by reducing losses through implementing safety ,program.

Through the 1980s and 1990s, however, the cost of workers' comp exploded. In 1991, the system cost employers $70 billion-that's almost twice what they paid in 1985. The impact was even wider than the 1986-to-1991 statistics suggest. The cost of the average workers' comp claim more than tripled in ten years, passing the $20,000 mark.

While all state systems have the same objective-to provide benefits to workers injured without question as to fault-the similarity ends there. State laws differ not only in detail, but in almost every major feature. So, it's important that you look into the features that make up your state laws, and determine how the program is administered in your state.

Eligibility

It is important to distinguish between the eligibility requirements for health insurance and those for workers' comp insurance. With a health insurance policy; the employer may decide to offer coverage only to a class of employees, such as "all salaried employees" or "employees who have worked one year or more for the firm."

With workers' comp insurance, singling out classes of employees for coverage is not permitted. Eligibility for workers' comp is statutorily determined. Unless exempted as described above, by law; full-time employees, part-time employees-and even illegal workers are covered by workers' comp insurance in California.

In order to be eligible for workers' comp benefits you must working an occupation that is covered by workers' comp and have had an accident or sickness that is work-related.

In most states, all workers (except those specifically excluded or exempted) come under workers' comp laws. For these states, the law must list the employees excluded. Commonly excluded employee include:

• farm labor
• domestic servants . casual workers

Even for these employees, workers' comp coverage is usually available on a voluntary basis at the election of the employer.

Early workers' compensation laws applied only to very hazardous occupations. Over the years, the scope of the laws has expanded to embrace more and more occupational groups. Every state has some exempt classifications, but it is estimated that about 90 percent of the nation's employees now fall under workers' compensation laws.

Some states exempt employers from workers' comp laws if they employ fewer than a stipulated number of employees (usually three). But, even if an employer has fewer than three employees, he may voluntarily decide to comply with the workers' comp law to avoid liability claims down the road.

Today, in most states, an employer subject to compensation laws is obligated to buy workers' comp insurance or demonstrate an ability to provide the required benefits. However, most states permit an employer to set up a formal program of self-insurance-including specific loss handling procedures and proper funding of reserves against claims. Companies large enough to offer self-funded health insurance to employees are usually good bets to self-insure their workers' comp.

The purpose of workers' comp is to provide you with benefits if you have an accident or sickness that is jobrelated-arising out of and in the course of employment. Falling on the dance floor while attempting the Electric Slide and breaking your arm does not make a workers' comp claim-slipping on a wet floor at the job site and breaking your arm does.

Benefits

Workers' comp laws provide for the payment of four types of benefits:

• medical benefits . income benefits
• death benefits . rehabilitation benefits

For the purposes of this book, we will focus on the medical and rehabilitation portions of workers' comp benefits. The others do not directly impact health coverage issues.

Medical benefits. provided under worker’s comp are, simply unlimited. If you have an injury or disease, you are entitled to receive all necessary medical and surgical treatment to cure or relieve the condition. Certain maximums or limits may apply to a type of care or a particular medical item-for example, stress-related psychotherapy may be limited to a specific number of visits but overall benefits are unlimited.

Rehabilitation benefits have become recognized as a valuable tool for reducing workers' comp costs and returning disabled employees to their jobs, as soon as possible. These benefits cover physical therapy, alternative-medicine treatment and related treatment that does not necessarily fit in a strict defamation of medical service.

Rehabilitation benefits under a workers' comp policy will usually provide coverage for services such as therapy, vocational training, devices such as wheel chairs and certain costs connected with travel, lodging and living expenses while you are being rehabilitated.

Rehabilitation also aids the insurance company. It helps to restore the injured worker to his former earning capacity. Today, insurance companies are among the leaders in providing rehabilitation for the industrially injured.

Most states offer rehabilitation benefits. Some states have set up a special fund to provide these benefits, while others have not. Various states impose weekly limits, maximum limits and special limits for specific types of rehabilitation. The laws-and the benefits provided-vary somewhat from state to state. But benefits tend to be low-about $300 a week at the most.

If you are seriously injured, you might need to see a specialist for follow-up care. These costs are typically covered by your employer under workers' compensation benefits. However, your employer might have a say in deciding what specialist you see.

What Does Workers' Comp Cover?

As mentioned before, workers' compensation coverage applies to bodily injuries and diseases "arising out of and in the course of employment." Covered losses must be work related (losses that are non-work-related are not covered by workers' compensation).

Only occupational diseases unique to the occupation are covered. A cause-and-effect relationship must exist between the job and the disease, and ordinary diseases suffered by the general public are not covered.

The laws commonly require that higher benefits be paid for certain losses as a penalty to the employer. Benefits are often increased if a loss results from the serious or willful misconduct of the employer (for example, failing to provide required safety equipment). A number of states require that double benefits be paid for injury to a . minor who is employed illegally. These extra payments are not covered by a workers' compensation policy, and the additional amount must be borne by the employer.

The cumulative effect of two injuries combined can be greater than the effect of the same two injuries in isolation. Example: An employee who loses sight in one eye would still be able to function in many jobs. If that employee suffered a subsequent injury causing loss of sight in the other eye, the disability would be greater than if the first injury had not occurred.

Once a person has been incapacitated, there is a greater risk that an additional injury may lead to permanent total disability, requiring higher statutory benefits than might be expected for the second lnjury alone.

Policy Endorsements

When the first workers' compensation laws were passed, there were no insurance companies providing workers' comp coverage. Companies paid benefits out of operating funds.

Today, many property and casualty insurance companies offer workers' comp insurance, while some companies specialize only in workers' compensation insurance.

Six states have passed laws requiring that any workers' comp insurance purchased in that state must be purchased from a fund set up by the state and not from a private insurance, company. When such arrangements exist, they are called "monopolistic state funds" or "exclusive funds." 'The six states are Nevada, North Dakota, Ohio, Washington, West Virginia, and Wyoming.

In other states, there is no state workers' compensation fund-insurance must be purchased from private insurance companies. And in some states, both a state fund and private insurance companies compete for business from employers.

Insurers are not obligated to use any particular workers' comp policy form, and some variations may be found in the contract actually being issued. However, the National Council on Compensation Insurance has developed a standard policy, and it is followed with a degree of conformity.

The standard policy provides a complete package of protection for an employer's obligations under workers' comp law and liability which is outside that law: Endorsements may be used to cover exposures which are not insured by the policy.

Policy Components

In its current form, the policy has eight parts:

• Information page
• General section
• Part I-Workers' compensation
• Part II-Employers' liability
• Part III -Other states insurance
• Part IV-Duties if injury occurs
• Part V -Premium
• Part VI -Conditions

The policy includes two coverage parts. Part I, workers' comp, protects the policyholder against statutory claims. Part II, employers' liability, protects against common law claims. Some common provisions are repeated in each section.

Under each coverage, the insurance applies to accidental bodily injury, death or disease, occurring during the policy period and caused or aggravated by the conditions of employment by the insured.

Supplementary payments are also provided, including coverage for appeal bonds, bonds to release attachments, interest on judgments, claim expenses, litigation costs taxed against the employer and certain other expenses (other than loss of earnings) incurred at the insurance company's request.

Under workers' comp, your employer has subrogation rights if anyone other than you is liable for a covered injury. Subrogation is designed to prevent a company from collecting twice for the same loss. It only applies when a third party caused the loss or was primarily responsible for it through negligence.

If any other insurance applies, the insurance company will only pay its share of claims and costs-subject to any limits of liability, all shares will be equal until a loss is paid. (Note: in contrast to most other forms of commercial casualty insurance, workers' compensation and employers' liability coverage contribute equal shares when other insurance applies. Most other coverages contribute proportionally based upon the respective limits of insurance.)

Coverage Issues

Certain payments will be the sole responsibility of your employer and not the insurance company. Any required payments which are in excess of the benefits regularly provided by the law are not covered by the policy. Such penalties may be required if you employer is guilty of serious or willful misconduct, or knowingly employs someone in violation of law; or fails to comply with health and safety regulations.

Some general statutory provisions will apply automatically. These provisions declare that the insurance company and your employer are one and the same with regard to notice of injury given by a worker, and with respect to matters of legal jurisdiction. Bankruptcy of the employer will not relieve the insurance company of its policy obligations. The insurance company agrees to be directly and primarily liable to anyone entitled to insurance benefits.

Penalties may also be imposed for discharging, coercing, or discriminating against an employee. The policy says that the insurance conforms to the workers' compensation law; and any policy provisions in conflict with the law are automatically changed to conform with it.

Employers' Liability The limits of employers' liability include bodily injury by accident, bodily disease and bodily disease by aggregate. This coverage protects against a variety of common law exposures. It is needed to fill gaps in the compensation coverage and to cover claims not subject to the compensation laws.

Although you-as an employee-give up the right to sue in exchange for workers' comp benefits, not all employees come under the law: Those not covered may sue.

In recent years, successful suits against employers have also been filed by spouses and children of injured workers. Employers' liability insurance covers these claims.

Employers' Liability Coverage covers the following types of claims:

• damages claimed by a third party
• care and loss of service
• consequential injury to a spouse or relative of the injured worker
• actions brought against the insured in a capacity other than as employer

Injuries to workers covered by federal laws-for example, the Longshoreman's Act-are excluded because the policy is designed to cover exposures which are subject to state jurisdiction, but coverage for many of these exposures may be added to a policy by endorsement. Fines, penalties and damages for violations of law are excluded because the policy is designed to cover only the actual legal liability exposures of employers.

Occupational Diseases

Since many occupational diseases-such as asbestosis, silicosis and diseases associated with radiation exposure-are slow to develop, several administrative problems can result:

• a worker may be employed by several employers and be under a constant disease exposure
• the disability may take place sometime after the last injurious exposure
• due to the time period involved, several different carriers may cover workers' comp for the same employer

Because workers' comp only provides on-the-job coverage, it does not provide coverage after work hours, or on weekends, holidays or vacations.

Traditionally, other forms of health insurance have provided non-occupational coverage only, for injuries and diseases which are not work-related. Many of these policies contain a workers' comp exclusion. Coverage is specifically excluded for losses which are covered by workers' comp laws, disability benefit laws or similar laws.

24-Hour Coverage

There have been several proposals aimed at 24-hour coverage-a blend of occupational and non occupational coverage into a single coverage package, or at least provide a single delivery system or administrative system. Various proposals accomplish this goal to different degrees.

The proponents of 24-hour coverage maintain that the concept offers a number of potential advantages. Most of these relate to possible cost savings, but a few lie in the coverage area.

The most significant advantages which have been identified are:

• possible reductions in gaps in coverage, which would be advantageous to companies
• possible reductions in duplications of coverage for the same loss, which would reduce insurance costs
• possible administrative savings resulting from combining the claims processing systems
• possible structural efficiencies and savings resulting from integrating different health care delivery systems

In this case, disability benefits are provided for all of an employee's injuries or diseases, whether work-related or not, but medical benefits are provided only for work-related injuries and diseases.

Example: John has 24-hour disability coverage and is injured in his backyard when he falls off a ladder while painting his house. John has emergency medical treatment, a period of hospital confinement, and is unable to work for two months. This policy will pay disability income benefits to John, but will not pay any of his medical expenses (because the injury was not work-related).

Accident Coverage Accident coverage would provide 24-hour medical and disability coverage for all accidental injuries, whether work related or not, but only work-related diseases would be covered. Here, we find broad accident coverage and limited coverage for diseases.

Example: Martha has 24-hour accident coverage and is injured in a roller skating accident when .she loses control and crashes into a cement "Wall. While examining and treating Martha for her injuries, the doctors discover that she has a form of cancer.

This policy will provide benefits for the medical treatment of Martha's injuries, and it will even pay disability income benefits if she is unable to work because of those injuries. However, it will not provide any benefits (or Martha's cancer treatments or any lost work time due to cancer (because the disease is not work-related).

In yet another approach, 24-hour medical and disability coverage would be provided for all diseases, whether work related or not, but only work-related accidents would be covered. Here we find broad disease coverage and limited coverage for accidents.

Medical and Disability Package

This coverage package provides the most complete combination of 24-hour occupational and non-occupational coverage. It includes medical and disability coverage for both accidents and diseases on a 24-hour basis (it has been referred to as Universal 24-Hour Coverage for this reason).

In recent years, the National Association of Insurance Commissioners (NAIC) has assisted its membership in the gathering and sharing of information about 24-hour coverage and pilot programs in various states. Key components of this effort included the work done by the NAIC 24-Hour Coverage Working Group and the Workers' Compensation CD) Task Force. The task force identified a number of significant barriers to the implementation of 24-hour coverage. These barriers may be classified as legal, institutional and regulatory. While not attempting a complete discussion of these barriers, we will summarize the nature of these barriers for you.

There are a variety of barriers that have prevented the rapid development and implementation of 24-hour coverage products. There are also some potential conflicts with federal law: There is a need to. preserve the "exclusive remedy" aspect of workers' comp benefits. There are institutional barriers due to the different nature of occupational and non-occupational benefits, which entities have traditionally provided them, and how the benefits are usually structured. Additionally, there are a few regulatory issues to be resolved.

Special Exposures

If you are an independent contractor, a subcontractor, an employee of a subcontractor, self-employed, a principal or investor who doesn't earn wages and-in most cases-a volunteer, you will not qualify as an employee under workers' comp

If this is the case, you might want to secure certificates of workers' comp coverage from the parties with whom you work. Principals may be held liable for the employees of . contractors who fail to meet obligations under the law, and contractors can be held liable if their subcontractors fail to meet the obligations.

Summary

Workers' compensation provides medical and disability benefits for occupational injuries or diseases-accidental injuries that occur at work or occupational diseases that are contracted on the job. Workers' comp laws have drastically altered the employee-employer relationship.

This chapter has examined various methods of coverage and health benefits which are available to you as an employee. In the next chapter, we will discuss using other forms of insurance.