What is Workers’ Compensation Insurance What Does it Cover?

California law requires that employers carry workers’ compensation insurance. There are very few exceptions, and under new law coming into effect on January 1, 2017, these exceptions are shrinking. As insurance premiums can be significant, it can be helpful to understand exactly what workers’ compensation is designed to achieve, and what it may or may not cover.

Workers’ compensation insurance is designed to pay for any work-related injuries or illnesses sustained by your employees. As with any other insurance system, your monthly premiums will cover certain types of workers’ compensation claims from your employees. Your employees’ hospital and medical expenses that are necessary to treat or diagnose the injury are covered. The insurance will also pay for the rehabilitation and retraining of the employee. The insurance will also cover disability payments. There are several different types of potential disability that would be covered by insurance, including 1) temporary total disability, 2) temporary partial disability, 3) permanent total disability, and 4) permanent partial disability. A doctor will be required to diagnose which type of disability is sustained by the employee.

Perhaps even more important to understand is what is not covered by your workers’ compensation benefits. Of course, these situations may vary and it is important to review carefully the provisions of your individual policy. However, there are several situations that are generally not covered by workers’ compensation insurance. Most commonly, claims for discrimination under 132(a) are not covered by workers’ compensation insurance policies. This is part of why it is so important to avoid taking adverse action due to a workers’ compensation claim filed by an employee. Other injuries suffered by employees may also be excluded from coverage. These situations include intentional actions by an employee, such as if the employee is intoxicated, self-inflicts the injury, or if the employee starts a fight while on the job.  Of course, injuries suffered off the job are also excluded, although in some situations, off the job injuries that are aggravated or exacerbated by on the job actions or injuries may fall under coverage.

If you have questions about the purpose of workers’ compensation insurance or whether your business is required to cover it, call me today at (714) 516-8188. We can discuss your business and its requirement for workers’ compensation insurance coverage.

Who Can Be Excluded From Workers’ Compensation Insurance?

California law provides that businesses must carry workers’ compensation insurance for their employees, and there are sometimes severe criminal and civil penalties for failure to comply with this requirement. Moreover, workers’ compensation is designed to provide remuneration to those sustaining work-related injuries. However, there are some exceptions to both the requirement that all employees must be covered by workers’ compensation insurance and also that any worker sustaining a work-related injury is eligible for workers’ compensation benefits.

Some business owners may decide to exclude him or herself from coverage under their workers’ compensation insurance. As of January 1, 2017, in order to qualify, the excluded person must be an officer or member of the board of directors and own at least 15% of the outstanding stock of the corporation. In addition, it is also possible for general partners or managing members of a limited liability company to be excluded from coverage. It should be noted, however, that to be excluded, the excluded person must execute a particular type of affidavit.

It is also possible for employers to opt out of purchasing workers’ compensation insurance and instead be self-insured. The employer must be certain criteria in order to qualify for this option. Specifically, the employer must 1) have $5 million dollars of shareholder equity; 2) have an average net profit of at least $500,000 for each of the last five years; and 3) have certified, independently audited financial statements. If a company meets these benchmarks, it may apply to have be self-insured for workers’ compensation insurance instead of purchasing insurance. Each subsidiary of the company must independently apply.

Not every person who works for a company and sustains an injury is eligible for benefits under the workers’ compensation insurance of the employer, regardless of whether that employer is insured through a company or is self-insured. The most notable exception to this are workers who are actually independent contractors. Independent contractors are not covered by workers’ compensation insurance and even if they sustain an injury while performing a work-related task, they are not eligible for benefits. The test for whether a worker is an independent contractor is whether an employer has the right to direct and control how the work is performed, and the means by which it is accomplished. It is important to note that the employer’s classification is not controlling as to whether the employee is an independent contractor; the determination is made after examining the worker’s function and control over his or her work activities.

Other work-related injuries may also be excluded. If the injury was intentionally inflected by the employee, or was sustained while engaging in horseplay,  the injury may not be covered.

If you have questions about whether you are required to cover certain individuals on your workers’ compensation insurance or if certain injuries will be covered under workers’ compensation, contact me today at (714) 516-8188. We can review your business together to make sure it is in compliance and discuss any claims you could be facing.

Reducing Workers’ Compensation Costs

Recent years have seen definite drops in employee work-related injuries. This is a happy development, but, unfortunately, has not lead to corresponding drops in workers’ compensation insurance premiums to employers. Despite this, there are ways to help reduce the cost of your workers’ compensation.

The first way is the most obvious – continuing to reduce injuries. Continuing to keep up with the latest safety measures and technology to reduce work-related injury is an excellent way to ensure continuing drops to injuries. Making sure your machinery, work place, and equipment is in good repair is also vital.

Next, make sure your staff is receiving adequate training. Training manuals and videos are good tools for this, but it is also important to make sure that the employees are actually reading and absorbing this material. The material also needs to be up-to-date. For example, if you have implemented new safety procedures and new safety technology, it is imperative that manuals and training materials are updated accordingly.

Third, it can be beneficial to incentivize your employees. Set goals for meeting particular safety benchmarks, and make the benefits applicable to the entire workplace. This not only will compel each individual employee to try to maintain safety standards, but will also generate an atmosphere of cooperation and positive peer pressure to make sure that the safety procedures are appropriately utilized.

It should also go without saying that you need to be honest with your workers’ compensation insurance company. Make sure the company is aware of the safety procedures you have implemented and maintain an open dialogue to make sure that your premiums are set appropriately.

If a worker is injured on the job, contacting the appropriate medical personnel immediately is vital. This will help ensure that the worker does not sustain further injury.

If you have failed to maintain insurance, a worker gets injured, and the Uninsured Employers Benefits Trust Fund is seeking to place a lien against your business, another way to “after the fact” help reduce the cost is to seek assistance from a lawyer trained in workers’ compensation matters. That attorney may be able to help you negotiate payments or even reduce the final lien amount with the Trust Fund.

Businesses should take all available precautions to help reduce their workers’ compensation costs through training and procedure. If a lien or judgment is established, the business should contact an attorney to help negotiate that amount. I have significant experience and training in workers’ compensation, and can help you. Contact me today at 714-516-8188 to discuss your business and its liabilities.

Studies on Benefits and Costs of Workers’ Compensation

Over the past several years, workers’ compensation premiums have grown at fast rate, often far outstripping the benefits received. In fact, between 2010 and 2014, the cost of workers’ compensation grew much  more than the amount of benefits that were paid out. These costs include not only insurance premiums, but also administrative costs and reimbursement. In 2014, the ratio for benefits received to dollar paid in, was .68 to every dollar. This was down from 2010, when the benefits received were .81 to every dollar paid. In California, the amount paid by employers went up dramatically during that time, by approximately .32 on the dollar, placing California in second place for the increase.

The rising cost of medical care in the United States now represents the lion’s share of the use of the benefits paid out by workers’ compensation insurance. This cost has consistently risen, with the medical benefits representing 29% of the benefits paid out in 1980, whereas this was at 50% in 2014. For a more state specific view, in 32 states, medical costs represents a majority of the benefits paid by workers’ compensation insurance. In California, medical costs in workers’ compensation claims represented 57.7% of the benefits paid out.

This study looked to two potentially contributing factors to the decline in benefits received from workers’ compensation insurance. The study recognizes that there has been a decline in work-related injury, which is a trend which continues. Moreover, the study also specifically recognizes the changes in state specific workers’ compensation coverage requirements. Some states provide fewer protections for workers, which leads a reduction in the number of compensable claims, as well as a reduction in the number of claims filed over all.

Despite the increase of costs of insurance to employers, between 2010 and 2014, the number of employees covered by workers’ compensation benefits increased in California by 9.9%. In addition, the wages covered by the benefits also increased in California by 22.1%. Overall, the number of claims paid out in California rose between 2010 and 2014 by a significant enough amount to make California third in the nation for benefits paid during that time.

Regardless of perceived benefits or costs of workers’ compensation insurance and benefits to the employee, insurance is still required by California law. If you have questions about whether you are required to carry insurance and who needs to be covered, contact me to today at 714-516-8188 to discuss your business.

Department of Labor Wants Changes to Workers’ Compensation

Under the current workers’ compensation system, each state more or less makes its own set of laws. These laws vary wildly between states. For example, Texas allows companies to opt out of workers’ compensation insurance while our state of California provides harsh civil and criminal penalties for failure to carry the mandatory insurance. Meanwhile, the United States Department of Labor is weighing in.

The Department of Labor recently released a statement urging changes to the spotty, state specific approach currently in force for workers’ compensation insurance. The Department of Labor recognized that workers’ compensation is a key protection for employees. The statement called workers’ compensation insurance a “key component of the country’s social benefit structure” and expressed concern that it has no federal oversight and a lack of federally mandated minimum standards. The Department of Labor recognized that other social benefit programs have grown, citing the Affordable Care Act, Social Security, and Medicare, while the benefits provided to workers under workers’ compensation system have failed to keep pace, and have sometimes eroded.

The Department of Labor further expressed frustration  that the actual cost of a work-related injury is often borne in large part by the employee, and not by the actual employer. With high insurance premiums and constantly rising medical costs, this puts injured employees in very real danger of financial disaster and bankruptcy. Recent changes in workers’ compensation benefits were recognized, and that the result of these changes was often a diminished amount of benefits and security to a worker.Specifically noted were denial claims that were previously compensable, discouraging workers from filing a claim at all, and a decrease in the cash benefits awarded. Higher evidentiary bars, opt out systems, and exclusion of certain injuries also made the list of concerns.

Ultimately, the Department of Labor concluded that a dramatic overhaul is necessary in order to prevent the continued trend of erosion to benefits provided to workers. These changes would include increased benefits to the worker while decreasing costs to the employer. The Department of Labor also did not overlook the fact that the first step would be continuing efforts to reduce the incidence of work-related injuries in the first place. The Department of Labor goes on to explore whether the federal government should step in to provide more oversight, and whether it may be important to expand other social programs such as Medicare and social security.

In today’s political climate it is clear that change is imminent to many programs, including workers’ compensation. I can discuss with you what changes are likely to happen and how to make sure your business is ready for the future. Contact me today at 714-516-8188 for an appointment.

Workers’ Compensation Insurance Profits at Record High

Is the workers’ compensation industry disappearing?  Is there a nationwide movement to eliminate workers’ compensation insurance?  These questions are both important, and directly related to the fact that a recent study shows that workers’ compensation insurance profits recently were reported at a record high.

A recent study by Conning, Inc. revealed that workers’ compensation insurance profits experienced the lowest loss ratio seen since 1995. In addition, over the last six years, premiums for workers’ compensation insurance have been steadily rising. The study determined that these premiums were boosted by the improving and expanding economy. However, the study also determined that this growth was not sustainable and not likely to continue. In 2016, the rate of filings indicated a softening market. This was attributed to the rise in medical costs. The fact that 2016 was a banner year for workers’ compensation insurance companies came on the heels of 2015, which had also seen record growth and profits. In 2015, the combined ratio for workers’ compensation was 95.4, which was a significant improvement over the ratios demonstrated in 2011-2014, which ranged from 117.3 to 102.4. For example, in 2015, Travelers Companies was the top workers’ compensation writer with a direct written premium of $4.47 billion dollars and net written premiums of $3,96 billion.

Other studies and opinions provide harsh criticism to the rising costs. The California Applicants’ Attorneys’ Association released a statement in April 2016 indicating that the rising rate of premiums has not gone to improve care provided to workers injured on the jobs. Rather, they are concerned that the increased profits to the insurance companies have actually just resulted in lining the pockets of the insurance executives.

Mounting pressure on the insurance companies will likely lead to a dip in insurance premiums. Simply stated, the high insurance premiums cannot continue to be justified in the face of the reduction in the amount of work-related injuries and increased safety standards. Moreover, certain organizations are concerned that even in light of the higher insurance premiums and record profits, care for injured workers has dipped. Some are even citing a reduction of 70% in benefits for employees, and medical professionals dropping employees from their care in the face of frustrating road blocks thrown up by the workers’ compensation insurance companies.

If you have questions about the ever-changing workers’ compensation insurance market and how it can impact your business, contact me today at 714-516-8188. I look forward to talking with you about your business and workers’ compensation.

Elimination of Workers’ Compensation Insurance on the Rise

We have recently reviewed the shrinking workers’ compensation market. The potential for a disappearing workers’ compensation market driven by the reduction in injuries, heightened safety measures, and sometimes unreasonably high workers’ compensation insurance premiums also begs the question whether there really is a nationwide trend to be rid of workers’ compensation insurance all together.

In some states, laws have been passed allowing employers to opt out of workers’ compensation insurance. These states include Texas and Oklahoma. Large companies such as Wal-Mart, McDonald’s Nordstrom, and Lowe’s have helped campaign to create these opt-out provisions. This does not mean, however, that workers are left completely unprotected – it simply means that the employers have opted out of the state workers’ compensation option. In Texas, approximately a third of all employers have opted out. This includes many of the states’ largest employers. These employers typically offer other plans to their employees to cover them in the case of a work related incident. Despite the offer of alternative insurance, many of the plans offered by employers can result in lower benefits and without the state to oversee the plans and the benefits they could provide, this may produce problems in the future. For example, without the state oversight, employers in some of these opt out states can provide plans that exempt certain conditions from coverage, such as carpal tunnel syndrome or bacterial infections. It can also result in procedural requirements, such as requiring a worker to report any injury by the end of a shift if the injury is to be covered under a plan.

So far, Texas and Oklahoma are the only states that have allowed companies to completely opt out, but other states have bills that are being pushed to also have opt out options for employers. In California, a company may not opt out. Self-insurance is an option, but only in limited circumstances.

As the companies lobbying for these opt out provisions are enormous corporations with lots of resources, it is not unlikely that they will continue to push for opt out options in other states. With little oversight and heightened control over what they will be responsible to cover in the event of a work-related injury, it is obvious to see why large companies would find this situation desirable.

Opt out is not an option in California, and it is mandatory that businesses carry workers’ compensation insurance or meet the requirements to select self-insurance as an option. If you have questions about self-insurance options for your company, contact me today at 714-516-8188. I can review the requirements with you and discuss whether your company is a candidate.

Shrinking Workers’ Compensation Insurance Market

Over the years, injuries in the work place, and therefore workers’ compensation claims, have declined. This is due to several factors, such as technology and better material handling procedures, but one important factor is the workers’ compensation insurers. Insurance companies require businesses and individuals to mitigate the risk of injury to their employees. Coupled with the mandatory nature of workers’ compensation insurance, this has led to a drop in work-place injuries.

Recent studies indicate that this trend will continue. In fact, one study determined that by the year 2024, although the work force would grow in the United States, the number of work place injuries would drop by 15.2%, with an annual frequency improvement of 2.5%. For California specifically, the same study determined that work place injuries would drop by 12.5%. With such a large projected drop in injuries, the need for workers’ compensation insurance may also be disappearing.

The end result is that because the workplace is safer and safer each year, there will be fewer injuries every year. That means there will be fewer work place injuries and deaths to insure. Assuming this trend continues, as is projected, at some point, businesses will probably be compelled to demand why they are required to carry a type of insurance for injuries or deaths that rarely occur. Self-insurance is strictly limited and regulated in California and other states, but if the rate of injuries and deaths sufficiently drops, it is likely that businesses will be more apt to push for more practical self-insurance regulations, as commercial workers’ compensation insurance becomes, if not obsolete, at least financially illogical. After all, if insurance premiums are consistently much more than the cost to the employer to compensate the amount of injuries sustained by workers, it would make sense for a business to want to self-insure. Moreover, if this is a consistent trend seen by most businesses, it would be even more logical for self-insurance to become more attainable.

The insurance companies’ first line of defense to this would be to lower insurance premium prices and consolidate their own businesses to save on costs. Essentially, by insisting on more and more safeguards to reduce their own costs, insurance companies have made their own business less useful.

Despite the possibility that the future may hold more simple regulations for self-insurance or even eliminate the requirement for workers’ compensation insurance entirely, that is not today’s reality. Contact me today at 714-516-8188 to discuss your workers’ compensation issues and whether your business could be at risk.

Risks and Penalties for Failure to Maintain Proper Insurance in California

California law requires that any business with at least one employee or more carry workers’ compensation insurance. The law also provides both civil and even potentially criminal penalties for failing to carry it. Although some businesses may believe insurance is too expensive, the potential penalties for failing to carry it can be severe.

If a business is found without workers’ compensation insurance during an inspection, the Division of Labor Standards Enforcement (DLSE) must serve the business with a stop-work order. This means that the business cannot continue to use employee labor until it purchases the required insurance. If the business ignores the order and continues to use employee labor anyway, this is a misdemeanor. It is punishable with up to 60 days in jail and a fine of up to $10,000. The DLSE can also assess a penalty of $1,000 for each employee, up to $100,000.

In addition, a business can be assessed a monetary penalty. This penalty will be the greater of 1) twice the amount the business would have paid in insurance premiums for the time that the business was uninsured, or 2) $1,500 per employee. Obviously, this penalty can become very hefty, very quickly. There are exceptions to this rule for certain types of partnerships and corporations, depending on who is actually performing the work for the business.

The business can also face heavy repercussions from an injured employee. If an employee is injured on the job while working for an uninsured business, then the business is responsible for all of the employee’s bills related to that injury. The employee is also allowed to file a civil suit against the employer in addition to a workers’ compensation claim.

If the employee files a workers’ compensation claim before the Workers’ Compensation Appeals Board, there could be even more additional penalties assessed against a business that was illegally uninsured at the time of the employee’s injury. If the employees injuries are found to be compensable, then the business may be assessed a penalty of $10,000 per employee who was working for the business at the time of the employee’s injury. Even if the employee’s injuries are found to be non-compensable, the business may still be assessed $2,000 per employee. There is also a 200% assessment for any Premium, for up to 3 years preceding the injury.

It is clear that the risks and penalties for failure to carry the proper insurance can be severe. I can discuss the possible repercussions with you and help navigate you through the complexities of the California requirements for insurance. To set up a consultation to discuss your business, contact me at (714) 516-8188 or email wcabdefense@hotmail.com.

Who is Required to Maintain Workers’ Compensation Insurance in California?

Businesses in California are required to maintain workers’ compensation insurance. Under California Labor Code Section 3700, any business that employs one or more people must carry this insurance. This includes family members or friends of the owner who are employed by a business. There can be heavy civil and even criminal penalties for failing to maintain workers’ compensation insurance as is required, so it is important to understand if you and your business are required to carry it.

 

Some business attempt to classify workers as independent contractors instead of employees. It is vital that you make sure your independent contractors really do fall into that category. Merely calling them “independent contractors” does not mean that is how the law will consider them. If they are employees, then you are required to carry workers’ compensation insurance. Even if a friend or family member is only working for your business for a few hours a week, or on some other limited basis, they are likely an employee for purposes of needing workers’ compensation insurance.

 

It is also possible for a sole proprietor to purchase workers’ compensation insurance to provide extra coverage for him or herself. If this is the route you are taking, this is an issue that needs to be disclosed to your insurance carrier, and it is possible you will need to pay a different type of premium. Other viable options for a sole proprietor could include purchasing health or disability insurance.

 

Directors and executive officers of a corporation present a new set of facts. These people must be included in workers’ compensation insurance coverage. The only exception to this is if the corporation is fully owned by the directors and executive officers. In such a case, they are allowed to be excluded from workers’ compensation insurance, if the executive owns 15% or more of the corporation. This is an issue that directors and executive officers should discuss with their insurance broker before deciding to opt out.

 

An alternative to purchasing workers’ compensation insurance from a broker is to be self-insured. Self-insurance requires approval from the state. It also requires a net worth of five million dollars, net yearly income of $500,000, and a security deposit.

 

If you have questions about whether you need to carry insurance, I would value the opportunity to discuss the issue with you. Contact me at (714) 516-8188 or email wcabdefense@hotmail.com to set up a consultation.

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