How Workers’ Compensation Works

All California employers must provide workers’ compensation benefits to their employees under California Labor Code Section 3700. There are five basic types of workers’ compensation benefits – medical care, temporary disability benefits, permanent disability benefits, vocational rehabilitation services, and death benefits.

How Is Coverage Structured in a Workers’ Compensation Policy?

Workers’ compensation coverage is offered under Part One of a workers’ compensation insurance policy. In Part One, the insurance company agrees to promptly pay all benefits and compensation due to an injured worker. Employers Liability insurance can provide important coverage in addition to workers’ compensation insurance. Employers Liability is offered under Part Two of a workers’ compensation and Employers Liability Insurance policy. Employers Liability Part Two protects the employer against instances where an employee’s injury or disease is not considered work related.

How Is Workers’ Compensation Insurance Purchased?

Employers must purchase workers’ compensation insurance from either a licensed insurance company or through the State Compensation Insurance Fund (SCIF). SCIF is a state-operated entity that exists in order to transact workers’ compensation on a non-profit basis. SCIF competes with private workers’ compensation insurance companies for business and also operates as the insurer of last resort if private companies are not willing to offer workers’ compensation insurance.

What Happens to an Employer Who Does Not Purchase Workers’ Compensation Insurance?

Employers who fail to purchase workers’ compensation insurance are in violation of the California Labor Code. The Director of the Department of Industrial Relations has the authority to issue a stop order against any company who is discovered to be unlawfully uninsured for workers’ compensation. A stop order closes down business operations until workers’ compensation insurance is secured.

How Are Workers’ Compensation Premiums Calculated?

Classification
Workers’ compensation premium calculation is based upon how employees are classified according to their specific work duties and the rate assigned to each corresponding employee classification. Classifications are developed and assigned by the workers’ compensation Insurance Rating Bureau (WCIRB) in most cases.
Rating
Workers’ compensation insurers assign a specific rate to each occupational classification code. Currently, California workers’ compensation insurers operate under an “open” rating system. This means that individual companies set rates based on their ability to adequately cover losses and expenses in each classification (occupational business class). Open rating requires that all workers’ compensation insurers file their rates and all applicable supplementary rate information with the California Dept. of Insurance. Rates must be adequate to maintain the solvency of an insurance company. The Insurance Commissioner will not approve rates if they are inadequate to cover an insurer’s losses and expenses, unfairly discriminatory, or create a monopoly in the marketplace. The rate itself is expressed in dollars and cents and is multiplied by each $100 of payroll per classification.

Insurance Claims

The California Dept. of Industrial Relations, Division of Workers’ Compensation assists employers and employees with workers’ compensation claims. When disputes arise regarding a workers’ compensation claim, the Information and Assistance Unit attempts to resolve the dispute. If they are unable to resolve the dispute, then a formal application for adjudication can be filed with the Workers’ Compensation Appeals Board. The Workers’ Compensation Appeals Board has exclusive jurisdiction over dispute resolution.

Issues That Complicate the Workers’ Compensation System in California

Despite what appears to be a straightforward and well orchestrated system, there are many issues that complicate the efficient and cost-effective implementation of workers’ compensation in California, among those issues are:
• the cost to employers of insurance premiums;
• type and scope of coverage; determination of injury or illness;
• benefit amounts;
• cost of vocational rehabilitation; fraud on the part of doctors, workers and employers;
. timeliness of benefit payments; uncovered workers; attorneys’ fees.