Workers' Comp Reserves || The Exhaustive Guide
Workers’ Comp Reserves is the actual money that has been laid aside to cover all the expenses of a Workers’ Compensation Claim.
Table of Contents
1. What is Workers’ Compensation?
2. What is a Workers’ Compensation Claim?
3. Workers’ Compensation Insurance
4. Workers’ Compensation Premium
5. What are Workers’ Compensation Reserves?
6. Workers’ Compensation Claims Adjuster
7. How are Workers’ Compensation reserves calculated?
- Statistical Reserve
- Guesstimation
8. Reserve Worksheet
- Expense Reserves
- Medical Reserves
- Indemnity Reserves
9. Impairment and Impairment Rating
- Impairment
- What is Impairment Rating?
- Rating of the severity of the injury
10. FMLA
- FMLA vs Workers’ Compensation
- Does Workers’ Compensation count against FMLA?
- How much will I get for my Workers’ Compensation settlement?
What is Workers’ Compensation?
As the name itself suggests, there is compensation for workers. But depending on the context, both the terms compensation and workers can mean a lot of things and it is better to understand them in the context of employment.
So the term workers here means employees employed at a workplace of a commercial business, a business that could be privately owned or governed. Compensation here means the replacement wages that the said employee will receive.
Replacement for what?
If an employee gets injured, sick or sustains an affliction that keeps him from working anymore, at his workplace, or during the period when he is on duty then that employee will still get his wages as compensation for his misfortunes while working.
What is a Workers’ Compensation Claim?
Let’s say that you are an employee on payroll at a factory and one day due to an accident in the factory, you severely injure yourself and you are unable to work anymore. In this case, you as an employee can file for a Workers’ Compensation Claim.
If this claim is approved then you will get your salary even when you are not coming to work, because you are injured. Depending on the type of injury, the severity of the injury, and the type of Workers’ Compensation Insurance, you might also be financially covered for your medical expenses, partially or completely.
So to put it simply, if an employee gets injured or sick at work and he is unable to work anymore then he can still get his wages while not working. To avail of these replacement wages, the employee has to file a Workers’ Compensation Claim to the insurers.
Workers’ Compensation Insurance
Workers’ Compensation Insurance is the insurance that needs to be purchased for your workers when you own or run a business where you have employees on a payroll and there is a risk of injury that can keep your workers from working anymore.
Although it is not strictly mandatory but depending on the state in which you run your business and the nature of work that is required to be done by your employees, you may be legally required to purchase a Workers’ Compensation Insurance.
Workers’ Compensation Premium
The capital amount that is required to purchase a Workers’ Compensation Insurance is called Workers’ Compensation Premium. Again, there are many factors that determine your Workers’ Compensation Premium like the nature of work, risk of injury, safety of the workplace environment, number of employees on your payroll, type of employees on your payroll and, but not limited to, the state in which your business is being operated.
Workers’ Compensation Premiums are usually moderately to extremely expensive and If you, as an employer, are not careful then you can end up paying a large amount of money for this premium.
What are Workers’ Comp Reserves?
If it was not obvious from the term itself, Workers’ Comp Reserves is the actual money that has been laid aside to cover all the expenses of a Workers’ Compensation Claim. In other words, we calculate Workers’ Compensation Reserves for reserving Workers’ Compensation Claims money. It is a type of claims reserve.
What is a claims reserve?
It is the money set aside by any insurance company to pay for any policy claims made by their insurance holders
It is important to note down the difference between Workers’ Compensation Premium and Workers’ Compensation Reserve and tell them apart. Workers’ Compensation Premium is the money required to buy a Workers’ Compensation Insurance which provides for the Workers’ Compensation Reserves and these reserves are used to pay the Workers’ Compensation Claim.
Workers’ Compensation Reserve roughly includes money spent on medical expenses of the claimant, the money that will be spent on the future medical expenses of the claimant, and the legal expenses like attorneys and court costs.
Workers’ Compensation Claims Adjuster
This is the person that determines if and how much money a claimant will receive as compensation for his misfortunes. He involves the insurers, the employers and the claimants and tries to align their best interests.
How are Workers’ Compensation Reserves calculated?
It is the duty of the Workers’ Compensation Claims adjuster to determine the Workers’ Compensation Reserve amount and as accurately as possible. But more often than not, it is quite a challenging task.
And this task of zeroing down on a precise figure for the Workers’ Compensation Reserve amount is so hard and tedious because it has to be determined for a constantly evolving and ever-changing process- Workers’ Compensation Claim.
From the instant when a claim is filed and till the time when it is finally settled, there is always something new that unfolds. Much of the information that is needed to calculate the value of Workers’ Compensation Reserve is not available at the time when it is calculated.
And the fact that the reserve amount has to be calculated at a time close to when the claim was filed makes it even more of a challenge. The method used to decide this figure is also audited frequently over time because there are always new developments in the claim and the set amount initially has to be sometimes revised.
How are reserves calculated?
The claim adjusters generally have 2 ways to come up with a number for the Workers’ Compensation Reserve amount. One of them is a well-structured data-based approach and the other one is based on making an educated guess. KlearAnalytics is a predictive analytics solution built with native AI to help claims adjusters calculating workers' comp reserves with precision. Workers compensation reserves are calculated by two ways:
Statistical Reserve
This one is the well-structured data-based approach to come up with a number for Workers’ Compensation Reserve amount. Every claim will be set with an initial value and that value is called a statistical reserve. The average cost of all previous claims will amount to the value of the statistical reserve.
Guesstimation
This approach is purely based on past knowledge and the ability to make a good educated guess. Here, the value of Workers’ Compensation Reserve is determined by taking into consideration the claims that have been filed in the past and are of a similar class.
Workers' comp reserves Worksheet
All good claims examiners make use of a reserve worksheet to determine a precise value of the Workers’ Compensation Reserve amount. It is one of the tools to calculate the Workers’ Compensation Reserves. This reserve worksheet also serves as a record in accounting for Workers’ Compensation Reserves.
The claims examiners use this worksheet to break down the total expense into categories and each category is broken down in sub-parts in order to pin down the accurate expenses and then eventually get their aggregate.
The 3 categories of reserves are:
● Expense reserves
● Medical reserves
● Indemnity reserves
Expense Reserves
These are the general and mandatory expenses. The expense reserves can include money to spend on expenses like money spent on attorneys, courts, experts, peer reviews, medical reports, and examinations.
Medical Reserves
All the expenses that can be categorized as medical expenses are put here in the reserve worksheet. This can be therapy, rehabilitation, diagnosis, hospital bills, hired physician, specialist, doctor, or simply transportation cost to or from medical centers.
Indemnity Reserves
Indemnity is just a fancy term for compensation. The money that is paid as compensation to someone for his liabilities is called indemnity. The liabilities include generally disabilities- temporary, permanent, total or partial or benefits- death or dependant.
Once the total of all the expenses in all these 3 categories is aggregated, the initial amount for Workers’ Compensation Reserve is determined.
Impairment and Impairment Rating
Since we are already dealing with a lot of medical terms here, it is a good idea that we discuss these 2 terms. They are very important in the context of Workers’ Compensation.
Impairment
Any condition in the body that keeps a person from being fully able to utilize all their bodily functions is called impairment. The conditions could be due to an injury or spontaneous. The term impairment is often used interchangeably with the term disability. But in the context of Workers’ Compensation, both are quite different.
Impairment is a condition. Disability is a state. Impairment can be permanent or temporary. Disability can be partial or total. The difference is very subtle.
What is Impairment Rating from Workers’ Compensation?
As we know, money is a quantifiable entity. We can easily quantify money. But an injury is something abstract that cannot be put into numbers. Impairment Rating is used to do just that.
Workers’ Compensation is something that pays according to the damages caused by an injury. Every injury is given an impairment rating on a scale of 0 to 100. 100 can mean either total disability or permanent impairment. 0 means the victim has made or will make a full recovery.
Impairment ratings also help to determine how much money needs to be paid to the claimant, for how long the claimant will receive Workers’ Compensation benefits and if and when he would return to work.
Rating of the severity of the injury
Also known as Workers’ Compensation Rating, this is usually determined at the settlement of the claim. This rating is important because it also plays a role in determining the money that will be paid as Workers’ Compensation.
Higher the rate, higher the Workers’ Compensation.
The rate can be as high as a hundred percent if the injury is severe but it can also be zero percent if the victim is completely healed. Check how KlearAnalytics help you in severity scoring.
Family Medical Leave Act (FMLA)
This act gives employees the right to take emergency leave from work for as long as 12 weeks per year. The reason for leave may or may not be work-related and under this act, it is the employers’ duty to ensure that the employee retains his job upon his return to work.
The reason for an emergency could be anything like childbirth, a wedding in the family, maybe extreme illness, or something of the sort that keeps a person from going to his job.
Family Medical Leave Act(FMLA) vs Workers’ Compensation
They both share a common ground when talking about not having to come to work. Although they share some striking similarities with each other, there are a couple of differences between the two that separate them like black and white.
As their names themselves suggest, FMLA is related to leave from job whereas Workers’ Compensation is more of a monetary thing.
An employee taking leave under FMLA will not be provided any wages during his absence but when it comes to Workers’ Compensation then it’s all about replacement wages. That is what Workers’ Compensation means. An employee will be paid while he is not coming to work because he is unable to come to work.
The second difference is quite an important difference and that is job security. FMLA guarantees job security to the employee. He is entitled to it, given that he is willing and able to come back to work.
But in the case of Workers’ Compensation, it is not the case. It only provides liability benefits. It is totally up to the employer to let the employee retain or give up his job.
Do you get paid when on Workers’ Compensation?
Yes. That is why it is called compensation.
Does Workers’ Compensation Count against FMLA?
Let’s get something clear here. Both the FMLA and the Workers’ Compensation are for the employees well being and benefits. This is very important and should be taken into account while answering this question.
It can be the case that an employee cannot come to work because of an injury that makes him eligible for both FMLA and Workers’ Compensation. But since he is eligible for Workers’ Compensation, his employer cannot make his leave period count under the 12 weeks that he gets under FMLA. So NO, Workers’ Compensation does not count under FMLA.
But in the end, the act that provides greater benefits to the employee is given priority in the case when both these acts are applicable.
How much will I get for my Workers’ Compensation settlement?
Under Workers’ Compensation settlement, an employee will be given that amount of money that is required to cover his expenses like attorney fee, unpaid medical bills, medical diagnosis and treatment, child support, permanent disability compensation, and so on.
Type of disability, duration of disability, expenses on medical treatment (done, ongoing, and in the future) are some of the points over which negotiation can be carried out.
All the money that he has lost because of the injury that happened to him while carrying out his employment duties will be compensated or reimbursed to him.