| Whether you're starting a new business or | | | | Note that if you're in a "monopoly" state - i.e, a |
| already in an established business, you need to | | | | state where there are no private insurers and |
| know the basics of workers' compensation | | | | you must use the monopoly state fund - you can |
| insurance. Almost every business that has | | | | still get put in an assigned risk plan. You should |
| employees other than the owner is required by | | | | discuss this with your agent. |
| state law to carry workers' comp. But you need | | | | Important Tips Regarding Workers' Compensation |
| to be careful in choosing a policy. The fact is | | | | Insurance |
| many insurance companies can get remarkably | | | | - Your agent, working with his/her company's |
| tricky when it comes to writing policies - in their | | | | underwriter, is responsible for deciding what |
| bag of tricks are such ploys as classifying the | | | | classification codes to utilize in developing your |
| type of work your employees do incorrectly, | | | | premium rates, as well as the various other risk |
| miscalculating so-called modification factors, and | | | | factors. Reportedly, mistakes and oversights are |
| making a variety of other types of mistakes | | | | legion in these types of policies (usually favoring |
| which, oddly enough, result in insurance costs to | | | | the insurance company), so review your policy |
| you that are higher than they need to be. | | | | carefully, preferably with the assistance of a |
| Beyond needing to hold your own against your | | | | professional who has experience in this field. |
| workers' compensation insurance carrier, there's | | | | - Carefully read your policy's Information Page in |
| another reason to take a few minutes to learn | | | | detail - it contains the most important details you |
| more about this type of insurance, namely, fraud. | | | | need to check. |
| Workers' compensation fraud is the second | | | | - You should be particularly careful when your |
| largest category of white-collar fraud in the United | | | | company hires independent contractors. If the |
| States today, second only to income tax evasion. | | | | independent contractor does not carry workers |
| According to industry observers, fraud occurs in | | | | comp and is injured, you will be held responsible |
| almost a fourth of all claims. It can take the form | | | | for all costs connected with the claim. |
| of employee fraud (an employee who's been in an | | | | - Make sure you indicate as named insured all legal |
| accident claiming to be injured more seriously than | | | | entities which are in any way connected with your |
| he/she really is), employer fraud (harassing | | | | business. For example, if you own the building it's |
| employees who put in claims or trying to deceive | | | | in, you should be named on your policy as legal |
| the insurance company regarding the number of | | | | owner of the property, as well as owner of the |
| the company's employees), or insurance company | | | | business. |
| fraud (wrongfully denying legitimate claims). | | | | - Also you should be aware of federal workers' |
| In many businesses, such as manufacturing and | | | | comp exposures. In addition to state |
| construction, workers' comp is a major expense | | | | requirements, some federal legislation also |
| item - and also a major source of friction and | | | | imposes liabilities on employers. You can add |
| confusion. But most business owners know little | | | | coverage for acts such as the following to your |
| or nothing about how it works or how rates are | | | | workers' compensation policy by endorsement |
| calculated. It's too complicated to cover in detail | | | | (i.e., by adding a supplement): Longshore and |
| here, but I'll try to touch upon most of the basics | | | | Harbor Workers Compensation Act (benefits to |
| in this brief article. | | | | employees injured in maritime employment); |
| Understanding the Basics of Workers' | | | | Federal Coal Mine Health and Safety Act (benefits |
| Compensation | | | | to miners who contract black lung disease); and |
| If you are in a type of business that is required | | | | Migrant and Seasonal Agricultural Worker |
| by state law to purchase workers compensation | | | | Protection Act (housing and safety benefits to |
| benefits, this is something to take seriously. In | | | | seasonal and migrant agricultural workers). |
| some states, notably Florida and California, | | | | The NCCI Manual is not used for calculating rates |
| businesses are getting shut down and owners | | | | in: Delaware, California, Indiana, Massachusetts, |
| prosecuted criminally for failure to carry this type | | | | Michigan, Minnesota, New York, New Jersey, North |
| of insurance. In most states you need it if you | | | | Carolina, Pennsylvania, Wisconsin, and Texas. (All |
| have one or more employees - California being | | | | other states use it.) |
| one of the few that requires it even for | | | | If either you or a professional you hire feels that |
| one-person businesses. | | | | your premium rates are not what they should be, |
| In most states you can purchase an insurance | | | | based on the rules and specifications in the NCCI |
| policy from a workers' comp insurance company; | | | | Manual (or other state rating manual), your initial |
| however in five states (OH, ND, WA, WV, WY) | | | | step should be to contact your agent, say the |
| you must obtain coverage through that | | | | experts, and request changes; if this doesn't |
| jurisdiction's state-operated fund. These state | | | | work, then you should directly contact NCCI or |
| operated funds are called "monopoly state funds." | | | | the appropriate state rating bureau and point out |
| Note that thirteen states maintain state funds | | | | the errors in your policy as it is written. |
| which compete with private insurers. So in those | | | | - Is your company required to pay workers' |
| thirteen, you can buy your policy either from a | | | | compensation benefits to illegal immigrants? |
| private insurance company or from the state | | | | According to experts, the answer depends on |
| fund (CA, AZ, CO, MD, ID, MI, MN, MT, NY, OR, | | | | whether the illegal alien qualifies under your state's |
| OK, PA, UT). | | | | statute as an "employee" working "in the service |
| If for some reason your business is found to be | | | | of" another under a "contract of hire." So far, |
| especially risky, you will have to get your | | | | New York and Ohio courts have upheld the right |
| insurance from a so-called "assigned risk" fund, | | | | of aliens to receive benefits; Wyoming, Virginia, |
| and it costs considerably more. Workers' | | | | and Florida have not. |
| compensation is regulated primarily by the states | | | | - Note that only Texas, among all 50 states, does |
| (and Washington DC) so there are 51 separate | | | | not require employers to carry WC insurance. |
| sets of rules which govern benefits, premiums, | | | | A Word About Workers Compensation Fraud |
| and coverage. However, a so-called "rating | | | | Workers' comp is a no-fault system for providing |
| bureau" called the National Council on | | | | financial benefits to injured or ill workers while at |
| Compensation Insurance (NCCI) has developed a | | | | the same time shielding their employers from |
| manual used by many states to regulate how | | | | lawsuits. But the system is wide open to fraud on |
| insurance companies calculate your rates. NCCI | | | | a number of fronts. Employers, attempting to |
| states rely almost completely on this manual, | | | | reduce premiums, may understate their total |
| while some other states have developed their | | | | number of employees or misrepresent the type |
| own manuals. For example, Nevada sticks closely | | | | of work they do; workers may claim benefits |
| to the NCCI manual, whereas California has | | | | they're not entitled to, for example, by |
| developed its own manual. | | | | exaggerating the seriousness of an injury; even |
| Workers' comp policies tend to seem complex | | | | insurers themselves may intentionally miscalculate |
| and abstruse to the uninitiated. What's more, you | | | | premiums and this is, unfortunately, not |
| can't rely entirely on your insurance agent to | | | | uncommon. |
| decipher the technical terms, options, and | | | | Surprisingly, it's employer fraud that is the major |
| requirements - remember, he/she has a vested | | | | type of workers' comp fraud. According to a |
| interest in selling you as expensive a policy as | | | | recent study reported by the National Commission |
| possible. So if your premiums turn out to be fairly | | | | on State Workmen's Compensation Laws, over |
| considerable, it's a good idea to have your policy | | | | 13% of employers studied were operating without |
| reviewed by a lawyer with workers' comp | | | | legally required workers' compensation insurance. |
| experience or a consultant specializing in this field. | | | | In addition, others were found to be cheating the |
| For example, do you need a guaranteed-cost | | | | system by intentionally misclassifying or |
| policy (a policy whose premiums remain the same | | | | underreporting their payroll or by falsely |
| no matter how many claims you file) or a | | | | representing employees as independent |
| loss-sensitive plan? The latter will cut your costs | | | | contractors. |
| but increase your exposure. | | | | Of course the best-known type of workers' |
| The basic formula insurance companies utilize to | | | | comp fraud - the kind most often covered by |
| calculate your policy is to multiply a rate times | | | | the media -- involves workers claiming disabilities |
| hundred dollars of payroll. But what is this "rate"? | | | | that don't exist. Most insurance companies have in |
| Where does it come from? It is based on the | | | | recent years set up internal Special Investigative |
| classification of your company's type of work | | | | Units (SIU's) to deal with this type of fraud. Claims |
| performed. It's always to your advantage to be in | | | | adjusters report suspicious cases to their |
| a relatively "safe" classification, such as office | | | | company's SIU's, which then use surveillance, |
| work, as opposed to a more injury-prone | | | | background checks,videotaping, medical records |
| classification, such as mining. Experts warn that | | | | checks and other tools to document fraud, then |
| you should be vigilant that the insurance agent | | | | turn the cases over to the Attorney General for |
| does not misclassify your company - such a | | | | prosecution. Criminal penalties to workers trying to |
| "mistake" can easily double your premiums. | | | | game the system can be severe. |
| What's more, insurance companies inevitably apply | | | | Here's an example of how the SIU investigation |
| an "experience" factor to your premiums. This is a | | | | system works. Recently, CompSource Oklahoma |
| circumlocution for a multiplier calculated on the | | | | investigated a female claimant who was receiving |
| basis of your company's claims history. The more | | | | permanent total disability benefits for back injuries |
| or larger your claims, the larger the experience | | | | from a slip-and-fall accident. The company's SIU |
| factor. | | | | team found that while receiving these benefits |
| Understanding Assigned Risk Plans | | | | she was listed on the Internet as an officer of an |
| What can you do if every private insurer in your | | | | outdoor recreational club. Surveillance was set up |
| state turns down your insurance application? In | | | | and it was found that she was engaged in |
| that case, you have to utilize the state's assigned | | | | mountain hiking, carrying heavy items and other |
| risk plan. This is expensive insurance. Yet, I'm told, | | | | activities suggesting she was not disabled. Criminal |
| many agents sell assigned risk insurance without | | | | charges were filed and a conviction obtained, |
| bothering to mention it's assigned, and the words | | | | resulting in a lengthy prison term. |
| "assigned risk" appear nowhere on the policy. | | | | The moral of the story: Don't commit workers' |
| Generally, rates and service are said to be better | | | | comp fraud. Insurance companies now employ |
| in NCCI states. However, even if your company is | | | | teams of specialized investigators who will |
| in an NCCI state you will probably get lower rates | | | | doggedly pursue a any suspicious claim and, if |
| if you move to "voluntary" (i.e., not assigned risk) | | | | fraud can be proven, will press charges without |
| coverage as soon as possible. | | | | any hesitation whatsoever. |