1 .. Understanding Workers Compensation in Michigan Perception vs. Reality Presented by Michigan Economic Development Corporation Workers Compensation Cost Control Service
2 This overview is designed to give you a basic understanding of Michigan s Workers Compensation system and help you keep your costs in line. Do you hear these types of comments regarding workers compensation in Michigan? Workers comp in Michigan is out of sight in costs! There is nothing that can be done to control my costs. The State makes the system too hard for me to understand. I don t have the time to spend on workers compensation...maybe next year. I don t need to worry about this...that is what I have an agent for! What s the big deal...my costs have come down every year so I seem to be managing well. My experience modification factor...what s that? Every year my costs have gone up...i haven t had any claims so what is happening? Experience Rating Form? Doesn t the state take care of all of that? Anyway, I wouldn t know how to decipher that! I read somewhere that costs have doubled since 1984 and are now tripling every three years. Can t we fix that? I have people off on comp and I know that they are working elsewhere but there isn t anything I can do. I m in assigned risk and my agent says that no one wants my business. When did I last shop my coverage? Isn t all insurance the same? My company was told that we save a lot of money because we don t turn in our small claims. Schedule credits...premium credits...what are you talking about? Claims remain open for years since the state is so backlogged...that is what everyone tells me. Michigan is one of the highest cost states for workers compensation. The magistrates always rule on the side of the employee. Our corporate office says that our Michigan facilities have the worst comp costs. If this is typical of the comments you hear, there is good news for you! These are comments based on hearsay the facts refute these comments.
3 What is workers compensation? Workers compensation is the system we use to provide wage replacement, medical, and rehabilitation benefits to men and women who are injured while at work. The proper terminology is workers... no longer workman s or workmen's! Workers compensation is a no fault system and removes the employer from the tort system limiting benefits to the injured worker. Who is covered and can you be exempted? Nearly all employers in Michigan are covered by workers compensation. This includes both public and private employers. There are a few classes of workers who are covered by federal laws and are not covered by the Workers Disability Compensation Act of Michigan, including federal government employees. People who work on interstate railroads are covered by the Federal Employers Liability Act. Seamen on navigable waters are covered by the Merchant Marine Act of 1920 and people loading and unloading vessels are covered by the Longshoremen s and Harbor Workers Compensation Act. Virtually all other workers and employers are subject in Michigan. Can a partnership or small business be exempted from the Act? The employees of partnerships and corporations are covered. However, Section 161 of the Act provides that under certain circumstances named partners and officers who are also shareholders of small, closely-held corporations may exempt themselves from the Act. Firms that wish to exclude partners or officers of a corporation but have other employees can do this by making arrangements with their insurance company. Firms in which all of the employees are either partners or owners of a small corporation may obtain a certificate of exemption under the Act by contacting the Compliance & Employer Records Division of the Workers Compensation Agency at Who sets the rates? Rates are based upon the classification of the employees to be covered. These classifications refer to the type of work performed. Insurance companies not the state establish a premium rate for each classification. Michigan has had open competition since 1983 and it is very competitive. In most cases our rates are lower than they were in 1983! Because rates vary so much depending on classification codes, it is important for a business to shop around...keeping in mind that service from the carrier is extremely important in making the final decision. Service includes claims handling as well as prevention and loss control.
4 What state agencies are involved in workers compensation? The Workers Compensation Agency (WCA) is the state agency with the primary responsibility for overseeing the workers compensation system in Michigan. They were once part of the Department of Labor but that has evolved into The Department of Energy, Labor & Economic Growth (DELEG). The WCA is responsible for seeing to it that every employer in the state either has a policy of workers compensation insurance or is approved as self-insured. The agency keeps records of all workers compensation injuries, payments and disputes. Although the WCA monitors the reports that are sent in, they do not approve the payment of benefits. If there is a dispute that cannot be resolved between the employer and the worker, it goes to the Workers Compensation Board of Magistrates. This is a group who conducts trials in workers compensation cases only. Juries are not involved. If parties are still dissatisfied with the decision of the magistrate, they can appeal to the Workers Compensation Appellate Commission. The Health Care Services Division of the WCA is responsible for the administration of workers compensation health care services rules. The Funds Administration is involved in certain special cases. These include Second Injury Fund, the Self-Insurers Security Fund, and the Silicosis, Dust Disease, and Logging Industry Compensation fund. Most policyholders are given an experience modification factor by their carrier once they have been in business at least two years. The experience mod is a comparison of a given employer s actual losses with the expected losses for the average employer in a specified classification code. Modification factors are promulgated (calculated) by the Compensation Advisory Organization of Michigan (CAOM), which is NOT a state agency. If your agent or carrier tries to tell you that your problems with records or costs are with the State, they are definitely wrong and this should be a red flag to you! CAOM is the agency responsible for the Michigan Experience Rating Form which all employers in the voluntary market or assigned risk should receive from their agent prior to renewal. What changes are taking place in workers compensation? Most carriers are adopting a new rule (not a law but a rule instituted by the National Council on Compensation Insurance) that medical only claims (identified by a number 6 on your Experience Rating Form) will be decreased by 70% in calculating your actual incurred losses. This can make quite a difference in favor of employers. Remember this is for medical only claims and another good reason to know your rights and responsibilities!
5 What options are there for workers compensation in Michigan? Michigan employers have many options available to them for workers compensation. They can be part of the voluntary market with more than 300 carriers writing coverage in Michigan. While in the voluntary market, employers can participate in several different programs including large deductibles which you can investigate with your agent. An employer can choose to be in a group fund and there are currently 36 group funds approved in Michigan. Employers of a certain size and worth are also able to individually self-insure. See the following website for a list of group self-insurance funds and their contacts: Important Employer Information You must know your rights and responsibilities and be ready to answer the following questions. Do you know what your experience mod is (and why)? Are you getting a schedule credit rating? Are you getting a premium credit? Do you review your Michigan Experience Rating Form annually? Do you regularly get loss reports from your carrier AND review them? What have your trends been in workers comp and how long has it been since you shopped your insurance? Are your claims handled in a timely fashion...with your input? Are you aware that you can stop payment on a claim or not agree to settle/redeem a claim? Do you have a transitional return-to-work program?
6 What help is available? Agents and Carriers. Service is a key component in controlling workers compensation costs. Bad service from your carrier and/or agent will ultimately result in higher net costs. Demand good service or shift to a new agent and/or carrier. Industry or local area associations and organizations. Share best practices. Identify the good players in workers compensation making sure that medical providers are part of this. Michigan Economic Development Corporation. The MEDC has the Compensation Cost Control Service available to assist employers in designing and implementing strategies for minimizing their costs of workers compensation. Contact the MEDC at (517) or visit the web site at If you are just starting a business and do not currently have a workers compensation policy, please visit our website at for some basic education. You should then visit to get answers to your questions and see Assigned Risk rates. If you have questions about buying workers compensation insurance, contact: Office of Financial and Insurance Regulation Michigan Department of Energy, Labor and Economic Growth Post Office Box Lansing, MI Phone (517) If you have questions about the handling of a claim, contact: Workers Compensation Agency Michigan Department of Labor and Economic Growth Post Office Box Lansing, MI Phone (517) or (888) (Toll Free) If you have questions on self-insured programs or compliance issues, contact: Self-Insured Programs Division Workers Compensation Agency Michigan Department of Labor and Economic Growth Post Office Box Lansing, MI Phone (517)
7 If you have questions on workplace safety programs, contact: Consultation Education and Training Division Michigan Department of Labor and Economic Growth Post Office Box Lansing, MI Phone (517) If you have questions about medical fees or health care rules, contact: Health Care Services Division Workers Compensation Agency Michigan Department of Labor and Economic Growth Post Office Box Lansing, MI Phone (517) /2010
8 What should I look for in an agent/agency? Workers compensation coverage is the same with all carriers...the difference is in the cost and service provided by both the agent/agency and the insurance company. An important factor to keep in mind is that there are two kinds of insurance agents: Captive Agents who represent only one insurance company. Independent Agents who represent an average of five to ten insurance companies. However, know that one agent/agency cannot represent all insurance companies. Agents are there to help you. Any agent should be able to answer all of your questions about insurance and provide you with an assessment of your needs and insurance products to meet those needs. Also, any insurance agent should provide you with prompt, quality service in the case of a claim whether in direct dealing, or acting as a liaison, with your insurance carrier. You should expect more than a yearly renewal contact from the agent and work towards building a continuing relationship. Look for and expect: A licensed professional with strong customer and community ties. Get references! Ask how many carriers (if an independent agent) the agency represents and who they are. Does the agency/agent specialize in commercial insurance or is it just written incidentally? Is the agency full service meaning that they can handle all your insurance needs? Who will handle your account on a daily basis? If not your agent, ask about the customer service representative...what is their level of training and knowledge. Ask what the agent perceives as their role in handling claims and helping to resolve claims disputes between the customer and the insurance company.
9 Expect assistance with claims... and a good relationship with the carriers. Does the commercial agent hold any professional designations? This means that they have invested considerable time into additional schooling. The agency s experience in the industry from working in the past and matching up companies with insurers who know the industry is key. Insurers familiar with the industry can reduce the effect of claims on customers through good loss-control and claims departments. Expect excellent service and competitive prices along with a thorough knowledge of special programs to reduce costs. Expect regular reports regarding your losses and the annual Michigan Experience Rating Form. Expect periodic reviews of your coverage to keep up with changing needs. Know that you have a professional working for you. Finally, keep in mind that agents represent the insurer. To get an unbiased advice you need an insurance counselor reference SCARSELLA TILE & MARBLE INC., No (Mich. App. Dec. 19, 2000). Terms to remember: Agent: Agency: Carrier: Insurance Counselor: A person licensed by a state insurance department who solicits, negotiates or effects insurance contracts on behalf of one or more insurers (carriers). An insurance sales office that is directed by a general agent, manager, independent agent or insurance company manager. The actual insurance company that is providing insurance for you. The agent/agency is not who is insuring you A licensed professional who is compensated on a fee basis their role is not as a salesperson. Look for the designation of CIC Certified Insurance Counselor. CIC s provide an analysis and evaluation of in-force policies and a professional design and recommendation of proposed policies. 01/05//2010
10 This is a draft of a letter that can be used as a shopping aid in your workers compensation. You should first call several agencies, asking them what carriers they write for since they will have a limit of approximately ten or less carriers in most cases. All agents write for the Placement Facility (Assigned Risk) and nearly all for The Accident Fund Company. Make sure that you allow time for the quote and your review prior to your renewal date. Include such things as your wages being competitive, your lack of turnover, whether you have health insurance, a 401K plan, etc. Dear... ABC Company is in the process of soliciting quotes for our workers compensation insurance. ABC is a furniture manufacturer with thirty-five employees and has been in business for fifteen years. We are family-owned and very involved with our community. We have included a copy of our current Michigan Experience Rating Form that shows our mod as being.85 with the XYZ Insurance Company. We are very proactive and have instituted a number of new practices that have resulted in our costs being lowered. We anticipate that our payroll will be increasing by $...in the next year since we will be adding another product line and hiring six new employees. Please provide us with a quote for our coverage. Of course, we would also like to have included in your quote both schedule rating credits and premium credits. We would also like to review our class codes most especially with our expansion in mind. At this time, we are solely interested in workers compensation but would be amendable to discussing our entire insurance needs at a later date. If you have any questions regarding this, please contact... Also, keep in mind that our renewal date is...and we would like to have your quote sometime in... Sincerely, Encl..
27 To request exclusion forms, information on self-insurance, and address for filing exclusion forms: If you have questions on insurance companies, contact: For information on work place safety programs, contact: Workers Compensation Agency Michigan Department of Labor & Economic Growth P.O. Box Lansing, MI (517) Office of Financial & Insurance Services Michigan Department of Labor & Economic Growth P.O. Box Lansing, MI (877) Consultation Education & Training Michigan Department of Labor & Economic Growth P.O. Box Lansing, MI (517) For MIOSHA information, call: (800) If you have questions regarding a specific workers compensation claim, or if you would like information regarding the appeal process and your rights under the law, contact a workers compensation mediator at the office nearest you. A listing of these office is on the back page of this booklet. 6
31 Offices to obtain information and/or ask questions regarding workers compensation. LOCATION ADDRESS PHONE Detroit Escanaba Flint Grand Rapids Kalamazoo Lansing (Dimondale) Mt. Clemens Pontiac Saginaw Cadillac Place 3026 W. Grand Blvd., Suite Detroit, MI State Office Building 305 Ludington Street Escanaba, MI Bristol West Center G-1388 W. Bristol Road Flint, MI Fuller St. NE Grand Rapids, MI N. 10th Street Kalamazoo, MI State Secondary Complex General Office Building 7150 Harris Drive Dimondale, MI Clemens Center 32 Market Street Mt. Clemens, MI Oakland Towne Center 28 N. Saginaw, Suite 1310 Pontiac, MI Hart State Office Building 411 E. Genesee Saginaw, MI (313) (906) (810) (616) (269) (517) (586) (248) (989) Toll Free: (888) Website: TTY in Lansing: (517)
33 AN OVERVIEW OF WORKERS COMPENSATION IN MICHIGAN Workers Compensation Agency Michigan Department of Labor & Economic Growth Lansing, Michigan August 2006 WC-PUB-004
34 Portions of material in this booklet are based upon Workers Compensation in Michigan: Law and Practice, a book written by Edward M. Welch and published by the Institute of Continuing Legal Education, Ann Arbor, Michigan. As the copyright holder of that publication, the Institute of Continuing Legal Education has granted its permission to use the material in this way. The Institute of Continuing Legal Education is located at 1020 Greene Street, Ann Arbor, Michigan , phone (toll free). The Michigan Department of Labor & Economic Growth does not discriminate on the basis of race, national origin, gender, religion, age, or disability in employment or the provision of services. This brochure will be made available in alternate formats upon request. Printed under the authority of the Workers Disability Compensation Act of Total Printed: 5,000 Per Copy Cost: $0.588 Total Printing Cost: $2,938.39
35 1. INTRODUCTION... 1 What is workers compensation?...1 What is the purpose of this booklet?...1 Where did workers compensation come from? COVERAGE UNDER THE ACT...3 Who is covered by the Workers Disability Compensation Act?...3 Are farms and farm workers covered?...3 Can a partnership or small business be exempted from the Act?...3 What if a person is self-employed?...4 Are family members covered?...4 Are independent contractors exempt from the Workers Disability Compensation Act?...4 Where can I get more information about coverage under the Act?...4 Is an employer always better off to avoid coverage under the Workers Disability Compensation Act? INSURANCE AND SELF-INSURANCE...5 Must employers purchase workers compensation insurance?...5 What is self-insurance?...5 Are there penalties if an employer does not obtain insurance or permission to be self-insured?...6 Are workers protected if an employer or an insurance company goes bankrupt?...6 How is the price of workers compensation insurance set?...6 Where can I get information about insurance? COVERAGE...7 When and where are workers covered?...7 Is a worker covered when he or she is traveling?...7 Is everything that happens at work covered?...7 What about recreational and social activities? CIVIL LAWSUITS...8 Can a worker sue for damages other than workers compensation?...8 When can a worker sue his or her own employer?...8 Can a worker sue someone other than his or her employer if the other party is at fault? DISABILITY...10 Who is entitled to receive disability benefits?...10 Should a worker who has not completely recovered try to return to work?...10 Must an injured worker accept the offer of a job?...10
36 What if the job pays less?...11 What if the worker does not think he or she can do the job that is offered?...11 Does the job have to be the same as the one the worker was previously doing?...11 Must an employer offer a job to a worker?...11 What happens if the worker returns but cannot continue?...12 Must the work cause the injury?...13 What if the work is only one of the causes of an injury?...13 Are gradual injuries and occupational diseases covered? DEATH BENEFITS...14 Are death claims treated the same as disability claims?...14 Who are considered dependents of the deceased worker?...15 What is the rate of death benefits?...15 How long are death benefits paid? SPECIAL BENEFITS...15 What are specific loss benefits?...16 What is total and permanent disability?...16 Which workers can benefit if they qualify as totally and permanently disabled?...16 Who is considered totally and permanently disabled?...17 How much does a totally and permanently disabled worker receive?...18 What are second injury cases?...18 Is there any special incentive under the Workers Disability Compensation Act to hire handicapped workers...19 Is there any special help for a young worker with high earnings potential who is injured at a low-paying job?...19 Are there special provisions for police officers and fire fighters? WAGE-LOSS BENEFITS...21 What benefits can a worker receive?...21 How are wage-loss benefits calculated?...21 How is a person s average weekly wage determined?...21 Are fringe benefits included?...22 How do you determine 80 percent of the after-tax value of a given wage?...22 Are there maximums and minimums?...22 Must a worker pay income tax on workers compensation benefits?...23 When and for how long are benefits paid?...23 Are any adjustments made in the rate of benefits?...23 Is there a penalty for the illegal employment of minors?...24 Are workers compensation benefits affected by other
37 benefits a worker receives?...24 What if a worker is employed on more than one job?...25 What is an advance lump sum? MEDICAL BENEFITS...25 What medical benefits is a worker entitled to receive?...25 How is the doctor chosen?...25 Can a worker refuse medical treatment?...26 How are medical bills handled? VOCATIONAL REHABILITATION BENEFITS...26 What rights does a worker have to vocational rehabilitation?...26 Must a worker take part in vocational rehabilitation?...27 Are vocational rehabilitation benefits offered automatically?...27 Is vocational rehabilitation important? PROCEDURES...28 Are workers compensation claims usually disputed?...28 What happens in the ordinary case?...28 In what way is a worker required to give notice of an injury or make a claim for benefits?...29 What other time limitations apply?...30 What reports is an employer required to file concerning workers compensation?...30 Can a worker or employer get help with these procedures?...31 How are formal dispute procedures started?...31 What is mediation?...32 What is a pretrial?...32 In what way are small claims treated differently?...32 How are trials conducted in workers compensation cases?...33 What right do the parties have to appeal the decision of a magistrate?...34 Does the worker receive any benefits during an appeal?...34 What is arbitration?...35 Is interest payable on workers compensation?...35 Is there any penalty if an employer does not pay the benefits it owes?...35 What if the employer simply refuses to make payments that are ordered?...36 When can a worker get a settlement of his or her workers compensation claim?...36 How are attorney fees calculated?...37 Are the records of these state agencies open to the public?...38
38 13. ORGANIZATIONS INVOLVED IN WORKERS COMPENSATION...39 Who is responsible for paying workers compensation?...39 What state agencies are responsible for workers compensation?...39 Table 1 Specific Loss Schedule...41 Table 2 Average Weekly Wage Rates...42 Offices to obtain information and/or ask questions regarding workers compensation
39 An Overview of Workers Compensation in Michigan 1. INTRODUCTION What is workers compensation? Workers compensation is the system we use to provide wage replacement, medical, and rehabilitation benefits to men and women who are injured while at work. What is the purpose of this booklet? This booklet provides a general outline of workers compensation law in Michigan. It is not intended to be a legal document and it is not intended to cover every possible situation. We hope, however, that this will provide general guidelines for the majority of problems that arise. In other situations, workers, employers, and insurance companies will need to consult with their attorneys for more specific advice. Much of this book deals with situations that have resulted (or are likely to result) in disputes and litigation. It should be pointed out, however, that most workrelated injuries are resolved without dispute and without the need for litigation. In most cases a worker who is injured receives medical treatment and is paid workers compensation benefits voluntarily by the employer or its insurance carrier. In time the worker is rehabilitated by returning to his or her former job or another one with the same employer. The problem cases the disputes are the few that demand the attention of those who manage the workers compensation system. Only those unusual cases find their way into administrative tribunals and courts and finally result in the interpretations of the law that are discussed here. Accordingly, while this book will try to define the limits of workers compensation by describing the extreme cases, the reader is reminded that most cases do not involve extreme or unusual circumstances. It should also be remembered that the law is often changed by the Legislature and is constantly being interpreted by the courts. Furthermore, there are always new questions about workers compensation that come up. There are many areas in which the courts have not yet given us a clear interpretation of what the law 1
40 means. As you read this you will find many instances in which we cannot answer all of the questions that arise. This booklet, however, will do the best it can to provide general guidance. Where did workers compensation come from? Before 1912, a worker who was injured in the course of his or her employment could sue his or her employer in a civil or tort action, which was the same remedy available to a person injured under other circumstances. The tort remedy, however, had certain problems. It required the worker to prove that the injury occurred because the employer was negligent and the employer had three important defenses: (1) that the worker was also negligent, (2) that the worker knew of the dangers involved and assumed the risk, or (3) that the injury occurred because of the negligence of a fellow employee. Under this system it was very difficult for workers to recover against their employers. If they did win, however, they could receive virtually whatever damages a jury wanted to give them. In 1912 Michigan, along with most of the other states, adopted a workers compensation act. The new remedy is essentially a no-fault system under which a worker no longer has to prove negligence on the part of the employer, and the employer s three defenses were eliminated. The intent of the law was to require an employer to compensate a worker for any injury suffered on the job, regardless of the existence of any fault or whose it might be. In return for this almost automatic liability, the Act limited the amount that a worker could recover. Workers are now entitled only to (1) certain wage loss benefits, (2) the cost of medical treatment, and (3) certain rehabilitation services. Under the old system, workers had been able to recover for pain and suffering, loss of enjoyment of life, and other damages that a jury might award. Recovery under workers compensation is limited to these three areas, no matter how serious the injury. 2
41 2. COVERAGE UNDER THE ACT Who is covered by the Workers Disability Compensation Act? Nearly all employers in Michigan are covered by workers compensation. This includes both public and private employers. In fact, when talking about workers compensation, it is easier to discuss the exceptions. There are a few classes of workers who are covered by federal laws and are not covered by the Workers Disability Compensation Act of Michigan. Employees of the federal government (such as postal workers, employees at a veterans administration hospital, or members of the armed forces) are covered by federal laws. People who work on interstate railroads are covered by the Federal Employers Liability Act. Seamen on navigable waters are covered by the Merchant Marine Act of 1920, and people loading and unloading vessels are covered by the Longshoremen s and Harbor Workers Compensation Act. Virtually all other workers and employers are subject to Michigan s law. Certain very small employers are exempt. If a private employer has three or more employees at any one time, or employs one or more workers for 35 or more hours per week for 13 or more weeks, the employer is subject to the Workers Disability Compensation Act. (Section 115). Are farms and farm workers covered? Agricultural employees are exempt under certain special circumstances. An agricultural employer, however, may voluntarily cover its workers. Can a partnership or small business be exempted from the Act? The employees of partnerships and corporations are covered. However, Section 161 of the Act provides that under certain circumstances named partners and officers who are also shareholders of small, closely-held corporations may exempt themselves from the Act. Firms which wish to exclude partners or officers of a corporation but have other employees can do this by making arrangements with their insurance company. Firms in which all of the employees are either partners or owners of a small corporation may obtain a certificate of their exemption under the Act by contacting the Insurance Division of the agency. Its phone number and address is found in the back of this booklet. 3