Permanent Disability at Private, Self-Insured Firms: A Study of Earnings Loss, Replacement, and Return to Work for Workers' Compensation Claimants

By Robert T. Reville; Suzanne Polich et al. | Go to book overview

CHAPTER 1
SELF-INSURANCE IN CALIFORNIA AND IMPLICATIONS FOR RETURN TO WORK
AND REPLACEMENT OF LOST EARNINGS

In this chapter, we describe the requirements for workers compensation self-insurance in California and compare the characteristics of self-insured firms and insured firms. We also discuss what these characteristics imply for return to work and for the long-term losses of workers with permanent disability claims at self-insured employers. We also discuss the impact of these characteristics on replacement of lost earnings.

Most employers in California purchase workers compensation insurance from private insurance carriers to cover the costs of indemnity payments, medical expenses, and vocational rehabilitation provided to workers injured on the job. The insurance company agrees to pay the claims to the injured workers and charges the employer a premium based on the firm s expected workers compensation losses.

Large firms with many employees are experience rated, meaning that their premiums are adjusted according to the number and size of claims made against them in previous years. Smaller firms are imperfectly experience rated or not experience rated at all, which means that their expected premiums are based on the loss experience of their respective industries.1

Employers that do not purchase workers compensation insurance must self-insure.2 Self- insured employers must cover the costs of compensation for injury out of their firms revenue and assets. In this sense, they are perfectly experience rated.

In California, employers that wish to self-insure must obtain a certificate of consent to self-insure from the Department of Industrial Relations (DIR). The DIR will consent when the employer demonstrates the ability to self-insure and to pay any compensation that may become

____________________
1
The degree of experience rating (e) is the weight applied to the firm s own experience (in terms of the number and cost of injuries in previous years) in the calculation of its premium. It is a variable that ranges from 0 to 1. The weight applied to the industry s experience (as opposed to the firm s experience) is equal to 1—e. If e = 1, the firm is said to be perfectly experience rated, which means that only the firm s experience matters. If e = 0, then the firm is not experience rated at all, which means that only the industry experience matters. The larger the firm, the closer e is to 1. According to the Workers Compensation Insurance Rating Bureau, approximately 20 percent of firms are experience rated (e > 0), accounting for 80 percent of the insured workforce. In California, no insured firms are 100 percent (that is, perfectly) experience rated.
2
Few employers are exempt from this rule, but the exempt include casual employment and domestic employment, some volunteer organizations, and independent contractors. Federal employees, railroad employees, and harbor and longshore workers are covered under other federal workers compensation systems. State agencies are legally uninsured, although functionally self-insured.

-5-

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