Small deductible workers’ compensation plans are policies that help employers better control their insurance costs. By agreeing to a deductible, the employer retains some financial responsibility for claims but gets coverage at a discount.
The deductibles for these plans vary from state to state, ranging from $100 to $75,000, but most fall between $500 and $5,000. A higher deductible usually results in a lower workers’ comp premium. The risk, however, is that you owe your insurer the deductible whenever it pays a claim.
How Small Deductible Plans Work
Workers’ compensation small deductible plans use insurance deductibles the same way any other insurance policy does. The deductible is the amount the policyholder pays in a claim. Essentially, the policyholder shares the risk of loss to the extent of the deductible. The only difference between these plans and a deductible in something like a property policy is that the employer reimburses the carrier. This prevents any lags in a claim.
For example, let’s say your employee is injured and the medical bills amount to $10,000. If your workers’ compensation insurance has a $1,000 deductible, your carrier pays the claim and charges you $1,000.
Insurance companies that offer small deductible plans often use a rate calculation factor to lower your premium. The rate factor is different for each level of available deductible. When it’s applied to the workers’ compensation premium calculation, it reduces your costs. Some insurers may also consider how hazardous your industry is. Riskier businesses see a smaller reduction in their premium. Either way, getting workers’ compensation for less keeps more money in your pocket. That’s good for your cash flow, plus it gives you a good reason to implement safety protocols.
Types of Small Deductible Plans
There are three types of small deductible plans that cover one or both of the types of claims found in workers’ compensation cases:
- Indemnity only: Covers only the lost wages and disability payments of a workers’ compensation claim
- Medical only: Covers only the medical benefits portion of the workers’ compensation claim, such as hospital visits, surgery, and physical therapy.
- Full claims: Covers both the indemnity and medical benefits portions of workers’ compensation claims
The choice of plan may be determined by what the insurance carrier offers or state regulations.
Availability of Workers’ Compensation Small Deductible Plans
Each state determines whether small deductible workers’ compensation plans are available for business owners. Most states make them an option for businesses, although usually only from private carriers and not their state funds. A few states make small deductible plans mandatory but, even then, that’s based on certain situations.
Generally, states require insurers to offer small deductible workers’ comp in one of three circumstances. The first is upon the business owner’s request. In some states, like Pennsylvania, insurers have to offer a small deductible plan any time an employer asks for one. The second situation is when an insurer determines an employer has the financial resources. Finally, some states require insurance carriers make small deductible plans available to all businesses.
Small Deductible Workers’ Compensation Plan Eligibility
State law also determines what businesses are eligible for workers’ compensation small deductible plans. For example, some states only allow businesses to get a small deductible plan if they:
- Provide a letter of credit issued by a bank
- Meet a minimum premium requirement
- Offer cash or securities as collateral
Who Can Benefit from a Small Deductible Plan
A small deductible plan is best for a business that has the resources to self-insure part of a workers’ compensation claim. The business gets the benefit of a premium credit for self-insurance, thus reducing overall costs.
While small deductible plans do help you save on your workers’ compensation premiums, you should only opt for one if you have the financial resources to pay claims and have a good understanding of your business’ loss history. Understanding the typical loss history helps the business project annual costs based on real claims data.
A small deductible plan has the employer share some of the loss responsibility with the insurance carrier. They are good plans for employers who want to save money, have the financial resources to pay any owed deductible, and understand their loss history to gauge annual costs.