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CHAPTER 21
Unemployment and Workers’ Compensation
Insurance
I. SUGGESTED CLASSROOM TIME: 50–70 MINUTES
II. CHAPTER OVERVIEW
Not every instructor will want to cover this material, as it involves two rather specialized
areas. Yet, an introduction to risk management and insurance would be incomplete unless
unemployment and workers’ compensation insurance were described. Every worker is
susceptible to injury while at work, and the law makes the employer responsible for
workers’ compensation programs continue to be distressed because of rising costs of heath
care and increasing fraud and occupational stress claims. Recently, unemployment rates
were reduced due to the vibrant economy but then increased in the early 2000s. Students
will discover and analyze why the private insurance industry does not cover
unemployment compensation.
III. LECTURE OUTLINE
A. Introduction—This chapter describes the current unemployment insurance program
along with the general pattern of state workers’ compensation programs.
B. Unemployment Insurance—to replace part of a worker’s earnings temporarily when
unemployed through no fault of their own; provides an automatic stabilization
mechanism for the economy.
1. Background information—A joint state and federal “insurance” operation because
196 Chapter 21/Unemployment and Workers’ Compensation Insurance
2. Operations of the unemployment program—Financing of the program is based on a
tax on wages by the states. If a state’s unemployment funds become inadequate, the
state may borrow from the federal government.
a. Generally provides 26 weeks of benefits from the state. Congress on occasion
3. Is unemployment insurance really an insurance device? It lacks many of the
attributes of a private insurance system (contracts, predictive accuracy, non-
catastrophe potential, or actuarially sound reserves). However, there is pooling and
4. General provisions of state programs—Experience rating in which insureds
(employers) who suffer no losses (do not lay off workers) receive a rebate of a
portion of their premium. This reverses the insurance transfer by rewarding those
who suffer no loss, at the expense of those who do suffer losses.
a. In order to collect benefits, a worker must show: unemployment beyond a
waiting period; an earnings record; and a continuing interest in employment.
C. Workers’ Compensation (WC)
1. The problem—Who should bear the burden of job-related accidents? Before WC,
the employee usually bore the cost because of the common law defenses of
assumption of risk, contributory negligence, or the fellow servant rule. The result
was that medical and funeral expenses and lost wages were borne by the employee.
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a. Historically, an employee could sue an employer for injuries but the employer
had several good defenses: contributory negligence, assumption of risk, and the
fellow servant rule.
4. The purposes of workers’ compensation
a. Broad coverage of employees and work-related injuries and diseases—WC
benefits include medical expenses incurred.
5. Operations of workers’ compensation—over 50 jurisdictions administering
workers’ compensation plans—based on state law.
a. Was the injured party an employee? Was the injury work-related?
6. Current concerns about workers’ compensation
a. A state versus federal controversy has begun with critics of the current state–
run program claiming a federal program will produce uniformity between
states, with higher compensation and rehabilitation goals attained.
b. Losses, and therefore premiums, have been increasing rapidly over the past
several years.
i. Healthcare costs
ii. No deductible or copayments; since no employee funds are spent,
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c. A third controversial issue involves cumulative injuries, those that occur over a
long period of time and appear to be job-related. The problem is that payment
IV. ANSWERS TO REVIEW QUESTIONS
1. Describe some causes of unemployment. Separate your list into causes
beyond the worker’s control and those under the worker’s control. Can
you identify some gray areas in the categorization of these causes? Causes of
unemployment beyond workers’ control include:
1) The business cycle
2. What alternatives are available to the government for dealing with
unemployment? The government may employ both fiscal and monetary policy to
deal with unemployment. Fiscal policy involves the government’s collection (taxation)
3. What do Social Security, public assistance, and unemployment insurance
have in common? Social Security, public assistance, and unemployment insurance
are all transfer payments from those fortunate to pay to those experiencing a loss. In
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4. Explain why a downward cycle of unemployment is likely to develop
without government action. If the government does not act to stem the
unemployment problem a vicious spiral develops. Unemployed workers lose their
5. How does unemployment insurance help reverse the downward spiral of
unemployment? Why is unemployment insurance called an automatic
stabilizer? Unemployment insurance allows the unemployed workers to maintain
6. What parts do the state and federal governments play in providing the
unemployment insurance program? The relationship between the state and
federal governments and the unemployment insurance program is somewhat complex.
7. Who do you think ultimately pays the cost for the unemployment
insurance program? The most likely answer is the consumer of the product
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8. Why does experience rating reverse the insurance transfer process? What
is the explanation for experience rating in unemployment insurance?
Insurance transfers money from all those who are exposed to the loss to those few
9. What are the general provisions of state unemployment insurance
programs? 1) A waiting period, such as a week, before benefits begin. 2) A
10. Identify four reasons a worker may be disqualified from receiving
unemployment benefits. Disqualification for benefits results if a worker: 1) has
11. Under our current workers’ compensation laws, are employers,
employees, or consumers most likely to bear the costs of work-related
injuries? The book presents the idea that the consumer of the various products
12. What was the fellow-servant rule? What role did it play in the development
of workers’ compensation laws? The “fellow-servant rule” was a powerful defense
13. Why is workers’ compensation known as the exclusive remedy available to
an injured worker? Under current workers’ compensation laws, the employee can
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14. List the five purposes of workers’ compensation laws as outlined by the
National Commission on State Workmen’s Compensation Laws.
The five goals of Workers’ Compensation are:
15. Identify three reasons an injured worker may be excluded from workers’
compensation coverage despite being injured while at work. Injuries suffered
16. Identify the three general types of workers’ compensation benefits. The
following are the three main types of benefits paid by workers’ compensation systems
17. Describe the role insurance plays in distributing the cost of work-related
injuries. The insurance mechanism enters the picture when an employer buys
18. If an injured worker thinks the compensation for the injuries sustained is
unfair, what course of action may be pursued to attempt to correct the
problem? Most states have developed an administrative body, e.g., a Workers’
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19. Give an example of a permanent partial disability. A permanent partial
V. ANSWERS TO OBJECTIVE QUESTIONS
1. “Fiscal policy” describes direct government actions to
2. Unemployment insurance is called an automatic stabilizer because it
3. States have three general requirements relating to eligibility to receive unemployment
benefits. These requirements include all except which of the following?
4. Which of the following were not used as legal defenses by employers before workers’
compensation laws existed, allowing employers to avoid making payments to injured
workers?
5. The workers’ compensation claim payment is the ___________ available to the
injured worker.
6. ___________ is designed to reward loss prevention and loss reduction efforts.
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7. Currently, workers’ compensation programs are administered by
8. Which of the following is not an excluded injury under workers’ compensation
insurance programs?
VI. IDEAS FOR INSTRUCTORS AND TEACHING METHODS
2. Before discussing workers’ compensation, hypothesize what would be the results of not
having a strict liability system of compensating employee on-the-job injuries.
4. If the workers’ compensation system in your state has been under stress (a few state
5. Given the corporate trend for “right-sizing,” down-sizing, or consolidating businesses,
discuss whether the unemployment compensation system meets the goals of society.
Should the goals be changed? Should the unemployment system be changed? Should
public works projects be coupled with the right to receive unemployment benefits?