About Workers' Comp

Purpose of Workers' Comp
Benefits of Workers' Comp
Employers Have Choices

The Purpose of Workers' Comp

Workers' compensation was established in the early part of the 20th century -- a product of the Industrial Revolution. Before workers' comp, those who were injured on the job had little recourse but to hire a lawyer, file a lawsuit and prove in court that their employers' negligence caused their injuries.

At its core, workers' compensation is a compromise: Employers guarantee that workers injured on the job receive medical treatment and replacement of lost wages irrespective of negligence, while employees relinquish their right to sue under most circumstances.

You can find more information about workers' compensation here.

Benefits Payable Under Workers' Comp

Workers' comp benefits are payable when an injury arises "out of and in the course of employment." Benefit levels and the terms under which they are paid are prescribed by law and apply to all employers and employees regardless of how employers insure against workplace injuries. In California, workers' comp benefits include:

• Medical treatment. Medical costs are paid with no deductibles or co-payments.
• Temporary disability. Workers receive two-thirds of their average weekly wage, up to a maximum set by the state legislature, while recovering from their injuries.
• Permanent total disability. Payments are set at a statutory maximum.
• Permanent partial disability. Workers with permanent disabilities receive additional payments, intended to compensate them for the loss of earning power as a result of their injury.

Employers Have Choices

In California, employers can self-insure, choose approximately two hundred competing private insurance companies, or buy insurance from the State Compensation Insurance Fund.

In California, the Insurance Commissioner recommends an "advisory pure premium rate" for workers' compensation insurance for each of roughly 500 job classifications. These rates estimate total "loss" costs, which includes medical and benefit costs, and "loss adjustment expenses," which include the costs for administering claims, for each classification. Insurers are not required to use the commissioner's advisory rate, but their filed rates may be rejected by the commissioner if he deems them to be discriminatory, if they threaten an insurers' solvency or if they tend to create a monopoly.

Rates are recommended by the commissioner's statistical agent, the Workers' Compensation Insurance Rating Bureau, and set by the commissioner typically twice a year. Insurance companies may file new rates at any time, but rates must be filed for 30 days with the commissioner before they can be used. The Q&A found here provides additional detail about how workers' compensation rates are set.

California's system, unfortunately, was plagued for years by problems that had made it one of the most expensive and inefficient in the nation. Read more information about how California's system broke down.