Workers’ compensation is an insurance policy that protects workers by paying their medical bills if they’re injured on the job. Health insurance also pays medical expenses for the insured party. The critical difference is that employers provide workers’ compensation to cover employees’ occupational injuries and illnesses, but it doesn’t pay for nonwork-related medical costs. The employee’s health insurance does that.
Additionally, workers’ compensation insurance has a component that covers disability payments to address an injured worker’s loss of income. Traditional disability insurance is not tied to whether the employee was hurt on the job—even when offered by the employer. Disability plans replace a portion of income for a worker who is injured outside of the work environment.
Workers’ Compensation vs Health Insurance at a Glance
Workers’ Compensation Insurance
Workplace injuries and occupational illnesses
Nonworkplace injuries and illnesses
Mandatory in every state except Texas
Voluntary, but businesses with 50+ FTE* employees are subject to a tax penalty
Paid for by
Cost usually shared between business and worker
The Difference Between Workers’ Compensation & Health Insurance
The key difference between workers’ compensation insurance and health insurance has to do with the circumstances that create the need for medical attention. Workers’ compensation coverage is designed to pay for medical exams and treatments, prescriptions, and rehabilitation services when an employee suffers an injury in the scope and course of employment. If an employee simply becomes sick or hurt due to nonwork-related incidents, then the employee’s health insurance kicks in.
Another important difference is what each policy covers. Both pay for medical treatments and other related bills, but health insurance also pays for preventative care, such as screenings for cancer or high blood pressure. Workers’ comp doesn’t pay for these, but it does cover wage replacement, disability benefits, and funeral expenses.
Finally, workers’ compensation is a state-mandated policy that employers purchase. Health insurance isn’t mandatory, but business owners with 50 or more employees are subject to Employer Shared Responsibility Payment.
Does Health Insurance Cover Workplace Injuries?
Health insurance is not the designated insurance to cover workplace injuries; workers’ compensation is. Health insurance carriers will assess whether they are responsible for payments. The scenario usually works like this: an injured person goes to the emergency room is asked whether the injury is work-related. The insurance company sees the response and refuses to pay the claim.
On the other hand, workers’ compensation insurance carriers usually cover all medical expenses related to an injury as long as the injured employee was not engaging in illegal behavior, horseplay, or willfully ignoring safety protocol. The employee is not responsible for any deductible or copay their health insurance would require either. Plus, the employee receives a portion of their wages for time off work and payments for temporary or permanent disabilities.
Pro tip: Employees sometimes try to use their health insurance instead of insisting on their employer filing a workers’ comp claim, but this is a bad idea. Claiming your injury was not work-related when it actually was is insurance fraud. If your carrier discovers the truth, it can stop paying your claims and rescind any payments it already paid— leaving you on the hook for your medical bills.
Workers’ Compensation vs Disability Insurance
Even though workers’ comp pays disability benefits when an employee is injured at work, it doesn’t cover lost income if an employee suffers a debilitating injury or illness outside of work activities. While employers aren’t required to cover these events, their businesses can suffer from the disruption they cause. This is why some voluntarily offer employees disability insurance, and a few subsidize the coverage. The portion of lost income disability insurance pays for can help the injured employee get back to work quicker.
Disability income insurance can be either short-term disability insurance or long-term disability insurance. Short-term disability insurance pays the person for up to six months of lost wages while long-term disability pays claims for injuries or illnesses that last longer than six months. Disability only pays lost wages and does not replace health insurance. All medical care must still be paid for either by the employee or by the employee’s health insurance.
Since disability insurance is voluntary for employers, employees who wish to have it when their boss doesn’t offer it can purchase it through private markets.
Who Needs Disability Insurance?
The Centers for Disease Control and Prevention reports that one in four American adults have some type of disability ― that’s 61 million adults in the United States. The Council for Disability Awareness claims nearly 6% of the workforce experiences a short-term disability every year. That’s a staggering number.
The fact is that anyone could suffer an income-threatening illness or injury at any time. This makes the case that disability insurance is an important insurance to carry because most people will benefit from having it. However, disability insurance tends to be expensive, which is why many people opt out of getting a policy unless they have a subsidized employer plan.
Unless you have enough in savings to deal with a months’ long disability, you should consider getting a disability insurance policy. Short-term disability policies are cheaper than long-term disability policies because the payout is limited to six months or less. Those who fear a long-term or permanent disability may want to look at a long-term disability plan as well.
Properly Protecting Your Employees: Workers’ Comp, Health & Disability Insurance
Employers are required to carry workers’ compensation insurance with few exceptions. This isn’t negotiable. But should you offer health and disability insurance as well? As a business owner, how do you properly protect your employees, and in turn, your business? After all, healthy employees are generally happier and more productive at work. Plus, offering health and disability as a benefit can go a long way to attracting and retaining great talent in the company.
There are ways for small business owners to offer health and disability insurance to employees. One is to provide a voluntary option where the employee pays for coverage via payroll deduction. This often is achieved by establishing a relationship with a professional employer organization that helps facilitate payroll and human resources options.
By making sure that employees have access to all three types of policies, you ensure your employees have the resources to get the medical attention required in any circumstance. This helps them weather the financial storm of prolonged incidents and helps you retain talent.
Frequently Asked Questions (FAQs)
Don’t get confused by what workers’ compensation covers compared to health insurance or disability insurance. Here are some commonly asked questions to consider.
What is the difference between workers’ compensation and state disability?
Workers’ compensation pays a weekly lost wages benefit for those who are injured or become ill when completing work duties. It is an employer-based plan, whereas state disability pays a weekly benefit amount for injuries not related to employment.
Can you get workers’ comp and short-term disability at the same time?
In most states, you are not eligible to receive both workers’ compensation and state disability payments. You need to have a closed workers’ compensation case with all payments settled and still qualify for state disability and have payments then continue via the state plan.
Do I need a disability plan if the state has disability coverage?
While your state offers disability coverage, qualifying for it is often difficult, and it takes a long time to get approval. This leaves many people struggling to pay the bills in the interim. Private disability policies payout faster so that you get your money sooner than later.
Workers’ compensation is a required employee benefit that businesses must provide while health and disability insurance can be part of a voluntary benefits package. The ultimate goal is to keep employees healthy with the right resources to pay medical bills and any lost wages that might arise from an accident or long-term illness.