When Is Self-Insurance Allowed

Workers’ compensation is an important part of our legal system.  It provides support and financial assistance for injured employees.  It also provides immunity from additional tort law suits to the employer, except in limited circumstances.  California has the largest workers’ compensation system in the United States.  Under California law, employers are required to carry workers’ compensation insurance.  There are severe civil and criminal consequences for employers who fail to fulfill this responsibility.  There are a few narrow exceptions to this rule, including self-insurance.

Self-insurance means that the employer has assumed the financial risk associated with providing workers’ compensation benefits to their employees who sustain work-related injuries.  Workers’ compensation benefits can include not only the cost of medical treatment for the worker, but also other monthly benefits.  Clearly, this can represent a significant financial burden, especially for smaller businesses.

California law provides that there are strict requirements before a business can qualify to self-insure instead of purchasing a workers’ compensation insurance policy.  A business wanting to qualify for self-insurance must apply to the California Office of Self-Insurance Plans.  The business will have to provide particular information and evidence to support the application. First, the business must have been a legally authorized business form for at least three years.  Next, the business will have to provide three years of certified, independently audited financial statements with the application.  The business will also have to demonstrate it has an acceptable credit rating for three years preceding applying for self-insurance. If the company has subsidiaries, each subsidiary must file its own application.  The application may be filed separately or together with the parent company’s application.  If a current existing company that already has been approved for self-insurance creates a new subsidiary or affiliate, a new application can be filed.  If the parent company can demonstrate solvency, the subsidiary is automatically self-insured for 180 days.  The parent company must file an application for a permanent certificate during that time.

Once an employer is approved by the state to be self-insured, the employer is still subject to state audits.  The audits check for the accuracy of claims reserving practices as well as the correctness of the reported workers’ compensation liabilities.

If you have questions about workers’ compensation and your rights and responsibilities as a business owner, contact us today.  We can talk to you about your business and the workers’ compensation process.

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.

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