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