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Protecting Employees: Workers’ Compensation vs. Health Insurance

7. May 2014 08:39

Woman at desk in pain, presumably in her back

As a small-business owner, you may already understand the basic differences between Workers’ Compensation Insurance and Health Insurance. To recap, Workers’ Comp is coverage specifically designed to cover workplace injuries and illnesses. Health Insurance (including temporary and long-term disability coverage) is a benefit that some employers offer their workers for preventative care and medical expenses.

But where one coverage ends and the other begins can become a bit confusing, especially when a small-business owner is trying to determine whether or not…

Read on to learn more about each situation. We’ll discuss your legal insurance obligations as an employer and as a citizen of the United States.

What’s the Difference between Workers’ Comp and Disability Insurance?

Before we begin, let’s take a moment to define a few key terms:

As you may have gathered from these definitions, one major difference between the two coverages is that Workers’ Compensation Insurance applies only to workplace injuries, while Health Insurance (and therefore Disability Insurance) only applies to non-work injuries. In fact, most Health Insurance providers exclude coverage for injuries and illnesses that are covered by Workers’ Compensation Insurance.

Additionally, Workers’ Compensation Insurance is often a mandatory coverage for employers, while Disability Insurance is not. Even if you work in a state with a statuary disability program, you don’t have to pay into it on behalf of your employees (unless you want to, of course). Employees make tax-deductible contributions to fund these programs unless their employer offers to cover the cost as a benefit.

However, all states (except for Texas) require employers to carry Workers’ Comp coverage for their employees. The specifics of the regulations vary from state to state. For example, one state might require coverage even if you have only one employee. Others may require it once you hire four employees. (Check out our state-by-state Workers’ Comp guide to learn more about the laws in your state.)

But Doesn’t the Affordable Care Act (Obamacare) Require Employers to Offer Health Insurance to Employees?

Not exactly. While the Affordable Care Act (Obamacare) requires that individuals carry Health Insurance coverage, it does not require businesses to offer coverage to their employees. However, starting in 2015, larger businesses may be required to make an Employer Shared Responsibility Payment (ESRP). For this requirement to kick in, your business must…

If you have less than 50 full-time employees or already offer adequate Health Insurance, you do not have to make any payments to the government. You can learn more by reading “Do I Have to Offer Health Insurance to My Employees?” on HealthCare.gov.

Note: Disability Insurance is not part of the minimum essential coverage requirements outlined by the ACA. Therefore, no business will ever be legally obligated to offer this additional Health Insurance coverage to employees.

Do Freelancers & Independent Contractors Need Workers’ Comp or Health Insurance?

After reading about the differences between Workers’ Comp and Health Insurance, independent contractors and other “one-person shows” might be wondering about their insurance obligations. In short, all independent contractors are required to carry Health Insurance – or else pay a fine – due to the stipulations of the ACA. Your Workers’ Compensation obligation, on the other hand, isn’t so cut and dry.

Here’s what you need to know:

In sum, independent contractors may be able to forego Workers’ Compensation Insurance, but they’ll have to carry Health Insurance. Depending on where you live and the type of work you do, you may be on the hook for both types of coverage.

This post is part of an ongoing series on Workers’ Compensation Insurance and the high cost of occupational injuries. Stay tuned for more on how to handle work injury claims, adhere to state Workers’ Comp laws, and find affordable coverage!

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Insurance Terms Explained | Risk Management | Small Business | Small Business Risk Management | Tips for All Small Businesses | Workers' Compensation Insurance

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