Workers' CompensationRichard A. Posthuma, JD, Ph.D., SPHR, GPHR

Learning ObjectivesLearning Objectives

• Overview:Overview:> Know the legal requirements.Know the legal requirements.> Understand the methods to meet Understand the methods to meet

requirements.requirements.> Know what benefits workers receive.Know what benefits workers receive.> Understand what drives employer Understand what drives employer

costs.costs.

Learning ObjectivesLearning Objectives

• Risk Management:Risk Management:> Understand methods for WC risk Understand methods for WC risk

management:management:• Risk avoidance.Risk avoidance.• Risk financing.Risk financing.• Loss prevention.Loss prevention.• Loss reduction.Loss reduction.

> Learn effective ways to implement Learn effective ways to implement each method.each method.

Workers’ Compensation OverviewWorkers’ Compensation Overview

> State laws.State laws.• Texas exception (employers can Texas exception (employers can

opt out).opt out).> Federal government employees and Federal government employees and

those in maritime industries have those in maritime industries have different laws (e.g., Longshore and different laws (e.g., Longshore and Harbor Workers’ Compensation and Harbor Workers’ Compensation and Jones Acts).Jones Acts).

Workers' Compensation OverviewWorkers' Compensation Overview

• Options to provide coverage (state laws Options to provide coverage (state laws differ):differ):> Commercial insurance.Commercial insurance.> State funded.State funded.> Risk pools.Risk pools.> Self-insurance (for larger employers).Self-insurance (for larger employers).

Workers‘ Compensation OverviewWorkers‘ Compensation Overview

• Small employers usually buy workers' Small employers usually buy workers' compensation insurance.compensation insurance.

• Large employers may self-fund and/or Large employers may self-fund and/or self-administer.self-administer.

• The employee gets the same benefits; The employee gets the same benefits; the difference is in the administration the difference is in the administration and cost.and cost.

• For workers who suffer injury or illness, For workers who suffer injury or illness, the injury or illness must be work-related the injury or illness must be work-related “in and out of the course of “in and out of the course of employment,” regardless of whose fault employment,” regardless of whose fault it was. This means the employee cannot it was. This means the employee cannot sue his or her employer for pain and sue his or her employer for pain and suffering for work-related injuries and suffering for work-related injuries and illnesses.illnesses.

• Usually, the employee’s exclusive Usually, the employee’s exclusive remedy against the employer is wage-remedy against the employer is wage-loss benefits and necessary medical or loss benefits and necessary medical or rehabilitation treatment.rehabilitation treatment.

Eligibility for BenefitsEligibility for Benefits

• Wage loss: A percentage of the wages that the Wage loss: A percentage of the wages that the employee lost for time out of work.employee lost for time out of work.

• States have formulas that calculate wage-loss States have formulas that calculate wage-loss benefits based on recent average earnings.benefits based on recent average earnings.

– Example: Last 13 weeks of actual earnings Example: Last 13 weeks of actual earnings (including overtime) multiplied by 70 percent, (including overtime) multiplied by 70 percent, up to a specified maximum.up to a specified maximum.

> In many states, the wage-loss benefit depends on In many states, the wage-loss benefit depends on the type of disability:the type of disability:

• Permanent total disability (can never do any job).Permanent total disability (can never do any job).• Permanent partial disability (can never do some Permanent partial disability (can never do some

jobs).jobs).• Temporary total disability (for now, can’t do any Temporary total disability (for now, can’t do any

jobs).jobs).• Temporary partial disability (for now, can’t do Temporary partial disability (for now, can’t do

some jobs).some jobs).

Workers' Compensation BenefitsWorkers' Compensation Benefits

• Benefits include all reasonably Benefits include all reasonably necessary medical treatment.necessary medical treatment.

• Employers can challenge the Employers can challenge the “reasonableness” of treatment.“reasonableness” of treatment.

• Employers can challenge medical Employers can challenge medical bills for errors or charges in excess bills for errors or charges in excess of state guidelines.of state guidelines.

> Rehabilitation (therapy, education).Rehabilitation (therapy, education).> Death benefits for survivors.Death benefits for survivors.

Workers’ Compensation BenefitsWorkers’ Compensation Benefits

• Employer pays entire cost.Employer pays entire cost.• Factors affecting employer costs:Factors affecting employer costs:

> Risk-based ratings: Risk-based ratings: • Percentage of payroll by job Percentage of payroll by job

classification. classification. > Experience rating:Experience rating:

• Based on prior claim experience.Based on prior claim experience.> Other adjustments: Other adjustments:

• Volume discounts.Volume discounts.

Workers' Compensation CostWorkers' Compensation Cost

Example of Payroll-Based Example of Payroll-Based Calculation of WC PremiumCalculation of WC Premium

Job Classifications

Number of Employees

WC Basic Rate Payroll WC Premium

Office 387 $0.29 $15,480,000 $44,892

Maintenance 275 $4.27 $11,000,000 $469,700

Retail/Sales 3,826 $1.78 $153,040,000 $2,724,112

Warehouse 167 $5.46 $6,680,000 $364,728

Truck Drivers 45 $9.23 $1,800,000 $166,140

Total 4,700 $188,000,000 $3,769,572

Workers'Workers' CompensationCompensation

and Risk Managementand Risk Management

Risk Management ApproachRisk Management Approach

• Risk avoidance: Don’t do operations Risk avoidance: Don’t do operations that require employees.that require employees.

• Risk financing: How to pay for it.Risk financing: How to pay for it.• Loss prevention: Reduce the Loss prevention: Reduce the

possibility of worker injuries.possibility of worker injuries.• Loss reduction: Reduce the cost of Loss reduction: Reduce the cost of

injuries.injuries.

Risk AvoidanceRisk Avoidance

• Don’t engage in operations that require Don’t engage in operations that require employees. This may be difficult employees. This may be difficult depending on corporate strategy.depending on corporate strategy.

• Outsource functions that require Outsource functions that require employees in higher-risk occupations. employees in higher-risk occupations. Make sure that the contractor assumes Make sure that the contractor assumes the risk of injuries.the risk of injuries.

• Use contracted labor to shift the risk to Use contracted labor to shift the risk to another employer. For example, a another employer. For example, a temporary help agency.temporary help agency.

Risk FinancingRisk Financing

• The cost of WC obligations is effectively The cost of WC obligations is effectively managed.managed.> Competitive bids for WC coverage.Competitive bids for WC coverage.> Alternative financing arrangements for WC Alternative financing arrangements for WC

premiums.premiums.• For example, retrospective rating plans For example, retrospective rating plans

that reduce premiums when there are that reduce premiums when there are fewer or smaller claims.fewer or smaller claims.

> Consideration of cost-effectiveness of Consideration of cost-effectiveness of alternatives.alternatives.• Insurance, risk pool, self-insurance.Insurance, risk pool, self-insurance.

Loss PreventionLoss Prevention

• Identify the most likely causes of Identify the most likely causes of injuries.injuries.> Implement cost-effective safety Implement cost-effective safety

measures to reduce the likelihood of measures to reduce the likelihood of these injuries.these injuries.

• Don’t discriminate or retaliate against Don’t discriminate or retaliate against employees who file WC claims (in hiring, employees who file WC claims (in hiring, promotion, job assignments, pay, etc).promotion, job assignments, pay, etc).

Loss PreventionLoss Prevention

• Frequent sources of injuries:Frequent sources of injuries:• Repetitive motion.Repetitive motion.• Bending and lifting.Bending and lifting.• Falls.Falls.• Pinch-points.Pinch-points.• Vehicles.Vehicles.

Loss PreventionLoss Prevention

• Sources of illness (more rare):Sources of illness (more rare):• Environmental exposure.Environmental exposure.• Psychological trauma.Psychological trauma.

• Ordinary diseases of life (e.g., influenza, Ordinary diseases of life (e.g., influenza, measles):measles):

• Generally not covered by WC.Generally not covered by WC.

• Telecommuting:Telecommuting:> Employees who work out of their Employees who work out of their

homes could be eligible for WC homes could be eligible for WC benefits if their injury occurs as part of benefits if their injury occurs as part of their employment.their employment.

> The risk of injury may be low if the The risk of injury may be low if the work involves office-type computer work involves office-type computer work.work.

> Nevertheless, employers might Nevertheless, employers might reduce the risk of false claims by reduce the risk of false claims by requiring that work be done only in requiring that work be done only in designated spaces and times.designated spaces and times.

Loss PreventionLoss Prevention

• Assume that workers do get hurt; you Assume that workers do get hurt; you can reduce the cost of their injuries.can reduce the cost of their injuries.

• The goal is to manage claims to reduce The goal is to manage claims to reduce overall costs.overall costs.

Loss ReductionLoss Reduction

• Types of Claims:Types of Claims:> Medical only:Medical only:

• No time lost from work.No time lost from work.> Wage loss:Wage loss:

• Employee misses some time Employee misses some time from work.from work.

• Some companies supplement Some companies supplement wage-loss benefits.wage-loss benefits.

Loss ReductionLoss Reduction

• Types of Claims:Types of Claims:• Rehabilitation:Rehabilitation:

–To help workers recover their To help workers recover their capacity to work.capacity to work.

• Death:Death:–From job-related causes.From job-related causes.

• Specific loss:Specific loss:–Eye, finger, leg, etc.Eye, finger, leg, etc.

Loss ReductionLoss Reduction

• Claims can vary in cost; dependsClaims can vary in cost; depends onon thethe amountamount ofof paymentspayments for:for:

• Medical expenses.Medical expenses.– All reasonably necessary medical All reasonably necessary medical

expenses must be paid for.expenses must be paid for.– However, there are ways to reduce However, there are ways to reduce

these costs.these costs.

• Wage loss.Wage loss.– Get the employee back to work Get the employee back to work

sooner.sooner.

Loss ReductionLoss Reduction

• Company doctor.Company doctor.• Independent medical exams.Independent medical exams.• Issues: Issues:

> For some types of injuries/illnesses (such as For some types of injuries/illnesses (such as back pain, headaches, soft tissue), it’s more back pain, headaches, soft tissue), it’s more difficult to prove or disprove disability or difficult to prove or disprove disability or work relatedness.work relatedness.• The key questions:The key questions:

– Is the worker unable to work?Is the worker unable to work?– Is the injury or illness work-related?Is the injury or illness work-related?

> Is expensive medical treatment necessary?Is expensive medical treatment necessary?

Loss ReductionLoss Reduction

• Develop rapport with doctors:Develop rapport with doctors:> Requires honest concern for employee welfare.Requires honest concern for employee welfare.> Provide a detailed job description to the doctor:Provide a detailed job description to the doctor:

• Paper (physical requirements: weight, Paper (physical requirements: weight, motion, frequency).motion, frequency).

• Video.Video.• On-site visits.On-site visits.

• Employers are entitled to receive medical records Employers are entitled to receive medical records related to WC claims, but they should be kept related to WC claims, but they should be kept confidential.confidential.

• Focus on rehabilitation.Focus on rehabilitation.

Loss ReductionLoss Reduction

• Light duty, favored, supervised or Light duty, favored, supervised or transitional work:transitional work:> Avoid secondary gain. Secondary gain is Avoid secondary gain. Secondary gain is

the extent to which having an injury serves the extent to which having an injury serves some additional purpose (e.g., staying away some additional purpose (e.g., staying away from work).from work).

> Rehabilitate worker.Rehabilitate worker.> Diary files.Diary files.> Good to be consistent with work-related and Good to be consistent with work-related and

non-work-related assignments (i.e., don’t non-work-related assignments (i.e., don’t make work-related more onerous).make work-related more onerous).

> Do not retaliate!Do not retaliate!

Loss ReductionLoss Reduction

Challenge the claim:Challenge the claim:• Activity evidence: What activities Activity evidence: What activities

was the employee involved in away was the employee involved in away from work?from work?

• Private detectives: Hired to gather Private detectives: Hired to gather evidence refuting the claim of a evidence refuting the claim of a disability.disability.

Loss ReductionLoss Reduction

• Coordinate benefits:Coordinate benefits:> Investigate who else could be paying:Investigate who else could be paying:

• An automobile insurance policy from An automobile insurance policy from another driver?another driver?

• The product liability insurance policy of The product liability insurance policy of the manufacturer of the defective product the manufacturer of the defective product that injured the worker?that injured the worker?

> Second injury funds:Second injury funds:• Some states have funds that will Some states have funds that will

reimburse employers who have hired an reimburse employers who have hired an employee who was injured at a previous employee who was injured at a previous employer’s workplace.employer’s workplace.

Loss ReductionLoss Reduction

• Offsets from unemployment insurance.Offsets from unemployment insurance.

Question:Question: Could there be an overlap between Could there be an overlap between workers' compensation and unemployment workers' compensation and unemployment insurance?insurance?

Answer:Answer: Usually not. Usually not.• To get WC benefits, you have to be To get WC benefits, you have to be

unable to work.unable to work.• To get UI benefits, you have to be To get UI benefits, you have to be

available for work.available for work.

Usually, both of these can’t happen at the Usually, both of these can’t happen at the same time.same time.

Loss ReductionLoss Reduction

• Propose lump-sum settlements.Propose lump-sum settlements.• Requires legal oversight.Requires legal oversight.• May terminate benefits.May terminate benefits.• Employers should get:Employers should get:

• A resignation.A resignation.• Waiver of any and all other claims.Waiver of any and all other claims.

Loss ReductionLoss Reduction

• Family and Medical Leave Act:Family and Medical Leave Act:> Gives qualified workers the right to time off Gives qualified workers the right to time off

from work without losing their jobs for from work without losing their jobs for serious medical conditions.serious medical conditions.

> Applies even for work-related injuries.Applies even for work-related injuries.> Up to 12 weeks.Up to 12 weeks.

• Some employers require employees to Some employers require employees to use up their entitlement to FMLA leave.use up their entitlement to FMLA leave.

> After 12 weeks is up, if there is no After 12 weeks is up, if there is no reasonable accommodation, the worker may reasonable accommodation, the worker may be terminated.be terminated.• Check with your own legal counsel.Check with your own legal counsel.

Other Relevant LawsOther Relevant Laws

• Americans with Disabilities Act:Americans with Disabilities Act:> Requires a reasonable accommodation for Requires a reasonable accommodation for

disabilities (even if work-related).disabilities (even if work-related).

• The accommodation must be provided if the:The accommodation must be provided if the:• Disability is a major life function (e.g., seeing, Disability is a major life function (e.g., seeing,

walking, hearing); andwalking, hearing); and• Accommodation is reasonable (i.e., not an undue Accommodation is reasonable (i.e., not an undue

hardship on the employer)hardship on the employer)– Not too expensive but larger employers need Not too expensive but larger employers need

to spend more to spend more • Employee would otherwise be able to perform the Employee would otherwise be able to perform the

essential functions of their job; andessential functions of their job; and• Accommodation will not cause undue risk of harm Accommodation will not cause undue risk of harm

to the employee or others.to the employee or others.

Other Relevant LawsOther Relevant Laws

• Workers' compensation is legally Workers' compensation is legally required.required.

• The costs are variable and can be The costs are variable and can be reduced.reduced.

• Employees should be treated with Employees should be treated with respect and dignity, and without respect and dignity, and without retaliation.retaliation.

SummarySummary