WORKER'S COMPENSATION INSURANCE PROGRAMS

Question 1

SECT B: WORKER’S COMPENSATION INSURANCE PROGRAMS

EMPLOYER OPTIONS FOR WORKER’S COMPENSATION INSURANCE

Answer 1

1. Self-insurance – financial capacity must be demonstrated
2. Private insurers
3. Worker’s compensation state funds
   • Borne out of fear of
   i. Refusal of coverage by private insurers
   ii. High rates have negative effect on state economy
   iii. High rates will allow insurers to gain unfair profits
   • Exempt from federal taxes
   • Usually serve as insurer of last resort
   • Types of state funds
   i. Exclusive
   ii. Competitive
   iii. Other – SC has state fund for those working for state, cities and counties but not for private employers
4. Residual markets
   • 2 declinations from voluntary market
   • Subsidized by voluntary market
   • Residual market mechanisms:
   i. Proportionally (risks?) assigned to carriers based on WC market share
    Insurers collect premiums/settle losses as their own
   ii. Joint underwriting associations
    Profits/losses shared proportionately to market share
   iii. Carriers reinsure undesirable applicants placed in reinsurance pool
    Profits/losses shared proportionately to market share

Question 2

SECT B: WORKER’S COMPENSATION INSURANCE PROGRAMS

TYPES OF WC IN RESIDUAL MARKETS (3)

Answer 2

1. PROPORTIONALLY (RISKS?) ASSIGNED TO CARRIERS BASED ON WC MKT SHARE
   => INSURERS COLLECT PREMIUMS/SETTLE LOSSES AS THEIR OWN
2. JOINT UNDERWRITING ASSOCIATIONS
   => PROFITS/LOSSES SHARED PROPORTIONATELY TO MARKET SHARE
3. CARRIERS REINSURER UNDESIRABLE APPLICANTS PLACED IN REINS POOL
   => PROFITS/LOSSES SHARED PROPORTIONATELY TO MARKET SHARE

Question 3

SECT B: WORKER’S COMPENSATION INSURANCE PROGRAMS

EVALUATION OF WORKER’S COMPENSATION INSURANCE

Answer 3

• Both private insurers and state funds provide coverage efficiently
• Some private insurers offer same level of rehabilitation and other services as public insurer
• Financial operations of state funds
 Designed to be self-supporting
 Expense ratios lower because no agency commission or marketing costs
 Able to return dividend or safety refund to policyholders

Question 4

SECT B: WORKER’S COMPENSATION INSURANCE PROGRAMS

FEDERAL WORKER’S COMPENSATION INSURANCE PROGRAMS FOR SPECIFIC OCCUPATIONS

Answer 4

A. Federal Employees Compensation Act (FECA)
• Employees: nonmilitary federal employees
• Coverage: employment-related injuries & diseases
• Federal benefits reduced by benefits from other programs
• Exclusive remedy
• Non-adversarial system limits administrative & litigation costs
 No judicial review
 Limited employee ability to contest
• Lower costs than state WC systems

B. Longshore & Harbour Worker’s Compensation Act (LHWCA) 1927
• Employees: longshore, harbour & other maritime workers
• Coverage: injuries & diseases while on or near navigable waters
• Federal benefits reduced by state benefits
• Employers may purchase insurance or self-insure
• 1984 amendment to clarify extent of shoreside coverage

C. Black Lung Benefit Act
• Employees: miners totally disabled from Black Lung & eligible survivors
• Coverage: wage loss & medical benefits
• Federal benefits reduced by state benefits
• Sources of financing
i. Federal general revenue
ii. Black Lung Trust Fund financed by excise tax on mine operators
 Huge deficit that requires excise tax and/or federal appropriations to pay down