Business owners are continuously looking for ways to reduce their insurance costs. Unfortunately, paying for work comp claims out of pocket (and often under the table) isn't only costly, risky, and illegal, but it could backfire in unexpected ways.
How your MOD impacts your costs
Worker's Compensation is a class-rated insurance program. Within each state, an insurance company applies an average rate to all employees who fall into a given class. However, this rate does not recognize any individual characteristics of any particular employer.
To differentiate high performers from low performers, a MOD score is used to measure whether your company’s losses are better or worse than expected for your size and industry. If your losses are better than expected, then your company will pay less for Worker's Compensation insurance.
Paying for claims out-of-pocket to keep your MOD low
In an effort to reduce Worker's Compensation premium, some employers look to pay small claims out of pocket instead of reporting them to the insurance carrier (instead of focusing on safety and a return to work program). Although this sounds like a harmless practice and often seems beneficial to the employer, in most states, this practice is illegal and may be subject to penalties.
Risks with paying out of pocket
The ability of an employer to self-pay for small medical claims is illegal in some states, acceptable in other states pending certain conditions are met, and subject to fines or penalties in other states. Make sure you know your state's rules.
An employer might mistakenly believe that by paying for the employee’s medical bills and then asking them to sign a waiver, they have shielded themselves from a Worker's Compensation claim. This couldn’t be further from the truth. An employee can’t waive his or her statutory right to Worker’s Compensation coverage and benefits. This means that even a signed agreement or “waiver” to waive the right to Worker’s Compensation benefits would be unenforceable and would have zero effect on an employee’s claim.
Most insurance policies require employers to report work-related injuries. It is the right and responsibility of the insurance company to investigate the claim as well as pay the medical bills and other Worker’s Compensation benefits owed. An employer that does not timely report injuries may be liable for underpayment of Worker’s Compensation premiums to the insurer, an improper experience rating, penalties for failure to timely report an injury or pay benefits, and even face cancellation of the insurance policy.
Injuries often seem minor at the onset. Unfortunately, injuries that appear minor in the beginning could spiral into serious claims requiring hospitalization, time off work, and significant care and treatment. For example, a worker's cut finger could become infected. This infection could worsen, causing your employee to land in the hospital for additional treatment. This treatment is not going to be cheap. The truth is, without a working crystal ball, you can’t accurately predict 100% of the time which injury is truly “minor.” And don’t forget, even if you have a working crystal ball, not reporting the injury to your insurance company might still be illegal depending on what state you operate in.
What to do if an injury occurs
1. Have the injured employee complete a first report of injury, have your supervisor complete a report, and don’t forget about any potential witnesses. This will help you with the claims process and could also shed light on opportunities to implement additional safety features in your workplace.
2. Report the injury to your insurance company. Timely reporting allows the insurance company to properly investigate the claim and it ensures that the injured employee is able to get the proper treatment and benefits quickly without delay.
3. Maintain contact with the injured worker. Communication is key. Workers who know they are thought about, missed, and still part of the team are generally more eager to return to work and do return to work significantly quicker than their counterparts.
4. Establish a return-to-work program. If a return to work program exists, more employees will return to their jobs earlier in their recovery period. This means reduced claim costs, reduced litigation expenses, and usually, happier employees. In fact, studies show that when an employee returns to light duty work during a healing period, that employee is more likely to have a better outcome and a higher likelihood of getting back to his or her 100% pre-injury way of life. That’s a win-win (no paying claims under the table required).