Elements of Workers' Compensation Insurance: Practice Questions and Solutions

This section of the study guide is intended to provide practice problems and solutions to accompany the pages of Commercial Insurance, cited below. Students are encouraged to read these pages before attempting the problems. This study guide is entirely an independent effort by Mr. Stolyarov and is not affiliated with any organization(s) to whose textbooks it refers, nor does it represent such organization(s).

Some of the questions here ask for short written answers based on the reading. This is meant to give the student practice in answering questions of the format that will appear on Exam 5. Students are encouraged to type their own answers first and then to compare these answers with the solutions given here. Please note that the solutions provided here are not necessarily the only possible ones.

Source:
Arthur L. Flitner, Jerome Trupin, and Martin J. Frappoli. Commercial Insurance. (Second Edition). 2007. Chapter 12, pp. 12.3-12.11.

Original Problems and Solutions from The Actuary's Free Study Guide

Problem S5-131-1.

(a) What are the four types of benefits that can be provided to covered employees under a workers' compensation insurance policy in the event of an occupational injury or occupational disease?

(b) Name and define the four types of disability classifications used in workers' compensation insurance.

Solution S5-131-1. This problem is based on the discussion in Commercial Insurance, pp. 12.4-12.5.

(a) The following four types of benefits can be provided to covered employees under a workers' compensation insurance policy in the event of an occupational injury or occupational disease:

1. Medical benefits;
2. Disability income benefits;
3. Rehabilitation benefits;
4. Death benefits.

(b) The following are the four types of disability classifications used in workers' compensation insurance (Commercial Insurance, p. 12.5):

1. Temporary partial disability: "A disability caused by a work-related injury or disease that temporarily limits the extent to which an employee can perform job duties for a period of time."

2. Temporary total disability: "A disability caused by a work-related injury or disease that temporarily renders an injured employee unable to perform any job duties for a period of time."

3. Permanent partial disability: "A disability caused by a work-related injury or disease that impairs the injured employee's earning capacity for life, but the employee is able to work at reduced efficiency."

4. Permanent total disability: "A disability caused by a work-related injury or disease that renders an injured employee unable to ever return to gainful employment."

Problem S5-131-2.

(a) Do workers' compensation medical benefits ordinarily have a deductible applied to them? If so, is the deductible in the form of time or money?

(b) Do workers' compensation disability income benefits ordinarily have a deductible applied to them? If so, is the deductible in the form of time or money?

Solution S5-131-2. This problem is based on the discussion in Commercial Insurance, pp. 12.4-12.5.

(a) Workers' compensation do not ordinarily have a deductible applied to them.

(b) Workers' compensation ordinarily have a deductible in the form of time, otherwise known as a waiting period, applied to them. If a disability does not continue beyond the waiting period, typically several days, then no disability income benefits are paid. If the disability does continue beyond the waiting period, then the disability income benefits are typically paid retroactive to the time of the injury.

Problem S5-131-3.

(a) What is the main rehabilitation benefit offered under typical workers' compensation insurance policies?

(b) Aside from the benefit from part (a) above, name two other kinds of rehabilitation benefits offered under many typical workers' compensation insurance policies.

Solution S5-131-3. This problem is based on the discussion in Commercial Insurance, p. 12.6.

(a) The main rehabilitation benefit offered under typical workers' compensation insurance policies is payment of expenses for medical treatment and medical rehabilitation.

(b) Other rehabilitation benefits offered under many typical workers' compensation insurance policies include the following:

1. Vocational rehabilitation;
2. Maintenance allowance to injured workers during rehabilitation;
3. Payment of expenses to customize a vehicle to accommodate physical disabilities during rehabilitation.

Any two of the above suffice as an answer. Other valid answers may also be possible.

Problem S5-131-4.

(a) Briefly describe two approaches that have typically been used in the contemporary United States to discourage employers from discriminating against employees with existing disabilities.

(b) Briefly describe the steps whereby a worker's injury may result in a workers' compensation claim and the possible payment of benefits.

Solution S5-131-4. This question is based on the discussion in Commercial Insurance, p. 12.7.

(a) The following two approaches that have typically been used in the contemporary United States to discourage employers from discriminating against employees with existing disabilities:

1. Second-injury funds that pay a portion of the claim for a total disability injury to a worker who was previously impaired.

2. The Americans With Disabilities Act (ADA) of 1990, which obligates employers to reasonably accommodate disabled employees and forbids discrimination against such employees as long as they can perform their work.

(b) The following are possible steps whereby a worker's injury may result in a workers' compensation claim and the possible payment of benefits:

1. The injured worker gives notice to the employer that the injury has occurred.
2. The employer sends a report regarding the injury to the insurer.
3. The insurer sends the report regarding the injury to the agency that administers the workers' compensation law.
4. If the employer does not contest the claim, the claim is settled between the injured employee and the employer's insurer. The agreement may be reviewed by the workers' compensation agency. (In some states, a direct payment system exists, where agreement is not required prior to the payment of benefits.)
5. If the employer or insurer contests the claim, a hearing is conducted by the workers' compensation agency. The hearing officer makes a decision.
6. After a hearing in step 5, the decision of the hearing officer may be appealed to the workers' compensation agency and, subsequently, to a court.

Variations on the above may constitute a satisfactory answer.

Problem S5-131-5.

(a) Name four kinds of workers to whom an ordinary employer would, in many cases, not be obligated to provide workers' compensation coverage.

(b) Identify four questions that might be asked, if an employee primarily works in one state, but a work-related injury or disease occurs in another state, in order to determine which state's workers' compensation laws apply.

Solution S5-131-5. This problem is based on the discussion in Commercial Insurance, pp. 12.8- 12.10.

(a) An ordinary employer would, in many cases, not be obligated to provide workers' compensation coverage following kinds of workers (Commercial Insurance, pp. 12.8-12.9):

1. Workers employed by an employer with fewer than a certain number of employees that is stipulated by law;
2. Farm laborers;
3. Domestic workers;
4. Casual employees that are hired only for short periods;
5. Employees covered under alternate plans - such as federal government workers, interstate railroad workers, and maritime workers;
6. Independent contractors without subcontractors;
7. Independent contractors that provide workers' compensation insurance for their subcontractors;
8. Leased employees;
9. Temporary employees.

Any four of the above suffice as an answer. Other valid answers may also be possible.

(b) The following four questions might be asked, if an employee primarily works in one state, but a work-related injury or disease occurs in another state, in order to determine which state's workers' compensation laws apply (Commercial Insurance, p. 12.10):

1. Where is the employee typically employed, and what is the nature of this employment?
2. Where was the employee hired?
3. Where does the employee live?
4. In what state is the employer domiciled?

Other valid questions may be asked.

See other sections of The Actuary's Free Study Guide for Exam 5.