The Grand Bargain: Protecting employees and employers with workers' comp insurance.

• Author: Barbour, Tracy
• Position: FINANCE

For most employers in Alaska, workers' compensation insurance is an integral part of operating a business. Workers' compensation is a system of insurance that protects workers and employers from some of the losses caused by on-the-job accidents and job-related illnesses. Before the system was implemented, injured workers would have to sue their employers for negligence to receive compensation. However, proving negligence was a time-consuming and costly endeavor for the injured worker as well as the employer. In response, states began adopting legislation to establish a system of insurance between employees and employers to compensate injured workers while still protecting employers from lawsuits.

The resulting system is based on what is known as the "Grand Bargain," according to Marie Marx, director of the Alaska Workers' Compensation Division. Marx explains: "If a worker is injured, the employer's insurance company or the self-insured employer pays medical and wage replacement benefits due to the worker. In exchange, the injured worker receives prompt, limited benefits and gives up the right to sue the employer. This allows employers to stay in business and continue to provide jobs. Under this limited benefits system, there is no compensation for non-economic damages such as pain, suffering, or loss of consortium. There is also no compensation for punitive damages. It is a no-fault system; an employee does not have to prove an employer was at fault to receive benefits and an employer does not have to admit fault."

The Alaska Workers' Compensation Act governs employee and employer rights and duties and obligations related to a work-related injury. The intent of the act, Marx says, is to ensure quick, efficient, fair, and predictable delivery of benefits to injured workers at a reasonable cost to employers. "If an employee suffers a work-related injury, the act requires an employer to report that injury to the Alaska Workers' Compensation Division and provide medical, indemnity [wage loss], and reemployment [retraining] benefits," she says. "In cases involving fatalities, dependents may be eligible for death benefits. For insured employers, their insurance policy claims administrator takes care of the process for them."

All fifty states have workers' compensation laws, which are unique to each state. And compensation benefits vary significantly from state to state, with the rules being far from uniform. For example, under the Alaska Workers' Compensation Act, all employers with one or more full- or part-time employees are obligated to purchase and maintain workers' compensation insurance policies to cover all employees, Marx says. Sole proprietors, partners, and limited liability members are exempt from having to insure themselves for workers' compensation liability. However, they still must insure employees, including family members, who do not have legal ownership interest in the business. Incidentally, executive officers of a corporation--those with titles such as president, vice president, secretary, and treasurer--are considered employees under the act. They must be insured unless they obtain an executive officer waiver from the Alaska Workers' Compensation Division.

The Alaska Workers' Compensation Act contains exemptions for certain individuals in AS 23.30.230, including part-time babysitters, a cleaning person, contracted...