We are often asked “Are workers compensation benefits related to the premium paid for a policy?” It’s really a natural question that we, as consumers, have been trained to ask about most purchases we make. And it’s easy for us to assume that the cost of an item we purchase is based on the quality of it’s construction; the quantity purchased or even access or availability of the product in the market place. But when it comes to workers compensation the direct relationship between the cost of a policy and benefits for an injury become blurred.
For a standard guaranteed cost policy you can say that, for most employers, premiums paid have nothing to do with the benefits available for an injury. Here’s what I mean by that. There is no direct relationship between the premium calculation of a policy, what an employer pays, and the benefits an injured employee may receive. That’s because workers comp benefits are established in statute and rules by each individual state.
As an example, a workers compensation policy is not like a life insurance policy. With a life insurance policy, if you need a higher death benefit all you have to do is qualify and pay a higher premium. But for a workers compensation policy the benefits for an injured worker are established by each individual state and an employer cannot buy more benefits!
Now for the confusing part. There really is a very complicated relationship between premium and benefits. Premium for a policy begins with individual rates established and assigned to each classification code used on a policy. Rates are statistically developed from claim data provided by insurance carriers and reported to rate making bureaus. Claim dollars paid out are then used to develop the rates by classification. So at the root of it, rates are based on claim dollars paid and claim dollars paid are directly related to mandated benefits for an injured employee.
A recent trend among states has been to implement tougher benefit schedules and medical review systems. Employers in those states are seeing improvements to base rates leading to lower overall cost for their workers compensation.
So while on an individual employers level the premium calculation and benefits available never really cross there is a very complicated relationship going on in the background. One that ultimately effects how much an employer pays.
Hope this helps you out! Thanks
