What is workers’ compensation?

Workers’ compensation insurance is a type of insurance that provides medical and wage benefits to employees who suffer from work-related injuries or illnesses. It is a mandatory coverage required by each state, and the benefits provided may differ from one state to another. Workers’ compensation insurance is considered a form of social insurance as it is based on a social agreement between management and labor. In exchange for purchasing this insurance, business owners are protected from lawsuits from their employees who are injured on the job. However, both parties have their own limitations. Businesses purchase workers’ compensation insurance, which is underwritten by insurance companies, and in some states, by publicly supported state funds.

Workers’ compensation insurance definition

The cost of workers’ compensation insurance is determined by grouping similar businesses in each state that have comparable workplace injury patterns and costs into “classes.” Rates are then set for each class based on the prior five years of loss costs for all businesses within that class, providing an equitable system where rates are charged commensurate with the actual loss experience of the class of business. Economic factors for each state are also taken into consideration to determine the rate for each class in a given state.

The system of “experience rating” allows for modification of the class rates based on the loss history of an individual business, giving business owners control over the cost of their workers’ compensation premium. Safe businesses are rewarded with lower premiums, while unsafe businesses are penalized with higher premiums.

With few exceptions, all states require businesses with employees who are not owners to purchase workers’ compensation coverage for those employees. Failure to provide coverage can result in severe and costly repercussions, including paying claims out of pocket, fines, possible imprisonment, and losing the right to conduct business in the state.

In the event of an injury or illness, the injured employee must seek medical attention immediately, and the doctor must provide medical reports to support any claims. The employee can then begin the claims filing process with Nationwide, including any state-mandated paperwork or forms. Once approved, the employee will receive compensation payments and can return to work when ready.