The Basics of Workers CompensationSeptember 27, 2018
In June 2015, Ruhl Insurance partnered with Denise Elliot, ESQ. of McNees, Wallace & Nurick LLC for a Workers Comp Seminar. In this seminar, Elliot discussed the basics of Workers Compensation Insurance in the State of Pennsylvania and answered audience questions. The seminar was recorded and turned into a 3-part video series. You can view the videos and review the main points of the seminar below:
What is Workers Compensation?
It is a statute. The legislature thought it was important enough to put into writing and make it a statute. At its core, it provides benefits to injured workers, more specifically people who are injured on the job. It attempts to achieve and balance the goals of both the employer and the employee.
The Goals of Workers Comp:
- Achieve a safe workforce
- Ensure employees get prompt compensation for their time away from work, their injuries, and their treatment
- Reduce costs for employers because damages are limited and predictable (no non-economic damages like pain and suffering)
Benefits of Workers Compensation
Workers compensation ensures employees get compensation within 21 days of the injury. If you are in a car accident with someone else, the legal process to obtain compensation for medical treatment and injuries is often a lengthy process. A Workers Compensation policy is built to ensure an employee who is injured on the job starts receiving benefits to help them cover lost wages and medical bills as soon as possible.
Workers Compensation is also a No-Fault Statute. This means that it doesn’t matter whose fault it is or whether there is a condition of the workplace – if it happened at work and they are an employee, they get benefits. It also covers both injuries and occupational disease. For example, an employee that has allergies works in an extremely dusty environment and subsequently develops asthma due to the working conditions is covered under Workers Compensation. It’s not just back problems or broken bones; it can also be a disease that comes out of the workplace.
Employers are protected from non-economic damages. This means there are no extra expenses or punitive damages, like “pain and suffering”. The employer is responsible for covering wages lost due to the injury, medical or death benefits, attorney’s fees, and specific medical benefits. Workers Comp Insurance covers specific medical benefits and lost wages, which means it is predictable. Employers know how much they will need to pay out for workers comp and, under normal circumstances, do not need to worry about potentially astronomical non-economic damages.
The Five Elements of the Right to Compensation
In order for an employee to get benefits, they must meet five elements.
1. There must be an injury;
An injury may be a physical or mental injury or an occupational disease. This includes both new injuries/diseases as well as aggravations of pre-existing conditions. For example, an employee who has a pre-existing back problem that suffers a twisting injury at work that aggravates their back problem is covered by Workers Compensation. Under the Workers Compensation Act, an employee is considered fully covered once they return to a pre-injury “baseline”.
Psychological injuries are rarer, but are also compensable under the Act. These include both mental/mental injuries and psychological overlay. Mental/Mental Injuries occur when a mental stressor results in a psychological disability. Essentially, there is a mental stressor and a mental manifestation injury. Pennsylvania does require a high amount of evidence from the employee to show an abnormal working condition. This means there is a very high burden of proof on the employee in a Mental/Mental Injuries claim.
Psychological Overlays are the more common of the two, though they are also rarer compared to other types of compensable injuries. A Psychological Overlay is when a physical stressor results in a psychological disability. For example, a construction worker whose leg was crushed by equipment while on the job develops PTSD from the accident and cannot work around certain types of equipment. Although their leg has fully healed, they have not returned to “baseline” as the Psychological Injury remains and prevents them from using or working around that equipment.
2. To an employee;
An employment relationship needs to exist in order for workers comp to apply. Employees are those paid by an employer to perform work. Illegal aliens are included – they are not excluded from workers comp benefits if they are an employee. Owners, executives, officers, etc. are included as they are considered their own employees. They are able to opt out if they so choose, but they are automatically included in the Act and need to affirmatively opt out through documentation. It is generally not recommended to opt out, but the option is available.
Statutorily-defined employees and statutory exemptions are also included. Statutorily-defined employees are mostly related to the construction industry. Statutory exemptions include casual employees, home workers, domestic service workers, agricultural workers, and conscientious objectors. Casual employees refer to employment that is occasional, irregular, incidental, comes about by chance, and has no fixed duration. Casual means no fixed duration, no fixed frequency.
For example, you and your neighbor both have farms. One day, your neighbor comes over to help you plow your farm and that’s it. You didn’t pay them and they are not your employee; it was a casual situation. However, if the neighbor came over once a week and you paid them, it doesn’t matter whether or not you call them an employee; if it’s a regular occurrence and they are helping you do something that you have to do as a regular part of your business, they will be considered one of your employees.
Defining Independent Contractors
A true independent contractor is not considered an employee. Technically, you are not liable for workers comp or for injuries they sustain while on your premises. You could be liable under other theories of liability, but not under workers comp.
You do want to make sure of two things:
1. If they are a true independent contractor, that they have workers comp coverage through someone else. Themselves, if they are self-employed, or through the employer you’re getting them from.
2. That they are a true independent contractor.
How do you know what makes a true independent contractor when it comes to workers comp?
Ultimately, in a purely legal test, the judge decides whether or not an independent contractor is a true independent contractor. In this situation, the intent of the parties involved is of little consequence and is often considered irrelevant. Written agreements are helpful, but are not the “end-all, be-all”.
A fact-based test can help identify an independent contractor:
- An agreement between the parties is helpful, especially if the independent contractor is required to have workers comp elsewhere and it includes indemnity language
- Level of direction and control
- If they control how and when they are on your premises and doing their job, they are an independent contractor. If there is a fixed frequency and you exert control over how they do their job and when they are supposed to be on your premises, that can make them considered an employee and not an independent contractor because you have control over them and have established an employee relationship.
- They should have a specialized skill for the job.
- It should not be something you do day-in, day-out. It should be something extra, something ancillary and special that you need to have done and that you may not be able to do yourself.
- Method of payment.
- Payment by the hour or by day is indicative of an employee relationship.
- Risk of profit and loss
- Payment by the hour indicates a risk and loss for the person paying if a job were to take longer for some reason. If paid by the job and time does not matter, then it leans more towards an independent contractor as they assume the risk and loss for the job if it takes longer than they thought or something came up.
- Not part of the employer’s usual business.
Are custom harvesters independent contractors?
Question from the Audience:
Custom harvesting is a big deal. You have the farmer who owns the farm and the operator that owns the chopper. Then, you bring in these other guys with a big tractor and forage cart. They are secondary and haul the crop in. How does that all fit together?
The guy with the tractor and 20-foot cart, is he an independent contractor of the guy running the chopper or is he an independent contractor of the dairy farmer who is having the silo filled?
If he rolls his tractor and is injured, he’s self-employed, so he doesn’t have a workers comp policy, but he has to be there when it’s time for chopping, so it’s not his decision when he has to be there and comes and hauls – how does workers comp apply and is he considered an independent contractor?
Answer for this Situation:
There are three separate individuals – the dairy farmer, the individual that has the equipment, and the guy that comes in with the tractor who also has some equipment and is actually doing the work. Under the facts as were described, the employer seems to be the middle-man, the individual that has the equipment, and the guy with the tractor is employed by them.
However, this does not get the farmer off the hook. If the individual with the equipment considers themselves an independent contractor and doesn’t provide workers compensation and is injured on the farmer’s property, they’re going to come after the farmer for compensation. Likely, the farmer has workers comp, but the policy doesn’t cover this individual because they were not listed as an employee on the farmer’s Workers Compensation Insurance policy.
The insurance company will likely help them defend the case by issuing a “Reservation of Rights” letter and they’re going to say something like, “If we’re wrong, and if this person was an employee of yours or you are liable to them in some way, once the court decides that, then all the damages are yours.”
There is a lot of risk in these situations, so the key is open communication with the people that are coming onto your farms to help you do the work. Written agreements and making sure that they have the coverage that they need. It’s also imperative to maintain open communication with your insurance agent about anyone who might be coming onto your farm to do work to ensure you have all the appropriate coverage you need.
So, in the above situation, the individual with the equipment is the vendor or independent contractor and the guy coming on with the tractor is their employee. You need an agreement with the middle-man – the individual who owns the equipment – that says they will come onto your property and do X, Y, and Z, they will bring their own people in to help you do it, and, for those people that they bring in, they are going to provide coverage for their employees. It is also strongly suggested that this employer shows you a copy of the policy. Because saying and having are two different things.
Employment Relationship and Borrowed Employees
Borrowed employees are essentially workers that are furnished by one person to another. They’re someone else’s employee, but you need them for a specific task, so you “borrow” them. This relates back to the previous questions about custom harvesters and whether they are considered independent contractors or not.
Here, too, it all depends on whether you are considered an employer and have established an employee relationship. Whether the worker becomes an employee of the borrower depends on the level of control the borrower has over the worker. Essentially, who controls how and when the work is done?
The most common example we see in case law is with equipment leases that come with an operator. In this case, is the operator your employee or the employee of the equipment company? Generally, it is the equipment company’s employee. However, you want to make sure that, if you are leasing equipment and it comes with an operator, the equipment company has workers comp insurance.
Agricultural Employees & Exemptions
When it comes to Agricultural Workers in relation to the Workers Comp Act, there are two important definitions to know – Agricultural and Agricultural Worker.
Agricultural refers to all of the things ordinarily done by a farmer and their servant incidental to carrying on farming.
Agricultural Worker refers to a person whose principal occupation is the cultivation of soil and harvesting of seasonal crops. This definition also includes the rearing, feeding, and obtaining natural products of livestock.
Although there is an exemption for ag workers in Pennsylvania, the exemption is not expansive. Family members, specifically spouses and children under the age of 18, are generally not considered to be employees and are excluded from the Act. Everyone else is probably going to be covered under the Workers Comp Act.
Agricultural workers are entitled to workers comp coverage if the employer is otherwise covered by the Act. They are included if the employer pays wages to one worker totaling $1,200 or more in one calendar year. If the employer provides work to one worker for 30 or more days in a calendar year, they are entitled to workers comp coverage.
The days do not have to be continuous. Also, the length of the day does not matter. If they are on your farm working for one hour in a day, that’s considered a day. These three conditions are not dependent on each other. In other words, only one of them needs to be present to include the ag workers under the Act. If one person on your farm, facility, or business meets one of these conditions, everybody has to be covered. So, it is important for farm owners to ensure they have farm workers compensation for their ag employees.
3. Which arises out of the employee’s employment;
There must be a connection between the injury and the employment. The injury has to happen to an employee as a result of something they did at work or something that happened at work in order to be compensable. However, the injury does not have to occur at work to be considered an employment-related injury.
For example, if an employee suffered a heart attack in their home an hour after getting home from work and the stressor for the heart attack was determined to be work-related, such as high stress, any disability stemming from the heart attack would be compensable. As a note, the Act is remedial in nature and the way it is interpreted favors the injured employee. The benefit of the doubt is often given to the injured employee as these situations play out, not the employer.
4. Which is sustained in the course and scope of employment;
The injury must be sustained while the employee is engaged in the furtherance of the employer’s interest or as a result of the employer’s premises, provided the employee was on the premises for business reasons. For example, a company has a sponsored social hour on the premises and they encourage all employees to attend because it builds morale, increases engagement, boosts productivity, etc. If somebody were to get injured during that social hour, it will be covered as it will be considered under the “course and scope of employment”. By attending that social hour, you are furthering the interest of the employer.
Although the Act is expansive and the benefit of the doubt is generally given to the injured employee, there are some exceptions.
If someone comes onto your property who “has it out” for one of your employees and that employee gets injured due to that personal animosity, it is considered an exception.
Violation of the Law
If the employee was injured because they were doing something illegal, it can be considered an exception. The violation of the law must have caused the injury in the workers comp claim. A common example is texting while driving and then getting into an accident. If you can prove that sending the text caused the injury, it would be an exception.
Intentionally Self-Inflicted Injuries
If an employee purposely harms themselves while at work, it is an exception.
The intoxication must have caused the injury and you have to be able to prove it in order for it to qualify as an exception.
There are plenty of scenarios common to workers compensation. Some of them are often compensable while others are not. Consider the following scenarios:
Injury Sustained While Commuting to Work?
This is generally not going to be compensable. Going and coming is usually an exception and not considered part of the “course and scope of employment”.
Injured While En Route to the Bathroom?
This scenario is usually considered compensable. It is part of the Personal Comfort Doctrine. Your employees are expected to be able to go to the bathroom while at work, so if they get injured while they are there, it is covered under the Act.
Injured While Participating in an Employer-Sponsored Wellness Program?
This scenario is a maybe and has the potential to go either way. Was there an employer interest being furthered by the program? For example, if helping your employees get healthier reduces your health insurance premiums, it could be considered as “furthering your interests”.
Injured While Goofing Off on an Employer’s Heavy Equipment?
This scenario is another maybe and depends on whether you have a clear rule against “goofing off”. Generally, this will be considered compensable. In order to have the rule, it needs to be written down, you need to tell people, and you need to routinely enforce it. Usually one of those conditions exist, but not all three. Unlike the Ag Workers exemptions, these conditions are dependent, meaning all three must exist and be documented in order for “goofing off” to be considered an exception.
Injuring While Driving Co-Workers Home from an Employer-Sponsored Social Event?
This is generally considered compensable and covered under the Act.
Injured While Performing Good Samaritan Duties?
For example, someone is stuck on the side of the road, you stop to help them out, their car gets dislodged from being stuck, and it runs over your foot. Whether this is considered compensable depends on why you were helping them, who you were helping, etc. If it is someone that is not related to your employer, then it is probably not going to be covered under the Act. But, if it is a co-worker and you are helping them get unstuck so they could get to work, it probably will be covered.
5. And which results in disability or death.
The next part of the Act asks if the injury or condition is work-related and, if so, what is the extent of the disability?
Under the Workers Comp Act, disability refers to the loss of earning capacity that is related to the work injury. It is specifically related to wage loss – you have to show that the wage loss is caused by the injury. There are two types of disability when it comes to workers compensation – partial and total.
Partial disability is when the employee is working, but is earning less than their pre-injury wage. Injured workers get partial disability benefits for 500 weeks, which is approximately 9.6 years.
Total disability is when the employee is unable to earn any wage as a result of their injury. This is potentially payable for life.
Wage loss that is not caused by an injury is not compensable!
For example, if an employee voluntarily retires and it is not a disability retirement, it is not compensable under the Act. If an employee is incarcerated, the wage loss is not considered compensable. If an employee is terminated for violating a work rule, like failing a drug test, fraud, insubordination, etc., it is not compensable. As a note, you want to use extreme caution when terminating for violations of an attendance policy.
There are two time limitations to be aware of under the Workers Comp Act – Notice and Action.
The employee must provide “notice” within 120 days of the injury or when they know of the injury and must specify the nature of the injury and that it is work-related. There are no specific formats or magic words required for a communication to be considered a “notice”. If the employer knew or should have known about the injury, notice is not required.
It’s important to remind your employees about the Workers Comp Act and of their obligation to notify. It’s also recommended to have disciplinary procedures in place for failure to timely notify. Of course, you don’t want employees to file a false claim, but you absolutely do not want employees to have a real claim that goes unreported.
Things that go unreported often result in more advanced injuries, more medical attention needed, and more benefits. Early notice ensures the employee gets the medical attention they need as soon as possible and helps reduce mounting medical bills and other financial responsibilities that may fall on the employer. Everybody benefits from early notice – both employees and employers.
The employee has three years from the date of injury to commence an action for benefits. There isn’t a hard and fast rule for this and benefits may be tolled in various ways.
Workers Compensation Benefits
Benefits – Wage Loss
Workers compensation for wage loss is paid during periods of disability. They are also referred to as indemnity benefits, TTD, or TDP. The employee’s compensation rate is based on the employee’s Average Weekly Wage (AWW) on the date of the injury. Generally, the employee receives ⅔ of their AWW. The maximum is $951 per week and the minimum is 90% of $528.32 or less.
Benefits – Medical
Employers must pay all reasonable and necessary medical bills for care related to the injury. This includes prescriptions, physical therapy, doctor visits, diagnostic testing, surgery, assistive devices, in-home care, home modifications, etc. These benefits are payable for life! Once the obligation to pay medical bills commences, an employer may not unilaterally stop paying. You have to file litigation in order to stop paying out these benefits once they start.
An employer can challenge reasonableness and necessity, like excessive treatment, experimental treatments, “new-fangled” medicine, etc., but they must file a Petition to do so. Payment may be denied based on causal connection/relatedness to injury if, and only if, medical documentation supports the denial.
Use of Panel Providers
According to 1996 amendments to the Workers Comp Act, an employer may control the employee’s care for 90 days after injury, if:
- A list containing at least 6 providers, also called the “panel list”, is prominently displayed
- The employee receives a copy of the list both at the time of hire and at the notification of injury
- The employee signs an acknowledgment of receipt
This can help the employee get care earlier, get back to work sooner, and help the employer control costs associated with medical benefits. If all of the above conditions are met and employee treats the injury with a non-panel provider in the first 90 days, the employer is not required to pay for the treatment.
There are no punitive damages or non-economic damages, but there are a lot of other economic benefits covered under the Act. These include:
This can include coverage for funeral expenses and expenses related to death. It also includes dependency to the family of the deceased, spouse and children. Children generally get survivor benefits until the age of 18 or as long as they are a full-time student.
This is usually done at 10%. So, any late payments will usually have 10% stacked on top of it.
This generally refers to whatever it costs the injured worker to fight the employer for payment. It includes fees like court costs, transcription costs, costs related to obtaining medical records, etc., but it generally does not include attorney fees.
Counsel Fees includes the fees employers have to pay to their own defense attorney, but also those of the employee’s attorney. This is usually provided at 20% of wage loss or quantum meruit. The Counsel Fees can also be tacked on top of the wage loss payments, which happens more rarely.
Penalties are payable if the Act is violated in some way. These usually range 10-50% of benefits.
In addition to Wage Loss and Medical, Specific Loss benefits can become quite hefty for an employer. Specific Loss refers to any disfigurement of the head, face, or neck or loss of an eye, arm, leg, finger, etc. The workers comp statute assigns a specific number of weeks depending on the body part. For example, the loss of an arm corresponds with 410 weeks of benefits in PA.
For a loss of limb, the statute provides a specific number of weeks. For scarring or disfigurement, it’s more arbitrary. The judges usually determine the length of benefits for scarring or disfigurement. Specific Loss is paid out in addition to other types of benefits, like Wage Loss or Medical. As a note, you can collect social security disability and workers comp at the same time, but the total combined benefit of the two cannot exceed 80% of the pre-injured wage.
What if you offer them work they can do?
Question from the Audience:
If you offer the injured employee other work that they can do, can they claim they don’t want to do that and still take the wage loss?
Answer for This Situation:
They can claim whatever they want, but as the employer, you do have a case for stopping those benefits. If an employer has accepted the injury, the employee was out for a certain amount of time, and the doctor has said they can work in some capacity, the employer can offer them a job performing duties within that capacity. The employer will need to notify the insurance company, first and foremost, as there will be some forms to fill out.
If that employee does come back to work, then you tell the insurance adjuster. They fill out the necessary forms and the employee’s benefits stop. If the employee decides not to come back to work for the employer after that, the employer likely has a good case to Petition to stop those benefits. In this case, there may be some more work that goes into stopping the benefits. However, it’s usually in the employer’s best interest to make that job offer if they can.
Your Employee Reports an Injury – Now What?
Your carrier can help you navigate the process when reporting to the state, but there are a few things you need to do as the employer:
1. Report the Injury
All compensable injuries must be reported to your carrier. Injuries resulting in more than one day of disability must be reported to L&I (Labor & Industries) within seven days of the occurrence. Deaths must be reported within 48 hours.
2. Give the Employee a List of Panel Providers
You can get this information from your carrier when you initially report the injury and then provide it to your employee.
3. Assist Carrier with the Investigation
There is only a short window of time to conduct the investigation. It’s only 21 days from the date of Notice to file the appropriate forms, so you want to assist your carrier with anything they need to appropriately evaluate the situation, especially if the claim is questionable.
Injuries Caused by Third Parties
If an injury is caused by the third party and is sustained in the course and scope of employment, the employee is eligible for workers comp. The employee can also file in tort against the third party. It is important to note that the employer cannot force the employee to file the suit, but you can let them know they have the ability to do that.
If the employee chooses to do this and wins their suit, they do not get double recovery (ie: benefits from you and the third party). If the employee wins their suit against the third party, the employee’s recovery in the third-party lawsuit will be reduced by the amount of the workers comp benefits paid on behalf of the employee, which is a workers comp lien, reduced by the pro rate share of the cost of recovery.
Health Insurance & Workers Compensation
Until the Affordable Care Act was passed, there were a lot of frivolous workers comp claims because employees didn’t have health insurance. So, when they got injured outside of work, they would try to relate the injury to work in order to get medical coverage. The theory is that when more and more people have health insurance, these frivolous claims will drop. It will not, however, affect true claims. Health insurance will not pay to cover medical bills for work injuries because that is covered under workers comp. Essentially, you cannot attempt to shift responsibility for payment from the employer to a health insurance provider for a work-related injury.
In a dispute over compensability, health insurance may pay initially, but will seek reimbursement if the injury is found to be compensable under workers comp. That being said, employees with health coverage are less likely to file a workers comp claim. So, it is important that your employees have health coverage in order to reduce potential false claims and also that they understand workers compensation, so they do notify you when they have a true claim.
Do You Need a Workers Comp Policy?
If you have employees, the answer is unequivocally yes. The liability of the employer to an employee is exclusively under the Workers Compensation Act. At one time, there was an elective nature to the Act, but it was rescinded in 1975. Failure to provide workers comp coverage is illegal. It is a crime punishable by fines and restitution. Depending on why you failed to provide workers comp, it can be a misdemeanor or a felony. Usually, intent has to be present for it to be considered a felony. Both result in hefty fines and some jail time.
Failure to Insure Will Cost You!
Failure to carry workers compensation will cost you. At the very least, you will have no insurance funded defense, no limitation on benefits, and no immunity from lawsuits. An employee could file a suit for either workers comp benefits or under negligence theory. If they file a suit and win under negligence theory, they could recover medical, wage loss, and non-economic damages, which is excluded under workers compensation. The Uninsured Employers Guaranty Fund will seek payment from the employer. It’s a lot less expensive to have coverage than it is not to, especially in the case of independent contractors or employees in a gray area.
Underinsurance/Misclassification of Employees
Independent Contractor vs Employee Litigation
The insurance company may defend a claim made by an Independent Contractor, but will do so under reservation of rights. If the claimant is found to be an employee, and the claimant was not covered under your policy, you will be on the hook to pay benefits.
Have an in-depth discussion with your insurance agent about everyone who does work for you and make sure independent contractors have workers comp coverage. If you don’t tell your agent about them, your policy can’t cover them. Insist on indemnification language. You’ll need to get a lawyer involved with this, but it will lay out the guidelines regarding workers comp and will protect your business in case of a misclassification with independent contractors.
This all may seem like a lot of work, but when it comes to workers comp, one ounce of prevention is worth a pound of cure!
1. During a workers comp audit call, the person was asking for workers comp certificates from several people who do custom work for me. It was the first time ever, is that normal?
Yes, that’s normal. They want to make sure that the people you have on your premises have coverage for themselves.
2. When a farmer has someone coming on the property to do custom work, they may be a sole proprietor and don’t have any employees, and therefore do not have a workers comp policy. Where does that come into play and how does that resolve?
In that case, you go back and ask for an affidavit or some type of documentation that they are a sole proprietor, so that you can demonstrate that they’re not subject to workers comp for themselves. Then again, you have to sit down with your auditor, you have to sit down with your adjuster, and talk about the work that this person is performing for you to make sure that there isn’t something in that fact pattern that somehow makes them one of your employees. Then, of course, you can have the contractual indemnification agreement if you really want to get aggressive with it.
3. Are the owners of an LLC employees of the LLC? And a Corporation also?
I think the answer to that question is yes, but I am not 100% of that. I think yes. For an LLC and a Corp, you would have the opt-out or exclusion clause.
4. My situation – I have my dairy farm, the barn, rented out to an individual, it’s an LLC, and other people are working there. Am I responsible to have workers comp? If they fall down or get injured?
You’re probably not responsible for workers comp. They would need to have their own workers comp if they’re an LLC. You would still have responsibilities to maintain and keep up the premises. If they were injured, they could still sue you in tort, but they have to prove negligence or some faulty act by you that caused the injury.
5. If that LLC doesn’t carry comp and one of their workers is injured on your property doing work for that LLC, what happens? Situation in Indiana – there was a farmer who hired a painting company to come on the property and one of their employees got electrocuted on a power line, fell from a ladder, and was injured. The painting company didn’t have comp and the property owner did not verify the comp certificate. In this case, they went back on the premises liability portion of the general liability of the property owner and collected on that. Is that a scenario that can happen in Pennsylvania as well?
Absolutely. You have to be careful about your Premises Liability and your General Liability as well to see what kind of exclusions are in there. In this case, the insurance company was making the argument that there were exclusions in there. So, you need to make sure you know what your coverages are.
When you sit down with your agent, you need to talk about the big picture of everything that happens on your premises, whether it’s your business, you rent out, anyone that’s on there – talk about that so you can the coverages you need to protect yourself.
6. In terms of filing a claim, does it affect my rate or can I be canceled?
The answer to that is yes and yes. They can’t flat-out cancel you; you have to be given fair warning.
Experience Modification Factor
If your policy generates a large enough premium, there’s a thing called an Experience Modification Factor. Typically 1 is level and it can go as high as 2, where essentially you’re paying double the premium, or it can be below 1. You have to have at least a $5,000 premium before they calculate a modification factor. There is also a merit rating, which is 5%. This is a general thing as you kind of just get it.
The Mod is based on severity and also frequency. It goes back and looks at 3 years of claims. It’s a big long formula based on what class you’re in, how much premium you’re paying, and how much in claims have been paid out. If you have an Experience Modification Factor of 1 and think, “oh, that’s good”, I would encourage you to think that’s not good. You could have a Mod factor of 0.75 or 0.68 or something like that. What you want to shoot for is the lowest possible Mod that your class of business can get to.
So, 1 is not necessarily good. It may mean that you’re not getting surcharged, but it also means that you’re not getting positive discounts either. You can ask your agent, “what’s the lowest my Mod could go?” And, that’s what you want to shoot for. When you’re above the lowest possible, you’re leaving money on the table. That’s where safety groups and doctor panels come in and help to affect all of that. So, if you have bad claim history, yes, your premium can go up because of that Mod factor.
Can my policy be canceled?
The other question is “can my policy be canceled?”
Yes, a company can come in and say your claim history is horrible and they want to get away from it. Basically, they don’t cancel you, but they do refuse to renew you when your policy comes up for renewal. But, they have to give you ample time to shop it. And, if a company is getting off your policy, that’s a pretty good indication that no one else is going to write you either. Then, you have to go to the State Workers Comp Fund and their rates are not necessarily friendly and their service isn’t necessarily always friendly.
7. The Panel of Providers, is that list provided by the agent or the company?
It’s provided by the insurance company.
8. Is it possible to make additions to that list?
Yes, you can have input on that.
9. How does the company go about requesting that?
You, as the employer, can tell the insurance company what you want your panel list to be. If you have an idea of the doctors you want to have on there, you get to create your panel list. Generally, for smaller employers, they don’t get that involved. So, they just ask the insurance company who they have. Basically, you need to sit down with the insurance company and say this is who we want and they’ll help you put the list together.
10. Say there’s some type of specialty doctor not included on the list. For an employee to then choose whoever they want, they would still be compensated?
Laws regarding workers compensation vary from state to state. To stay up to date on Pennsylvania’s workers comp laws and get specifics, you can visit the PA Workers Compensation Portal or call Ruhl Insurance at 717-665-2283 to talk to an experienced insurance specialist.
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