How Workers Compensation Insurance Works

Workers Compensation is also called: comp, work comp, workers comp, workman’s comp and WC.

Workers comp is insurance that gives benefits to employees injured on the job or who become ill due to on the job exposures. Workers comp insurance provides the injured employee with medical benefits and partial wage replacement benefits.

Employers are required to carry workers comp in all 50 states, the District of Columbia, American Samoa, Northern Mariana Islands, Guam, the Virgin Islands and Puerto Rico. Each of these jurisdictions has workers compensation laws with unique provisions. Workers compensation laws vary from state to state and territory jurisdiction.

Workers comp was created to provide a way to cover injured employees without going through the regular court system. Workers comp gives the injured employee medical and wage loss benefits under a “no fault” system. The employee does not have to prove that it is the employer’s fault that caused the injury. The employee receiving benefits does not retain the right to sue the employer for negligence. The employee is not compensated for any pain and suffering from the accident.

Employers pay for insurance against this risk. Deductibles and premiums usually increase when workers compensation is handled efficiently.

Depending on the size and complexity of the injury there are many players involved in the workers comp industry. Employers should be familiar with these roles and how they affect their company. These include insurance companies, brokers and agents; third party administrators (TPA); service providers and vendors and state commissions or boards.

Employers may know what their insurance company does, but few understand the broad duties of a TPR or a medical cost containment vendor.

In most states employees receive four primary types of benefits:

These pay for medical expenses including doctors, hospitals, prescriptions, durable medical equipment, and other medical providers (e.g. nursing services, chiropractors, and physical therapists).

These help a permanently partially disabled employee who is unable to return to work. Voc Rehab helps the employee train for another job or get education to perform other work.

These replace part of the employee’s wages lost because of the injury.

These are paid to an employee’s surviving spouse, dependent children or other dependents where the employee is killed on the job or dies from an occupational illness.

Indemnity benefits are calculated as a percentage of the employee’s average weekly wage. In most jurisdictions, there are four primary types:

These are the most common. The injured employee receives weekly or bi-weekly a portion (2/3 in most jurisdictions) of the average weekly wage until the employee is able to return to work in modified or full time duty.

These are awarded when the injured worker is able to return to work part time or at a reduced rate of pay. TPD benefits are provided to make up a portion of the lost income until the employee is able to return to work full time.

These occur when an employee is partially disabled due to the injury and permanent partial disability is paid to compensate the employee for loss of future earning capacity.

These pay the employee who receives a very severe injury and is unable to return to work in any capacity. Benefits are paid, either for a set number of weeks or for life, depending on state law.

State laws determine what types of injuries are covered. In some jurisdictions employers must pay for mental injuries. Employee intoxication may void the responsibility to pay compensation in others.