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Workers' Compensation Insurance
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How do workers’ comp, disability, and health 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, disability, and health insurance can all protect your employees

Understanding the difference between workers’ compensation insurance, health insurance, and disability insurance can be difficult. They all offer some sort of protection from employee illnesses and injuries, but their similarities end there.

These types of insurance differ both in how they work and how they’re regulated. As a small business owner, it’s important to understand what each policy will and won’t cover, especially if you have employees or expect to hire any in the future.

Let’s review the differences between these policies, and explore how they can protect a business and its employees.

What is workers’ compensation insurance?

Workers' comp insurance covers lost wages and medical treatment resulting from employees' work-related illnesses or injuries, such as a window cleaner falling from a ladder and breaking their arm.

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 provide death benefits for dependents, as well.

This policy provides peace of mind for injured employees and helps cover expenses until they’re back on their feet. But it also provides important protection for business owners by:

  • Covering medical bills and other costs that an employer could be held responsible for.
  • Protecting employers from the risk of employee lawsuits. Once an employee accepts workers' compensation benefits, they give up the right to sue their employer over the injury.
  • Paying for legal bills in the event of a lawsuit, with the employer's liability insurance included in most workers' comp policies.

Perhaps the most important fact a business owner needs to know is that workers' comp insurance is required in nearly every state. While some states offer coverage directly to employers, others require businesses to purchase a policy from a private insurer. Check your state's workers' compensation laws to find out your business's legal obligations.

While some business owners may think that their employees aren’t at risk of injury because of their industry, some of the most common injuries can occur at any workplace. For example, employees of tech businesses sometimes need treatment for carpal tunnel syndrome or similar problems resulting from poor posture and repetitive movements.

What happens to an employee if they can’t work for an extended period of time, or if they suffer a permanent disability? Without a steady income, a sick or injured worker could quickly find themselves in financial trouble.

What is disability insurance?

What happens to an employee if they can’t work for an extended period of time, or if they suffer a permanent disability? 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 several forms:

  • Short-term disability benefits: These cover up to 70% of an individual's earnings for a short time, usually for three to six months. The waiting period after an impairment occurs and before benefits kick in is also pretty short, typically 14 days or less.
  • Long-term disability benefits: These benefits help cover an individual's salary while they are recovering from a medical condition that lasts more than six months. The waiting period (or elimination period) before benefits begin is usually 90 days, but can be anywhere from 30 days to two years.
  • Permanent disability benefits: When an individual has recovered as much as possible, they have reached maximum medical improvement (MMI) and may become eligible for permanent disability. These benefits are paid at a lower rate and continue until retirement age, when Social Security takes over.

Currently, five U.S. states and one territory require employers to provide short-term disability benefits to their employees, in this case called state disability insurance:

Elsewhere, employers can choose whether to offer disability insurance. Often, disability insurance is an employer-sponsored plan, meaning employers pay some or all of the premium. Or it may be offered as a voluntary benefit, in which case the 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.

Under the Affordable Care Act (ACA), employers with more than 50 employees are considered applicable larger employers (ALE) and must provide the minimum essential coverage to all the employees at their business.

However, employers are not required to offer health insurance coverage if they have fewer than 50 employees. For small businesses that don’t offer health insurance benefits, employees can obtain their own private insurance through the marketplace.

Typically, employers cover at least a portion of the health insurance premiums. Small businesses are also eligible to purchase coverage through the Small Business Health Options Program (SHOP). Depending on the location of the business, states may allow employers with up to 100 employees to buy coverage through SHOP.

Many employer-sponsored plans cover full-time employees and their families, and some offer partial reimbursement to their employees to help with their premiums, co-pays, and other medical costs. For any business owner who offers health insurance to their employees, they must file a return with the IRS that includes the taxpayer identification number (TIN) and coverage information for each employee.

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Workers’ comp, disability, and health insurance differ in terms of regulations and type of coverage

All of these insurance policies cover health-related expenses. But it’s important for small business owners to understand the key differences that set them apart:

Regulatory requirements

  • Most states require employers with employees to carry workers’ compensation insurance.
  • For disability insurance, only a handful of states require businesses to provide short-term disability coverage.
  • Small businesses with fewer than 50 employees are not legally required to provide health insurance to employees, but those with over 50 are obligated to do so.

What’s covered

  • Workers’ compensation insurance pays for medical expenses related to work injuries, and partial lost wages if an employee can’t work.
  • A disability insurance policy covers 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 for non-work-related injuries and illnesses. 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 premiums.
  • 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 small business with even one part-time employee must have workers’ compensation insurance. But in Missouri, it’s only required for 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 benefits. 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

Injuries and illnesses are a fact of life, but companies should still take steps to protect their employees’ health and safety. Beyond the benefit to your workers, reducing the chance of a workers’ compensation claim helps keep your premium low.

These simple steps can help businesses 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 can't prevent every accident. To protect your business and your workers, 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.

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