Related Articles
          Understanding Commercial Liability Insurance
          Catastrophe Planning for Businesses

Workers’ compensation, often referred to as workers’ comp, is a type of insurance coverage that provides employees injured on the job with medical treatment and prescribed wage replacement. All employers are mandated to provide their employees with workers’ compensation coverage. In exchange for this coverage, employees cannot sue the employer for the injuries.

Employers can self-insure (or provide their own bond or proof of financial responsibility), buy coverage from more than 200 private insurance companies or buy coverage from the State Compensation Insurance Fund, a state-run workers’ comp insurance provider to meet this mandate.

Benefits paid for injuries under workers’ comp include:

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

Plagued by skyrocketing medical costs, arbitrary medical decisions and escalating legal challenges to treatment, the workers’ comp system in California was in crisis in the late 1990s. By 2003, at the height of the crisis, employers were paying out $6.45 in insurance premium per $100 of payroll, and insurance companies were paying out $1.86 in claims costs for every $1.00 of premium collected. Unpredictable and uncontrollable costs forced 25 insurance carriers into insolvency. Self-insured entities like school districts and local governments could not keep up with their escalating workers’ compensation costs. The State Compensation Insurance Fund, the insurer of last resort, swelled and covered more than 60 percent of the workers’ compensation market because private carriers could not accurately predict what premiums to charge in order to cover their costs.

This crisis led to a series of landmark reforms in 2003 and 2004 designed to bring fairness and stability back into the system, and which focused on putting the injured worker back on the job.

The reforms have saved California employers billions of dollars and some companies have seen their workers comp costs decrease by as much as 70 percent. By 2008 employers paid $2.25 per $100 of payroll for workers’ comp insurance, down from $6.45 in 2003.

In spite of these cost savings, California remains one of the most expensive states for this type of coverage. California’s workers’ comp rate remains 166 percent higher than the national median, and insurers are seeing medical cost on the rise again, challenging the stability that was created by the 2003-04 reforms.

ADDITIONAL RESOURCES:
California Department of Insurance
State Compensation Insurance Fund
Workers Compensation Insurance Rating Bureau
California Workers Compensation Institute