Who Actually Pays for Workers' Compensation?
Workers’ compensation benefits are paid for, in some way or another, by the employers of the state. Worker's comp ystems vary from state to state, but employers pay for workers’ compensation typically in one of three ways: premiums to a state-run insurance program, payments to an insurance company, or directly to workers.
If you are receiving workers’ compensation benefits, the company from which you receive your workers’ compensation benefits may or may not be your employer. It may instead be your state government, the insurance company, your employer, or a third party administrator hired by your employer to be responsible for administering the employer’s workers’ compensation claims.
Assuming you have a workers’ compensation claim, the benefits you will be entitled to receive will be the same regardless of the route the money takes from the employer to you. However, it is important to understand the organizations involved in administering your claim.
In most states, employers may choose to obtain workers’ compensation insurance through a state-run program or insurance fund. The state’s department of labor, commerce, or industrial relations typically administers these programs. The majority of employers that choose the state systems are small employers or employers in an industry with few workplace injuries.
If your employer is part of a state-run insurance program, your workers’ compensation benefits will be paid out by the state department responsible for administering the program. In this way, the state department acts like an insurance company. Employers pay premiums, and when there is a claim, the insurance company checks to see what benefits are owed, and then pays the injured party. You, as the injured worker, are the injured party receiving the workers’ compensation benefits.
Most states allow employers to purchase workers’ compensation insurance from private insurance companies, and most employers in those states insure through private insurance companies. Insurance companies like Liberty Mutual, Chartis (formerly with AIG), and others are provide workers’ compensation insurance to companies of all sizes. However, not all states permit this; Washington, for example, is one of the few states that does not private workers' comp insurers.
If your employer has a workers’ compensation policy through a private insurance company, that company will be sending you your workers’ compensation benefits.
For an employer to "self-insure," in most states, the employer must be large enough to prove it has sufficient assets to cover the expected workers’ compensation liability. Many states also require self-insured companies to submit to considerable oversight by the state to ensure that proper procedures are being followed and workers are receiving the full amount of workers’ compensation benefits they are owed.
Most self-insured employers utilize a “third-party administrator,” a company that administers workers’ compensation claims for the self-insured employer. The third-party administrator deals with the paperwork, claims processing, and management of the claims. The employer sends money to the third-party administrator in the amount of benefits owed to the employer’s injured workers, and the third-party administrator then sends these funds to the injured workers.
If your employer is self-insured, you should consider retaining an attorney if you believe you are entitled to workers’ compensation benefits that you have not received. Self-insured employers have the greatest financial resources to fight the compensability of claims (whether they need to pay benefits) and your eligibility for benefits, because they have the greatest financial risk involved in their workers’ compensation claims.