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?

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 claim 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 who 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, lets discuss 2 more crucial terms for Workers’ Compensation.

Impairment

Impairment refers to any bodily condition hindering a person from utilizing all their functions fully, stemming from an injury or occurring spontaneously. Frequently, impairment and disability are used interchangeably, but in the realm of Workers’ Compensation, they carry distinct meanings.
Impairment denotes a condition, whereas disability denotes a state. Impairment can be either permanent or temporary, whereas disability may be either partial or total. The variance between the two is nuanced.

What is the 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 referred to as Workers’ Compensation Rating, this factor is typically established during the settlement of a claim. This rating bears significance as it influences the amount paid as Workers’ Compensation.
A higher rating corresponds to a higher Workers’ Compensation payout. Rates can range from as high as a hundred percent for severe injuries to zero percent if the victim has completely recovered. Learn how Klear.ai Analytics aids in severity scoring.

Family Medical Leave Act (FMLA)

This act grants employees the right to take emergency leave from work for up to 12 weeks per year. The reason for the leave may or may not be work-related. Under this act, it is the employer’s responsibility to guarantee job retention for the employee upon their return to work.
Reasons for such emergencies could vary widely, including events like childbirth, family weddings, severe illness, or any circumstance that prevents an individual from attending their job.

Family Medical Leave Act(FMLA) vs Workers’ Compensation

Although both FMLA and Workers’ Compensation entail absence from work, they differ starkly in their essence. FMLA primarily pertains to job leave, while Workers’ Compensation primarily concerns monetary compensation.

Under FMLA, an employee on leave is not entitled to wages, whereas Workers’ Compensation ensures replacement wages for the employee unable to work due to injury or illness.

Another significant difference lies in job security. FMLA guarantees job security upon the employee’s return to work, provided they are willing and able. Conversely, Workers’ Compensation doesn’t assure job retention; it solely offers liability benefits. The decision to retain or dismiss the employee rests with the employer.

Regarding payment during Workers’ Compensation, yes, it’s provided, which is why it’s termed compensation.

Does Workers’ Compensation Count against FMLA?

Both FMLA and Workers’ Compensation are designed for the well-being and benefit of employees, which is crucial to consider when addressing this question.

In situations where an employee is unable to work due to an injury qualifying them for both FMLA and Workers’ Compensation, the period covered by Workers’ Compensation doesn’t count towards the 12-week leave entitlement provided by FMLA. Therefore, Workers’ Compensation does not count under FMLA.

However, when both acts are applicable, the one offering greater benefits to the employee takes precedence in providing assistance and support.

How much will I get for my Workers’ Compensation settlement?

Within a Workers’ Compensation settlement, an employee receives a specific amount of money to cover various expenses. These may include attorney fees, unpaid medical bills, costs related to medical diagnosis and treatment, child support, permanent disability compensation, and more.

Negotiations during settlement discussions often revolve around the type and duration of disability, ongoing and future medical treatment expenses, and other pertinent points.

The compensation aims to cover all the financial losses incurred by the employee due to an injury sustained while performing employment-related duties.