What Are The Three Basic Compensation Plans?

Workers Comp Insurance - How It Works

A recent report from the U.S. Department of Labor estimated that the total compensation paid to workers who suffered injuries on the job during 2020 totaled $8.7 billion. Workers' compensation costs are typically absorbed by employers and insurance carriers through an annual cost-of-doing-business fee that is passed along to the consumer. However, many employers are shifting their workers' comp costs to employees through a variety of programs that are aimed at reducing costs.

The most common compensation program, workers' compensation (or injury) insurance, is designed to protect employers against the cost of paying medical bills and other related costs incurred by injured workers. These benefits are usually provided in the form of a fixed payment per week for a set number of weeks, at the discretion of the employer. For example, workers' compensation insurance provides weekly payments to cover lost wages resulting from an on-the-job injury.

Common Workers Comp Benefits

Another common benefit is the ability to purchase extra coverage through "voluntary" benefits. Voluntary benefits are supplemental coverage that is typically purchased in addition to regular workers' compensation coverage. For example, voluntary benefits can include a policy that pays for treatment for chronic conditions such as diabetes or heart disease. These benefits are typically paid by employers to supplement workers' compensation benefits.

Finally, there are the "flexible benefits" that allow employees to purchase additional benefits on their own, either as a perk or as a means of reducing the employer's overall costs. Flexible benefits often include the option to purchase health savings accounts, health and dental plans, disability and life insurance, or retirement plans.

Although flexible benefits are often available to workers as part of a company's overall benefit package, workers' compensation is not required to provide them. Some companies choose to provide these benefits through an employee welfare benefit plan (EWBP), which may be offered through an insurance company or administered by an employer.

The decision to offer flexible benefits and whether to use EWBPs depends largely on the individual company's culture and budget.

Statistics From The U.S. Bureau of Labor

The U.S. Bureau of Labor Statistics reports that the average weekly wage for full-time, year-round workers was $1,161 in 2019, up from $1,054 in 2018. The bureau also reports that the median weekly wage for a worker was $760 in 2019, down slightly from $765 in 2018.

Although these numbers may suggest that the average worker has seen a modest wage increase, the BLS notes that the vast majority of workers are employed in lower-paying jobs. According to the bureau, the majority of the country's private sector workforce in 2019 was employed in production, transportation, and material moving occupations. The median weekly pay for workers in this category was $927 in 2019. The median pay for these workers has been declining since the late 1990s, reflecting the shift in the U.S. economy to a service-based economy.

The BLS also reports that the majority of workers in management, business, science, and arts occupations have experienced stagnant or decreasing real weekly wages over the past decade. The median weekly pay for managers in 2019 was $1,062, compared with $1,039 in 2018. The median pay for workers in these occupations has been flat since 2002.

The BLS estimates that the number of people covered by workers' compensation insurance rose from 16 million to 17 million in 2019. Of that total, the majority of insured workers are covered by the state-operated insurance schemes, which offer more generous benefits.

However, the rate of growth of self-funded plans has been increasing, and the number of uninsured workers has been falling. According to the Bureau of Labor Statistics, more than a third of all workers, or 36.5 percent, had no workers' compensation insurance in 2018. That percentage fell to 32.6 percent in 2019.

In addition to the number of insured workers, the total compensation paid to injured workers also increased during the last two years. The Department of Labor's Office of Workers' Compensation reported that the total cost of compensating injured workers in 2019 was $8.7 billion. The figure was up from $8.4 billion in 2018.