The Small-Business Owner's Guide to Workers' Compensation Insurance

Chapter 4: Workers' Compensation vs. Health Insurance
Part 1: What's the Difference between Workers' Comp and Disability Insurance?

Before we begin, let's take a moment to review a few key terms:

  • Workers' Compensation Insurance. A type of business insurance that pays for an employee's workplace injury or illness. As you know, this coverage is regulated by the state, and employers are often required to carry coverage, no matter the size of their workforce.
  • Health insurance. A type of insurance that benefits individuals by helping them pay for medical expenses not related to work. As of 2014, almost all Americans are required to carry health insurance. Many employers offer health insurance to their employees as part of a benefits package, but individuals can purchase plans on their own.
  • Disability Insurance. A type of health insurance that helps pay an individual's lost income if they become disabled and are unable to work. In most states, short- and long-term disability insurance policies are voluntary. However, a few states, such as California, have state disability programs that offer mandatory coverage to all eligible employees. Disability insurance compensates employees for non-work injuries that prevent them from working.

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.

Workers' Comp applies only to workplace injuries while Health Insurance only applies to non-work injuries.

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.

Does the Affordable Care Act (Obamacare) Require Employers to Offer Health Insurance to Employees?

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

  • Employ 50 or more full-time employees.
  • Fail to offer health insurance that meets the "minimum essential coverage" requirements.

If you have fewer 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? New browser window icon." on HealthCare.gov New browser window icon..

If you employ 50 or more full-time employees and don't offer Health Insurance, you may be required to pay the ESRP.

Note: Disability Insurance is not part of the minimum essential coverage requirements New browser window icon. outlined by the ACA. Therefore, no business is ever legally obligated to offer this additional health insurance coverage to employees.

Does Obamacare Affect Workers' Comp Requirements?

Though Workers' Comp may seem like health insurance for employees (albeit only for workplace ailments), it's important to know the difference.

The Short Answer: Obamacare Does Not Directly Affect Workers' Comp

Obamacare only affects health insurance, which, as we learned in in the previous section, only provides coverage for non-work injuries and illnesses. This is why the healthcare reform stipulations have no direct impact on Workers' Compensation Insurance.

The ACA does not make any changes to Workers' Comp programs — those are still controlled and run by the state.

But now that everyone is required to carry health coverage, people are starting to wonder if health insurance will pay for workplace injuries and illnesses. After all, freelancers, independent contractors, and other small-business owners are typically excluded from the mandates of state Workers' Comp laws and therefore lack coverage.

Will health insurance pay for their injuries? Probably not. Most health insurance policies exclude coverage for occupational injuries and diseases and will continue to do so. But what's concerning some experts is the indirect effects that Obamacare may have on Workers' Comp.

The Long Answer: Experts Predict Obamacare Will Affect Workers' Comp

Some folks in insurance circles do think Obamacare may have (perhaps unintentional) effects on Workers' Comp. While none of the following is a direct result of the legislation, we thought small-business owners might be interested in hearing the common speculations:

  • Decrease in fraudulent Workers' Comp claims. The theory is that if a larger percent of the population has access to healthcare, there will be fewer reasons for employees to blame the back injury they sustained while doing yard work on the labors of their job. These folks argue that Workers' Compensation has sometimes paid for "questionable" work-related injuries, especially from those employees with preexisting conditions or those who didn't have health insurance. Now that no one can be denied health coverage, experts believe that many of these claims will be filed under health insurance, not Workers' Comp.
  • Reduction in Workers' Comp claims frequency. If access to healthcare makes for a healthier US population, it stands to reason that the number of Workers' Compensation Insurance claims may decrease. Additionally, healthier individuals often recover more quickly, which may mean less expensive Workers' Comp payouts.
  • Delays in Workers' Compensation treatment. There is already a physician shortage in the United States, and this deficit is expected to increase over the next several years — especially now that more people will be seeking care. Because the Workers' Compensation system often demands more paperwork and justification from treating practitioners, more doctors may shy away from Workers' Compensation cases. These delays could potentially increase the cost of claims.

Obviously, it's still too soon to tell if Obamacare will have any real effect on Workers' Compensation Insurance. But as soon as those numbers are available, we'll keep you posted.

Next: Part 2: Funeral Insurance, Accident Insurance, & Critical Illness Insurance

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