Financing workers’ compensation, or “financement accidents travail” in French, is the system by which businesses cover the costs associated with employee injuries and illnesses sustained on the job. In the United States, this funding comes from various sources, primarily employer-funded insurance.

The cornerstone of US workers’ compensation financing is employer-purchased insurance. Employers are generally required to carry workers’ compensation insurance, which covers medical expenses, lost wages, and rehabilitation costs for injured workers. This insurance can be obtained through several avenues:

• Private Insurance Companies: Many insurance companies offer workers’ compensation policies. These are regulated by individual states, setting standards for coverage and claim handling. Premiums are based on factors such as the employer’s industry, payroll, and past claims history. Industries with higher risk levels typically pay higher premiums.
• State Funds: Some states operate their own workers’ compensation insurance funds. These are typically designed to provide coverage for employers who cannot obtain insurance through the private market, often due to high-risk operations or poor claims history. They also ensure coverage in monopolistic states where private insurance is not allowed.
• Self-Insurance: Larger employers, who meet certain financial stability requirements set by the state, may be allowed to self-insure. This means they directly pay for the costs of workers’ compensation claims instead of purchasing insurance. Self-insured employers often use third-party administrators (TPAs) to manage claims. Self-insurance can potentially save money, but it also requires significant financial resources and risk management expertise.
• Group Self-Insurance: Smaller employers in similar industries sometimes pool their resources to form group self-insurance programs. This spreads the risk and administrative burden, allowing them to access the benefits of self-insurance without the individual financial strain.

Premiums for workers’ compensation insurance are calculated based on a complex formula involving several factors. A key component is the experience modification factor (EMR). The EMR compares an employer’s actual claims experience to the average claims experience for businesses of similar size in the same industry. A lower EMR means the employer has fewer claims than expected and will pay lower premiums, while a higher EMR indicates more claims and higher premiums.

In addition to premiums, employers may also be responsible for deductibles or co-payments, depending on the specific policy they purchase. These features are designed to incentivize employers to promote workplace safety and control costs.

The workers’ compensation system also includes mechanisms for fraud prevention and investigation. Insurers and state agencies actively work to detect and prosecute fraudulent claims, which can significantly impact the overall cost of the system.

Ultimately, the financing of workers’ compensation in the US relies on a system that balances the needs of employers to manage costs with the rights of employees to receive compensation for workplace injuries. While variations exist from state to state, the fundamental principles of insurance and employer responsibility remain constant.