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Who Pays for Workers’ Compensation Benefits in the US?

Under California law, every employer with one or more employees must carry workers’ compensation insurance coverage. This requirement excludes sole proprietors with no employees and companies that hire independent contractors. Workers’ compensation insurance covers lost wages and medical costs resulting from work-related injuries, illnesses, or death and is designed to protect employers from liability lawsuits resulting from workplace accidents.

In other words, once you file a workers’ comp claim, you cannot sue your employer for damages. Therefore, it is worth noting that workers’ compensation amounts to two-thirds of the average weekly wages of the employee prior to the injury, as reported by the National Council on Compensation Insurance (NCCI). However, the million-dollar question is who pays for workers’ compensation in California? Here are three entities that pay for workers’ compensation.

Private Insurance Companies

Unlike states such as Ohio and Washington, which forbid employers from buying workers’ compensation coverage from private insurance providers, the State of California allows it, provided the insurance carrier is duly licensed. This means that once the employer purchases the right worker’s compensation coverage for his/her employees, the employer essentially transfers risk to the insurance company. However, the employer pays for the insurance premiums and files for claims in case of injuries, as reported by the Division of Workers Compensation (DWC).

State Compensation Insurance Fund

The average workers’ compensation premium rate in the State of California is $1.83 per $100 of payroll, an amount way higher than the national average rate, as indicated in the 2017 National Academy of Social Insurance (NASI) report. In other words, California is one of the states with the most expensive workers compensation insurance coverage. For this reason, the State Compensation Insurance Fund is a non-profit insurer that was founded in 1914, particularly to provide affordable workers’ compensation insurance and promote a conducive working environment for the citizens of California. Equally important, this state-run program offers discounts of up to 11% to employers for premiums exceeding a certain threshold.

Self-Insurance Workers Compensation Plan

Self-insurance is the insurance plan in which an employer pays for the worker’s compensation claims out of pocket, with the help of a third-party administrator (TPA) who files for claims and follows up on the compensation process on behalf of the employee. Once the claim is accepted, the third-party administrator (TPA) receives the compensation funds from the employer and, in turn, wires them to the affected employee. However, only a number of states such as California permit self-insurance, and only employers with a proven financial ability are allowed to self-insure their employees. To give you an idea, more than 6,000 corporations and their subsidiaries offer self-insured worker’s compensation to their workers in the US, as reported by the Self-Insurance Institute of America (SIIA).

These are the insurance entities that pay workers’ compensation to cater to the costs related to a workplace injury, illness, or death. To learn more about worker’s compensation coverage and other types of insurance policies, call CF&P Insurance Brokers today at (925) 956-7700

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