Are you worried about worker’s compensation? We’re here to help you better understand the systems in play.
What is worker’s comp? It’s a kind of insurance with premiums based on how dangerous it is for your employees to perform their jobs every day, from a health or accident standpoint. There is a rating board that determines how much a company pays for insurance coverage, per $100 of wages. Worker’s comp was originally conceived to make up for lost wages when an employee is injured. This also helps cover medical bills.
Your rates will increase or decrease based on the number of claims you have per year, as well as the severity of those claims. Someone spraining an ankle is obviously not as severe as someone losing a limb, but rates are affected in both cases.
In this blog series, we’re addressing the different kinds of markets companies can pursue for their worker’s comp needs. The first we’re discussing is the traditional market.
Traditional Worker’s Compensation Plan Involves: The business owner, the employees, the insurance company, the rating bureau and healthcare professionals.
In the traditional market, neither the employer, the employee or the insurance company is responsible for determining whether a claim is legitimate or not. In the case of an injured person, the employee simply files a claim and the company pays.
It seems simple enough; you pay your bill and everything gets taken care of. However, there are dangers in this system; it can be manipulated.
Occasionally, unscrupulous employees find ways to either fake injuries or milk a legitimate injury into an income stream while they sit at home and drag it out as long as possible. In the meantime, the employer’s costs continue to skyrocket, since they must carry this financial burden for the next five years. Even worse, sometimes it can be hard to tell the liars from the legitimate claims.
Traditional Market System:
Pros: Simple system. Pay your bills and deal with claims as they come up.
Cons: No accountability. High rate increases for business owners. Nobody tracks the employee during the process of the claim. Extreme frustration for the employer and the employee. Loss of productivity. Loss of profits.
Bottom line: No one in the system is held accountable; there is no motivation from the insurance companies to reduce the company’s costs, because that would mean the insurance company loses money. They are motivated by profits, and lowering their clients’ rates hurts their bottom line.
Next time, we’ll look at a captive program!
William Hollar works for PEO Select – a fast-growing company that connects businesses all over the U.S. with a PEO ideal for their needs.
Email me at: firstname.lastname@example.org
Except where expressly indicated otherwise, the postings on this site are my own and do not represent PEO Select’s position, views, strategies or opinions.