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Every good business owner cares about their employees. However, that doesn’t mean every employer would or could pay the expenses out of pocket should one of their employees sustain an injury while on the job. Fortunately, workers’ comp insurance exists for this exact reason. With the right plan, your insurance will cover the costs of medical treatment for the injured worker and offer them paid time off policies while they recover. If you’re starting a business and want to understand workers’ comp insurance better or if you have insurance but want to switch providers, it’s important to fully understand this type of insurance coverage and what options you have.
What To Know About State Funded Workers’ Compensation
An insurance state fund is a government-funded organization that acts as a safety net for all employers who need coverage to provide compensation to their employees when accidents occur. The fund prevents companies from having to go out of business when an accident results in costly medical bills or prevents employees from continuing to work. Not only does workers’ comp insurance protect employers, it provides an avenue for injured workers to access the care they need regardless of who caused the accident.
Many states in the U.S. have workers’ compensation state insurance funds through which they provide workers’ comp insurance to employers and employees. Depending on which state you live in, you may have the option to use the state fund, or to choose a private insurance provider. Without sophisticated workers’ comp protection, you may need to hire an injury attorney to help business accidents. For example, if your business operates in California, Colorado, or New York, you have this choice. These states have what are called competitive state insurance funds, meaning the state fund competes with private insurers. On the other hand, states like Ohio, Washington, Wyoming, and North Dakota have monopolistic state insurance funds, and employers don’t have the option of purchasing policies from private insurance companies. Lastly, some states don’t offer a state fund at all, and employers must purchase private workers’ comp insurance or become a self-insurer.
Monopolistic State Insurance Funds
In Ohio, Washington, Wyoming, and North Dakota, where private insurers are banned from selling workers’ compensation insurance, employers must buy insurance from the monopolistic state insurance fund. This means they have to accept the prices and the terms that the state fund offer. The state bureau writes the rules and regulations of monopolistic state insurance funds without input from the National Council on Compensation Insurance (NCCI).
Monopolistic state insurance funds do not provide workers’ compensation for out-of-state employees hired by the insured employer. If you employ individuals who live and work in different states, you may have to buy workers’ compensation insurance from a private insurer in the other state to cover such a worker. Another disadvantage of monopolistic state funded workers’ comp is that it does not cover the liability of the employers. So you won’t be able to get coverage for the legal charges or liability that you may incur because of the injury of the worker. Your alternative would be to contact a private insurer and purchase stop-gap coverage under general liability.
Competitive State Insurance Funds
Competitive state insurance funds address some of the disadvantages of monopolistic state insurance funds, partially because they have to compete with private insurers. If you live in a state with a competitive fund, you have the option to explore providers and compare prices, policy details, and customer service options. Also, in states with comprehensive insurance funds, employers don’t have to look for another insurer to cover out-of-state employees or liability.
Self-Insured Workers’ Compensation
If you aren’t happy with your state’s fund or can’t fight the right policy through a private insurance company, you do have the option of becoming a self-insurer provided you meet certain eligibility criteria. In a self-insured workers’ compensation plan, you assume all the financial risks of providing workers’ compensation benefits to your employees. You will have to pay the costs associated with every claim as they incur.
You can design your own claims programs and enjoy better control over them. For example, you can decide how much safety to provide and how to control your losses. Depending on how you structure your policy, you may save money since you don’t have to pay fixed premiums to a private insurer or state insurance fund. Nevertheless, you will have to meet specific requirements and provide the necessary documentation to prove your self-insured status.
Evaluate Your Workers’ Comp Exposure Before Making Your Decision
As a business owner, you get to decide how you want to fund your workers’ compensation. Taking the time to evaluate ensures you are familiar with the necessary types of insurance. Before deciding how to insure your business, you should analyze your possible exposures to claims, keeping in mind the number of employees and the risks involved in their jobs. Also, be sure to research the specific requirements for insurance in your state thoroughly.
