Worker's Comp And Consequences

Ron Schwarz
Posted on January 18, 2012

This article is oriented toward limousine and van operators, considering the unique aspects of their operations that result in workers’ comp exposures varying from other types of businesses.

Companies such as yours are often smaller, family owned, and involved with independent contractors. There are a few key elements you need to understand since their consequences can make or break your business. The purpose of this article is to arm you with basic facts. It’s up to you to learn more by simply contacting your insurance agent and/or doing some Web searching. Getting involved will alert you to questions and issues that you’ll know need your attention.

Who is eligible for workers’ comp benefits?
Workers injured on the job have a legal right to receive workers’ compensation benefits. Those benefits include medical care, compensation for wages lost while recovering from an injury, and compensation for future earnings lost due to the injury or illness. Also, remember workers’ compensation is a no–fault process which means that an employee injured at work receives medical care and benefits regardless of who was at fault for the injury.

Do all companies need workers’ comp coverage?
Often, company owners ask if they are big enough to require coverage. Nearly all states give the employer no choice on the purchase of workers’ compensation coverage. If you have employees, you are required to have coverage. There are exceptions, state by state, that may involve a minimum number of employees; Texas allows an employer not to buy coverage. However, if an employer doesn’t buy coverage, and it was required, the employer can be punished with fines and jail time. Additionally, not having insurance coverage exposes the employer’s assets to claims from injured employees.

Does using independent contractors mean I don’t have to buy workers’ comp?

Frequently, companies use independent contractors and have agreements stipulating those parties are independent contractors and not employees. The usual conclusion business owners make is this arrangement negates the need for workers’ compensation coverage. The problem is badly injured workers (here the term “workers” includes contractors) almost always engage an attorney whose number one job is to show the contractor in fact was directed by the company (make this pickup at this location, go to, and then go to another, by this time, etc), or that the company provided the working tools (such as the vehicle they may have leased to the driver). These elements, along with others, result in disputes that often end in court, with the goal of the injured party being to be declared an employee who was acting under the company’s scope and control. Once declared as an employee, the injured party is covered by your workers’ compensation coverage. If either party disagrees with the court, they may have the case reviewed further by the Workers’ Compensation Appeals Board, the court of appeal for workers’ compensation claims. In addition to claim costs, another consequence of a contractor being found to be an employee is your insurance carrier is likely to re-audit all payrolls, payments and expenses to develop premiums to cover this exposure. Such audits often produce surprisingly large additional premiums developed from payments to contractors that get converted to wages as a consequence of the contractor being declared an employee.

Why does my experience mod keep changing, and what is it?
At a certain point your company is considered large enough to develop an experience modification that reflects the ratio of premiums you paid versus the amount of losses that your injured workers developed. Your experience mod changes every year. If losses are in an adverse ratio to your premiums, your experience modification rises above one (i.e. it becomes greater than a factor of 1.00). The experience modification is a factor that if more than 1.00, raises your premium, or if less than 1.00 (such as .95), reduces your premium. The goal for you is to have a modification that is less than 1.00.

O.K., I probably need coverage, I do have exposure, so what Is next?

Call your insurance agent to find out what state laws affect you directly. Your local agent is a good source knowing insurance carriers that want to write your insurance. In your state, if there is a minimum number of employees before comp is required, remember if you are below the minimum and don’t buy coverage this doesn’t exclude you from the consequences of work-related injury costs. Many companies have begun to implement workplace wellness programs that help employees adopt healthier lifestyles. Your insurance carrier often can provide specific ideas to outline a program designed to avoid injury by being healthier. A fit person is always more resilient when an injury occurs; keeping the injury minimal is a key element to reduce expenses. Medical benefits are 50% to 60% of total claims costs. Look for an insurance carrier that uses a comprehensive Managed Care Program consisting of:

  • Preferred provider networks
  • Medical bill review systems
  • Case management
  • Peer/usage management

You likely have heard these terms, but what do they mean to you?

Statistics show that employers who direct their injured workers to a select group of quality physicians can lower their workers’ compensation costs significantly. Managed Care savings often produce results that are 15% or more below usual reasonable and customary cost levels. Networks of preferred physicians and hospitals that work with your insurance carrier assure work-related claims are handled at discounted rates. Such networks include radiology centers, physical therapy centers, urgent care clinics, and some non-medical specialists such as chiropractors. These preferred providers are familiar with work-related injuries and are subject to ongoing quality assurance reviews. Frequently, these programs also provide injured workers with a prescription card, which enables them to obtain prescriptions with no out-of-pocket cost. It has been found this approach often cuts prescription costs by 20% or more. Your workers’ comp carrier also should be able to tell you about their medical bill review program; their case management for severe or catastrophic injuries; their disability management team; and their back-to-work plan for workers. A formal back-to-work program is one of the most effective ways to reduce workers’ compensation claim costs.

SUMMARY: Your best protection starts with an agent you like who can advise in the selection of an insurance carrier. But like all of your business decisions, YOU need to stay involved. Ask questions, do your research, and check your local and state associations for solutions they may have developed. It’s not fun, but it has to be done.

Ron Schwarz is president of KF&B, Inc., an insurance wholesaler based in Glendale, Calif. He can be reached at [email protected]

Related Topics: insurance policies, workers’ comp

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