Workers’ Compensation: What Is It, And What Does It Do?

What Is Workers’ Compensation?

Workman’s comp is an insurance system operated under strict government regulation. Insurance requirements in every state except Texas mandate that most employers buy a workers’ comp policy. Texas operates a wholly voluntary system, with non-subscribing employers vulnerable to lawsuits under the common law court-based system.

Employers have the following options to buy policies depending on their state:

• State workers’ comp fund

• Private workers’ comp insurance policy

• Self-insurance

Not all states offer a workers’ comp fund. The idea behind these funds is that a single pool spreads risk across a large pool of policyholders. As a result, the state can offer cheaper insurance with lower administrative costs while still having the resources to pay claims.

Currently, 20 states have workers’ comp funds to compete with private insurers. Four states have monopolistic funds and ban private insurers. The remaining states operate their systems through private insurers approved to sell workers’ comp policies.

All workers’ comp systems are based on a straightforward tradeoff. Employers incur the cost of workers’ compensation insurance and, in exchange, become immune from worker lawsuits for on-the-job injuries and occupational illnesses.

Employees also get a tradeoff. In exchange for guaranteed medical and partial wage replacement benefits, they give up the right to sue their employer or seek a personal injury settlement from them. They also surrender the right to seek non-economic damages like pain and suffering in an employer lawsuit.

How Does Workers’ Comp Work?

Workers’ comp operates similarly to an ordinary insurance policy. However, states strictly regulate insurers and the handling of workers’ compensation claims.

After an employee suffers an injury or occupational illness, they must notify their employer. The time limit to notify employers varies from state to state. In most states, the sooner you notify your employer, the better.

Someone then files a claim with the insurer. In some states, the employer files the claim. In other states, such as Illinois, the employer notifies the insurer which, in turn, sends the claim forms to the worker to complete.

The insurer investigates the claim to determine whether it falls within the scope of workers’ compensation, meaning that the injury must meet certain requirements. If the injury does not meet these requirements, the insurer can deny coverage. Most states allow insurers to deny coverage for the following reasons:

• The worker was not injured

• The injury did not happen in the course and scope of the employment

• The worker is not a covered employee, such as an independent contractor

• The worker’s intoxication caused the injury

• Horseplay caused the injury

• The worker intentionally caused their own injury

• The worker missed a deadline

In most cases, the insurer finds coverage for the injury and pays workers’ comp benefits. These benefits include payment for reasonable and necessary medical treatment, therapy, and medication, provided the worker follows compensation rules. When the worker misses enough work days, they may also become eligible for temporary disability benefits equal to a predetermined percentage of their average weekly wage.

If the worker applied for permanent disability benefits, the insurer may offer a workers’ comp settlement to resolve the case rather than paying for medical coverage and a weekly disability benefit. Likewise, families that pursue death benefits may receive a settlement offer.

Options After Claim Denials

The state workers’ compensation commission or board often steps in after a claim denial. The person seeking workplace injury compensation can seek a review of the insurer’s decision. This process often involves a hearing with a workers’ comp commissioner or administrative law judge.

During the hearing, lawyers for the worker and insurer will present evidence and legal arguments. After the hearing, the hearing officer issues a decision determining whether the worker receives workplace accident compensation.

History of Workers’ Compensation

Under the common law of the past, employees had to sue their employers for compensation after a workplace injury. This system had many drawbacks. Both sides had to pay legal fees to hire lawyers, and workers had to delay medical treatment until a lawsuit ended, leaving them injured and unable to work in the meantime. Employers also risked paying a large damage award due to an unsympathetic jury.

But in 1911, Wisconsin became the first state to pass laws implementing a workers’ comp system. By 1920, 46 states had workers’ comp insurance systems. These systems now replace the old fault-based system with no-fault insurance.

This means the injured worker received guaranteed benefits from an insurer regardless of the cause of the accident, with a few minor exceptions. With this system, employers have certainty, workers have a safety net, and neither party has to worry about workers’ compensation lawsuits. Here’s what you need to know about workers’ comp.

Learn More About Your Workers’ Compensation Rights From ConsumerShield

Despite the pros and cons of workers’ comp, it is currently the best and only option for employers and employees. However, it has many nuances and complications that can frustrate injured workers in their time of need.

ConsumerShield is dedicated to educating people about their legal rights and connecting them with skilled lawyers who can represent them. Contact us for a free case evaluation today.