Workers' compensation programs are essential for employers to protect their employees against workplace injuries and illnesses. These programs provide financial and medical benefits to workers who suffer job injuries or illnesses. The compensation covers their medical expenses and lost wages.
However, not all compensation programs are the same. Thus, employers need to understand the different types of programs available to choose the right one for their business.
Here are the six types of workers' compensation programs and what each covers, helping employers make better decisions to protect their employees and their businesses.
State-run workers' compensation programs are a common type of employee compensation program in the United States. Each state administers these programs, and they are typically mandatory for employers to participate in. The rules and regulations for state-run programs vary from state to state, but they generally benefit employees who suffer work-related injuries or illnesses.
In most state-run programs, employees can receive medical care and treatment for work-related injuries or illnesses. They may also be eligible for disability benefits to compensate for lost wages while they cannot work due to injury or illness. Additionally, some state-run programs may provide vocational rehabilitation services to help employees return to work after they recover from their injury or illness.
Guaranteed cost insurance operates on a simple principle. The employer pays a fixed premium for a set period, usually one year, and the insurance company provides coverage for any claims made during that time. The premium is calculated based on factors such as the employer's industry, the number of employees, and the amount of payroll.
One of the primary benefits of guaranteed cost insurance is that the employer knows exactly how much they will need to pay for employee compensation program coverage, making it easier to budget for this expense. However, if there are unexpected workplace injuries or illnesses, the employer may need to pay additional costs out of pocket if the claims exceed the coverage limit.
Private insurance companies typically offer guaranteed-cost insurance that can be customized to meet the employer's specific needs. In addition, it can include additional coverage options such as employer liability insurance, which protects against lawsuits related to workplace injuries or illnesses.
Self-insured programs are another type of employee compensation program that some employers choose to participate in. According to Statista, the data show that across all businesses, the proportion of employees covered by self-funded plans climbed from 44% in 1999 to 65% in 2022. It shows the prominence of such insured programs and their incredible growth.
With this program, the employer assumes the financial responsibility for providing the benefits to their employees rather than purchasing insurance coverage from a third-party insurer. Employers who choose this option must have the financial resources to pay for any claims made by their employees.
Self-insured programs can offer some advantages to employers, including greater flexibility in designing their programs. It potentially lower costs if the employer has a good safety record and can manage their claims effectively.
Large deductible programs are a type of workers' compensation program that can benefit employers with a good safety record and can manage their claims effectively. Prescient National, a workers' compensation solutions company, states that with large deductible programs, the employer pays a higher deductible than they would with a traditional insurance policy.
But they also receive a lower premium in return. The deductible amount can range from tens of thousands to millions of dollars. However, it depends on the size of the employer and the level of risk of the industry.
One of the main benefits of large deductible programs is that they can help employers reduce their compensation costs without sacrificing coverage. As a result, the employer assumes more financial responsibility for claims. Still, they also have more control over the claims management process. This can help them reduce costs and improve outcomes for injured employees.
However, large deductible programs also come with some risks. For example, if the employer experiences unusual or catastrophic claims, they may need to pay significant expenses out of pocket. Additionally, the employer must have the financial resources to cover the deductible, which can be a significant upfront cost.
Retrospective rating programs are a type of program that allows an employer to pay a base premium. It then adjusts the premium using the actual losses from during the policy period. Determining the premium happens at the start of the policy period. Then at the end of the period, they evaluate the employer's loss to determine if the premium adjustments.
If the employer has a good safety record and experiences few claims during the policy period, they may receive a credit or a refund on their premium. However, if the employer has many claims or severe injuries, their premium may adjust upward. Thus, resulting in higher costs.
Note that the according to NYCIRB, if the standard premium for the business's one-year plan is at least USD 25,000, the employer qualifies. A three-year plan is: if the expected standard premium for an employer is at least USD 75,000, they qualify. However, retrospective rating programs also come with some risks.
The employer's premium can adjust upward if unusual or catastrophic claims occur during the policy period. Thereby, resulting in higher costs than a guaranteed cost insurance policy.
With this program, the employer purchases insurance coverage from a third-party insurer. The insurer assumes responsibility for paying all claims from the employer's employees.
Fully insured programs offer some advantages to employers. This includes predictable costs and the ability to transfer the financial risk of employee compensation program claims to the insurance company. Additionally, fully insured programs are subject to state insurance regulations. These can provide employers with some protection against unusual or catastrophic claims.
However, fully insured programs also come with some limitations. For example, employers have less control over the claims process. Thus, may have less ability to negotiate with the insurance company.
IBISWorld predicts that the market for occupational injury insurance produced USD 55 billion in sales in 2022. This was a 3.2% growth rate. While the increase may be modest, it still plays a crucial role in ensuring that workers can receive the coverage they need.
These six different types of workers' compensation programs are available to employers to choose from. They all offer employers different levels of control, flexibility, and financial risk.
By taking the time to understand them and working with experienced insurance brokers or attorneys, employers can help ensure that they have the best possible coverage for their business.