AWC Blog

When Does It Make Sense to Pay Out of Pocket?


Workers compensation premiums go up all the time. Insurance costs, in general, often feel overwhelming. It makes good business sense to take care of some expenses out of pocket if it means your premiums won’t go up. You do the same thing for your home insurance and your auto insurance. Why not do it for your business, especially for something like a small medical cost for an employee injured on the job?

Paying out of pocket for the little workers compensation claims might appear to make sense but there are plenty of reasons why it’s better to go ahead and file the claim.

Small medical-only claims don’t affect your premium as much as you think they do. In many states, these small claims are discounted up to 70 percent when factored into your ex-mod calculations. Insurers want the data from these smaller claims. This need for information means they’re willing to reward companies who file small claims. Keep in mind that the $500 medical expense you paid may only be calculated at a $150 value, which is spread out over a three-year period. It makes more financial sense to file the small claims. It actually saves you money over time.

You’ll pay higher out of pocket than the insurer will. The fee that the doctor charges the patient is normally higher than the insurance company’s negotiated rate. Insurance companies negotiate with hospitals and doctors to come up with a fee schedule. These schedules to make sure insurance companies only pay “reasonable and customary” amounts instead of the full retail amount. That’s not always the case when you pay out of pocket. The hospital or doctor doesn’t have to give you a discounted price.

You could pay more later. What you think is a small issue now, costing only a few hundred dollars, could become a bigger problem later on. That $500 bill will seem like nothing in the face of a $10,000 hospital stay. Even worse, when you file the bigger claim with your insurance company, you could face additional penalties for not filing when the original injury occurred. Insurance companies, and some states, require “timely” filing of all claims. Check with your insurer to find out exactly when you should file.

Paying out of pocket could be illegal. Some states have made it illegal to pay out of pocket instead of filing a workers compensation claim, in order to discourage people from not filing claims. Other states require that all injuries be reported to a state workers compensation board as well as the insurer in a specified amount of time. When you don’t do that, you could face additional expenses in penalties and fines.

Unless you’re certified as a self-insured company, it’s almost never a good idea to pay a workers compensation claim out of pocket. You’ll pay more than necessary and possibly break the law in the process, all to avoid a potential but very negligible increase in your insurance premium. Play it safe and file a workers compensation claim for every employee who gets hurt while on the job.

Image courtesy of Flickr user frankieleon.

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