How Does Workers' Compensation Work?

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Workers’ compensation is a state-run insurance program that covers public sector and usually state and local government employees. If you suffer a job-related illness or injury, workers’ compensation insurance may help you pay for medical treatment and recover some of your lost wages. In exchange for financial assistance, you surrender the right to sue your employer for monetary damages in all but a few limited situations.

Eligibility Requirements

Bona fide employees of covered employers are eligible to file a workers’ compensation claim. State laws define the meaning of a covered employer and specify whether there any exceptions for certain types of employees. For example, in Michigan and Minnesota, all employers must carry workers’ compensation insurance without exception, while Missouri, only businesses with five or more employees must carry the insurance. Most states do not include independent contractors and unpaid volunteers who do not perform emergency services in their coverage requirements.

Claims Processing

Although specific procedures and time lines vary between states, you generally must report the injury or illness to your employer within one month of its occurrence. Your employer will either provide claim forms or tell you where to get them. In most states, your employer is responsible for filing the claim and your supporting documentation with the insurance company, and for notifying the state workers’ compensation agency. If your claim is approved, the insurance company will contact you with further instructions according to the type of benefit payment.

Types of Benefits

Depending on the severity of an illness or injury, workers’ compensation offers five types of benefits. These include:

  • Medical treatment and related expenses
  • Lost wages - usually no more than two-thirds of your weekly salary
  • Permanent disability payments if your illness or injury affects your ability to do certain jobs
  • Vocational rehabilitation training if you can’t remain in the same job
  • Death benefits -- most often this includes burial expenses and a lump-sum payment

Structured vs. Lump-sum Payments

Benefit payments are either structured payments that you receive over a specific period or indefinitely, or a single lump-sum payment. For example, lost wage benefits usually are structured payments that last about two years at most. With a lump-sum payment, you may have to sign an agreement giving up certain rights, such as the right to seek reimbursement for any further medical treatment, in exchange for the payment. However, you always have the option to reject a settlement proposal and instead appeal the offer or litigate a settlement in a court of law.