How do workers’ compensation, health insurance, and disability insurance differ?
Workers’ compensation, disability insurance, and health insurance pay for medical costs or lost wages due to illness or injury. But what they cover and when they kick in depends on the policy.
Workers’ compensation, health, and disability insurance can protect your employees
Workers’ compensation insurance, health insurance, and disability insurance can be confusing for small business owners. They all offer some sort of protection from employee illnesses or injuries. But the similarities end there.
These types of insurance differ in how they work and how they’re regulated. As a tech business owner, it’s important to understand what each policy will and won’t cover – especially if you have employees or expect to in the future.
Let’s take a look at the differences between them, and how they can protect your business and your workers:
What is workers’ compensation insurance?
Workers’ comp insurance covers lost wages and medical treatment resulting from employees’ work-related illnesses or injuries. For example, it can pay for doctor visits, hospital stays, and physical therapy. If an employee dies from a workplace injury or illness, workers’ comp can pay death benefits too.
Yes, workers’ compensation provides peace of mind to employees who’ve been injured on the job, and helps cover expenses until they’re back on their feet. But it also provides important protection for business owners:
- It covers medical bills and other costs that an employer could be held responsible for.
- It protects employers from the risk of employee lawsuits. With workers’ comp, employees give up their right to sue you over workplace injuries, except in the case of negligence or unsafe working conditions. And most workers’ comp policies include employer’s liability insurance to protect you from negligence claims too.
Perhaps the most important thing you need to know as a business owner is that workers’ comp insurance is required in nearly every state. Some states offer coverage directly to employers, while others require employers to purchase a policy from a private insurer. Check your state’s workers compensation laws to see what your business is legally obligated to do.
While you may think your employees aren’t at risk when it comes to workplace injuries, you’d be surprised how common injuries occur every day. For example, tech workers sometimes need treatment for carpal tunnel syndrome or similar problems resulting from poor posture and repetitive motion on the job.
What is disability insurance?
What would happen to employees if they weren’t able to work for an extended period of time? Without a steady income, a sick or injured worker could quickly find themselves in financial trouble.
That’s where disability insurance comes in. For illness or injuries that aren’t work related, this policy will cover a portion of the policyholder’s income if they can’t work for a prolonged period of time. The coverage comes in two forms:
- Short-term disability insurance: This policy covers up to 80% of the policyholder’s earnings for a short time, usually for three to six months. The waiting period after an illness or injury and before benefits kick in is also pretty short, typically 14 days or less.
- Long-term disability insurance: This policy covers up to 60% of the policyholder’s salary for a number of years (usually two, five, or 10), or until the disability ends or retirement age. The waiting period (or elimination period) before benefits begin is usually 90 days, but can be anywhere from 30 days to two years.
Currently, five U.S. states and one territory require employers to provide short-term disability coverage to employees:
Also known as state disability insurance, these plans provide partial wage replacement when a serious illness or injury prevents an employee from working.
You may choose to offer your employees short-term or long-term disability insurance. Often, disability insurance is an employer-sponsored plan, meaning you pay some or all of the premium. Or you may offer this as a voluntary benefit, and your employees would be responsible for the full cost of coverage.
What is health insurance?
Health insurance does not cover work-related injuries and doesn't provide any wage replacement for people who can’t work due to illness or injury.
For small businesses that don’t offer health insurance benefits, employees can obtain coverage through the Affordable Care Act (ACA) marketplace. ACA plans offer a broad range of services, including emergency services, prescription medications, and pediatric care.
Under the ACA, employers are not required to offer employees health insurance coverage if they have fewer than 50 employees. But employers with more than 50 employees can be penalized if they don’t offer health coverage to 95% of their full-time staff.
Most Americans get health insurance through group health plans offered by their employer, however. Employer health insurance plans currently cover about 50% of the population.
Typically, an employer-sponsored plan covers full-time employees and their families. Employers usually cover at least a portion of the health insurance premiums.
To attract top talent, bigger tech firms may offer rich benefits packages. These go beyond benefits like medical, dental, vision, and disability coverage, and include parental leave, child care, and fertility services.
How do health, disability, and workers’ comp insurance differ?
All of these insurance policies cover health-related expenses. But it’s important for small business owners to understand what sets them apart:
- Most states require employers with employees to carry workers’ compensation insurance.
- For disability insurance, only a handful of states require you to provide short-term disability coverage.
- Small businesses with fewer than 50 employees are not legally required to provide health insurance to employees.
- Workers’ compensation insurance will pay for medical expenses related to an on-the-job injury, and partial lost wages if an employee can’t work.
- Disability benefits also cover partial wages if an off-the-job injury or illness prevents an employee from working. But it doesn’t cover medical costs.
- Health insurance will pay for medical care and treatment unrelated to a work injury or illness. But it doesn’t cover lost wages if an employee is unable to work.
Who pays for it
- Employers must pay 100% of the cost for workers’ compensation coverage.
- Employers often pay for some of the cost of disability insurance. In those states that require temporary disability insurance, employers are required to offer it, but employees actually pay for it through employee payroll deductions.
- For health insurance, employers typically contribute at least a portion of the monthly premiums.
What you need to know about these policies
The right insurance can keep your employees safe and protect your business too. But you need to have coverage in place before an injury or illness occurs.
When it comes to workers’ comp, you do need to understand your state’s rules. For example, in Illinois a tech business with even one part-time employee must have workers’ compensation insurance. But in Missouri, it’s only required for tech businesses with five or more employees.
If you have questions about what coverage you may need or your state’s specific requirements, our expert agents are available to help.
Short-term or temporary disability insurance is required by several states, but you still need to decide if you’ll offer employees other coverage such as long-term disability. If you decide to provide any type of disability insurance, then you’ll need to determine whether you’ll pay a portion of the premiums or offer coverage as a voluntary benefit.
Health insurance is another matter. Small businesses may find it hard to attract quality employees without a benefits package that includes health insurance. If you opt to offer coverage, you’ll have to consider the potential costs and how much you’re willing to contribute.
How to avoid injury claims
We all require medical care, and illnesses are a fact of life. But there are simple steps you can take to reduce the risk of an injured employee. Sure, working in an office may not be as dangerous as other occupations, but tech companies should still take steps to protect their employees’ health and safety.
For tech firms, the most common work-related injuries include slips, trips and falls, and repetitive motion injuries.
These simple steps can help you prevent falls at work:
- Post signs to alert employees to temporary or permanent work hazards, like potentially slippery floors.
- Remove clutter and secure cords or wires that may be a tripping hazard.
- Promptly clean up messes and replace burned-out light bulbs.
To reduce the risk of repetitive motion injuries, you can:
- Buy ergonomic office equipment such as chairs, desks, and keyboards.
- Educate employees on ways to prevent these injuries such as improving posture.
- Encourage employees to alert you if they have early signs of an issue, such as wrist pain. Equipment like a wrist rest can help prevent further injury.
Even the most careful business owner may have an employee injured on the job. To protect your business and your injured worker, make sure you have the right workers’ compensation insurance in place. You can start an application today and find a policy and price to fit your small business.