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Chapter Outline. 16.1Overview Of Workers’ Compensation Laws 16.2.Workers’ Compensation Benefits Medical Benefits Disability Benefits Total Disability Benefits Permanent Partial Disability Benefits Survivor Benefits 16.3Why Have Workers’ Compensation - PowerPoint PPT Presentation
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Chapter OutlineChapter Outline16.1 Overview Of Workers’ Compensation Laws
16.2. Workers’ Compensation BenefitsMedical BenefitsDisability Benefits
Total Disability BenefitsPermanent Partial Disability Benefits
Survivor Benefits
16.3 Why Have Workers’ CompensationWho Pays for Injury Costs?Benefits and Costs of Different Arrangements
No Mandatory Benefits and No Tort LiabilityNo Mandatory Benefits with Tort LiabilityWorkers’ Compensation: Mandatory Benefits without Tort
LiabilityMandatory Benefits with Tort Liability
Chapter OutlineChapter Outline
16.4 Workers’ Compensation Insurance and Self-insuranceDescription of Insurance CoverageInsurance Pricing, Residual Markets, and State Funds
PricingResidual Markets and State Funds
Self-insurance and Large Deductible PoliciesSecond Injury Funds
16.5 Problems and Reforms in Workers’ Compensation16.6 Government Safety Regulation and Other Sources of
LiabilityThe Occupational Safety and Health ActAmericans with Disabilities ActOther Sources of Liability
16.7 Summary
Overview of Workers’ Overview of Workers’ Compensation LawsCompensation Laws
Most important features:
– Employers pay specified benefits: for ________losses (no pain & suffering) for work related __________________ _________ regard to fault or negligence When are _______ work related?
– Employees __________ employers under tort law (exclusive remedy)
Employee suits still exist against other parties (e.g., product liability suits)
Overview of Workers’ Overview of Workers’ Compensation LawsCompensation Laws
Other features
– Participation is __________ for most types of employment except in Texas
– Employer must either purchase ________ or ________ as a self-insurer
Overview of Workers’ Overview of Workers’ Compensation LawsCompensation Laws
Historical Development
– States began adopting in 1910s– All states had a law by 1948– Prior to workers’ compensation laws
Worker injuries handled by tort law– Employer defenses
– Employer liability laws in 1880s• prohibited use of certain defenses
Workers’ Compensation Workers’ Compensation BenefitsBenefits
Three main types– _____________– _________ Income (Disability)– __________(Survivor)
WC Medical BenefitsWC Medical Benefits
Important features
– No __________ or coinsurance
– Moral hazard is controlled in part by
_________ choice of physicians
_________ for physicians
_________ care (e.g., employer or insurer approves treatment
WC Disability BenefitsWC Disability Benefits
– Total Disability
– Benefit = max(2/3 of wage, state’s average wage)
____________ total disability
– benefits end when return to work
_____________ total disability
– benefits end when reach retirement age– some states have caps– lump sum settlements
WC Disability BenefitsWC Disability Benefits
– ___________ Partial Disability
Benefits based on
– Benefit schedules
• e.g., $50,000 for loss of a thumb
– Estimated reduction in earnings capacity
• difficult to measure• disputes are common
WC Survivor BenefitsWC Survivor Benefits
– Burial costs
– Benefits to surviving spouse and dependent children
similar to total disability
Why Have Workers’ Compensation?Why Have Workers’ Compensation?(SKIP 11 to 14)(SKIP 11 to 14)
Why have mandatory benefits and exclusive remedy?
– Alternative systems exist (e.g., tort liability as in pre-WC law period)
Economic rationale rests on
– Safety issues
– Compensation issues
– Transaction costs (legal & administrative costs)
Why Have Workers’ Why Have Workers’ Compensation?Compensation?
First, who pays for injury costs?
– In the long run, employees pay
If benefits increase
==> the total cost of hiring an employee increases
– ==> lower compensation on other dimensions
– ==> reduce employment
– ==> raise product prices
Why Have Workers’ Why Have Workers’ Compensation?Compensation?
– Thus, employees should want a system that
(1) provides proper safety incentives– employers– employees
(2) provides the amount of compensation (insurance coverage) that employees are willing to pay for
(3) keeps administrative/dispute resolution costs low
– Consider alternative systems
Why Have Workers’ Compensation?Why Have Workers’ Compensation?
Alternative Methods of Dealing with Workplace Injuries
Mandatory Tort Safety Adm/DisputeBenefits Liability Incentives Compensation Resolution Costs
No No Inadequate if employees Inadequate Low
underestimate risk No Yes Adequate Excessive if e’er negligent
High otherwise inadequate
Yes No Adequate w/ labor mkt incentives and safety regulation About right
Moderate
Yes Yes Adequate or possibly Excessive if excessive e’er negligent
Highest
WC Insurance Coverage WC Insurance Coverage Most states require purchase of a policy similar to
that developed by NCCI
– NCCI National Council on Compensation Insurance provide analysis for the insurance industry
– Policy consists of two parts
_________ compensation coverage– pays WC benefits required by the state
___________ liability coverage– coverage for tort liability suits for injuries not covered by WC
WC Insurance PricingWC Insurance Pricing Jobs are categorized into about 500 classes
__________ loss costs per $100 of payroll are forecasted for each class (usually by NCCI)
__________ = prospective loss cost plus a loading that incorporates expenses, investment income, profit
_____ rates often are subject to prior approval
All states mandate _________ rating
Some states allow schedule rating and dividends
WC Residual MarketsWC Residual Markets
– Without price regulation, insurers would be expected to offer coverage to almost all employers
– Price regulation might hold prices too low to cover costs
Insurers will not voluntarily offer coverage
But insurance is mandatory
– Therefore, residual markets exist to provide coverage
WC Residual MarketsWC Residual Markets
– Types of Residual Market Mechanisms
Some states have __________ state funds ==> no need for residual market
Some states use a ________ state fund as a residual market
– State fund also competes with private insurers
Remaining states ____________ employers who cannot obtain coverage in private market to insurers operating in the state
– Insurers in turn form a pooling arrangement using a number of servicing carriers
WC Self InsuranceWC Self Insurance– Requirements for self insurance generally allow only
_______________ to self insure
Most self insurers purchase excess coverage
– Smaller employers can form _______
– __________ often use TPA (third party administrators)
– Use of large deductible policies has increased
insurer pays all claims seeks reimbursement from employer
Second Injury FundsSecond Injury Funds Insurers and self insurers can be reimbursed for
benefits paid to workers who had a __________
Why?
– Second injury is more ________– Encourage __________ of injured workers
Problems
– reduces __________ to identify fraudulent (questionable) claims
Problems in WC during 1980s and 1990sProblems in WC during 1980s and 1990s
Claim costs increased due to
Increased ___________ costs
Growth in benefits
Compensation for injuries not previously ___________– repetitive motion– stress
Increased dispute resolution costs for soft tissue injuries
Increased fraud
Problems in WC during 1980s Problems in WC during 1980s and 1990sand 1990s
WC insurance rates did not keep up with costs
Residual market premiums as percent of total WC premiums
1213 13
12
10
8
66
10
16
1920
22
24
26
2928
24
17
10
0
5
10
15
20
25
30
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
Percent
Problems in WC during 1980s Problems in WC during 1980s and 1990sand 1990s
Residual market premiums
as a percent of total WC premiums by state
RIME
LAMA
NMMS
ARKYAL
TNSCVT
KSMO
FLVA
GASD
NCNB
IAINAK
DCDECTILMI
HANJ
ORAZID
NH
0 10 20 30 40 50 60 70 80 90 100
State
Percent
Reforms in WC in 1980s and Reforms in WC in 1980s and 1990s1990s
– Attempts to reduce claim cost growth
adoption of medical fee schedules adoption of managed care programs to encourage injured workers to return to work restrictions on compensation for stress -related claims increased detection of and penalties for fraud
– Changes in insurance prices
allowed rate increases reduced discounts to large employers in residual market increased use of experience rating
Safety Regulation and OSHASafety Regulation and OSHA
OSHA
– Occupational Safety and Health Act (1971)
– Issues
Is it effective in improving safety? Is it cost-effective?
American With Disabilities Act American With Disabilities Act (ADA)(ADA)
Enacted in 1990
Main features
– _________to discriminate against qualified employees with disabilities
– Make _________ accommodations for those with disabilities
Enforced by tort liability claims
Other Sources of Liability to Other Sources of Liability to EmployeesEmployees
Examples of sources of liability
– wrongful _____________– ____________harassment– _____________discrimination
Insurance coverage
– Employment practices liability (EPL) coverage