Workers' Compensation Coverage is generally always a substantial cost item in any business financial statement. Therefore, business owners pay special attention to the various methods in containing those costs. A very common way to control some of the cost is by electing to either exclude coverage on corporate officers or not electing coverage for sole proprietors or partners. Generally, this non-coverage choice is done based on the existence of health insurance-individual, group, or self insured plans. Here are some thoughts regarding the non-coverage choices.
Corporate officers are considered employees of the corporation. In Montana, "MCA 39-71-401 Employments covered and exemptions-elections-notice" provides the rules for who is covered and who may elect coverage and is allowed that election by the compensation plan. The code says: "Except as provided in subsection (2), the Workers' Compensation Act applies to all employers and to all employees." Subsection (2) continues: "Unless the employer elects coverage for these employments under this chapter and an insurer allows an election, the Workers' Compensation Act does not apply to any of the following." Then follows several pages of employments the Act does not pertain to. If a corporate officer finds that they fall within one of these categories they can elect to be excluded on any workers' comp. policy. This exclusion is usually identified by an endorsement to the policy. Then, any work related injury or illness will have to be covered elsewhere, either by self insurance or, possibly, a health insurance program. Maybe!
Many health insurance policies contain wording that can preclude coverage if workers' compensation is available. One insurer states: The Plan will not pay for: (1) all services, supplies, drugs and devices which are provided to treat any illness or injury arising out of employment when the Member employer has elected or is required by law to obtain coverage for illness or injury under state or federal workers' compensation laws, occupational disease laws or similar legislation. This Exclusion applies to all services and supplies provided to treat such illness or injury even though: (c) The member waives his or her rights to such coverage or benefits. Thus, the corporate officer, an employee (member) now has now excluded himself from workers' comp. and, perhaps, also from his or her health insurance because of an employment illness or injury. Being self insured can now become very expensive and could also have an adverse effect on the corporation's financial position.
There are two ways to ease this problem. First, find out if the health plan has a similar workers' comp. off-set and try to have it eliminated or modified. (point to remember-self insured health programs can, and many times do, contain similar workers' comp. off-sets). Second, the officer can continue to remain covered under the workers' comp. policy-but with modifications. Montana establishes minimum and maximum premium and benefits for electing owners, partners, corporate officers and LLC managers or member managers. The current limits provide for a maximum reported payroll of $55,276./yr. and a minimum as low as $10,428./yr. These limits are changed annually and the benefits level will be adjusted accordingly. Premiums will be based on the appropriate classification for the covered person's job description. Regardless of the actual annual income of the covered party, the maximum is capped at $55,276. for the current policy year. (Similar caps are employed in North Dakota ($33,600.) and Wyoming ($45,240.)).
Owners and partners have the same problems but with a different starting point. They are exempt but can elect to be covered! A determination must be made to see if any coverage already exists. The same provisions with workers' comp off-sets in individual, group, or self insured health programs must be examined. Some will, unlike above, simply state that work related illness or injury is not covered-period! If coverage does exist it surely would not hurt to have the insurer verify, in writing, that all employment related illness or injuries are covered. Of course, any co-payments should also be taken into consideration as well as the fact that workers' comp. will also include disability coverage. For the owner/partner electing to pursue workers' comp. coverage a choice of insurers may be a slight problem. Many standard insurers may be unwilling to provide coverage for an individual. However, the Montana State Fund is Montana's guaranteed market and therefore must provide coverage should the individual qualify. Premiums are based upon the individual's work category.
Workplace illness and injuries can be insured if desired. Making sure it is available when needed requires only a few questions on your part.
(As a note: I have heard discussions regarding problems between Workers' Compensation and Medicare regarding what Medicare feels is an illegal shift of medical benefits from workers' comp. to Medicare. This is an area that best be addressed by those more qualified and familiar with Medicare).
Article By: Dennis Gambill - The author is an Insurance Litigation consultant. Adjunct professor at EMC for 8 years-Risk & Insurance. 40+ years-both MGA and agency experience.
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