What is Workers’ Compensation Insurance and How Does it Work?
Back in the early 20th century, America was industrializing rapidly. Railroad workers and factory laborers who made food, steel, clothing, and other mass-produced goods worked long hours around dangerous, heavy machinery. When a workplace accident occurred, it often resulted in a lose-lose situation for both the employer and the employee. Injured laborers had to pay their own medical bills while temporarily or permanently disabled. In the event of a work related death, the families of those killed on the job were left without a breadwinner. This prompted workers and their families to initiate long, costly lawsuits against their employers. Sometimes the injured won and they were awarded large sums, which could bankrupt a small company. When an injured worker lost the lawsuit, they were left with looming attorney fees in addition to other expenses resulting from their injuries.
Something had to be done to protect both employers and employees.
As all states began enacting workers’ compensation laws, the dynamic of employee/employer relations in some states was changed. For instance, workers’ comp insurance programs are based on the concept of exclusive remedy. Injured employees are guaranteed payment for medical treatment and compensation for lost wages whether or not they are at fault. In exchange, the employer is granted immunity from lawsuits even in cases of negligence.
Workers’ compensation laws vary from state to state. Most states require employers to carry workers’ compensation insurance, but it is important to note that the laws vary from state to state in terms of compensation and benefits, including which injuries are covered. However, most states require payment of 100% of an injured worker’s medical expenses and include wage replacement for time off work after three to seven days. There is also compensation for lost future earnings in cases of partial or total disability.
Some workers’ comp programs pay for vocational rehabilitation, which can include physical therapy and job training. If a worker is killed on the job, the survivors receive payment for funeral expenses and wage replacement compensation. While workplace injuries can be traumatic for an employee and expensive for the business, workers’ compensation insurance provides blanket security for both the employee and employer when accidents happen.
It is important to note that not all carriers offer the same coverages and value added services.
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John D’Alusio, “The WC Exclusive Remedy,” WorkersCompensation.com, October 30, 2012, www.workerscompensation.com/compnewsnetwork/workers-comp-blogwire/15453-the-wc-exclusive-remedy.html.
“Types of Workers’ Compensation Benefits,” National Academy of Social Insurance, 2013, www.nasi.org/learn/workerscomp/types-of-WC-benefits.