Are you worried about worker’s compensation? We’re here to help you better understand the systems in play.
This is the third article in a series. To read the previous articles, click here.
Now that we’ve looked at the traditional market and captive insurance plans, what other options are available for business owners? In this article, we’re examining a High Deductible Program.
Who the plan involves: Owners who are willing to take more risk up-front, have access to fairly substantial amount of capital, feel like they can control their worker’s comp losses and have fairly high comp rates.
What is a high deductible program? If a company uses this kind of plan, they are essentially self-insured; An initial percentage of a claim will be absorbed by the business itself. These can start as low as $1,000, but most start at $25k, $50k or $100k per claim. The primary responsibility of the claim falls on the business. In order to set up this kind of plan, the business is required to post collateral that is a multiple of their deductible. The collateral could involve actual hard assets or could be in the form of a letter of credit from a banking relationship. The point is, since the company is essentially acting as its own insurance company, they are required to hold the proper amount of money in case a claim is made.
Pros: Dramatically lower premiums on average, typically half to one-third of standard rates.
Cons: Much higher risk: If and when an accident occurs, the company is totally responsible for paying each and every deductible.
Who benefits the most from this kind of plan: Companies with longevity and financial stability; companies with a stable, experienced workforce who are satisfied with their jobs, feel like they’re being fairly compensated, listened to and appreciated; companies with a very good safety and loss program with proven results.
Bottom line: Your business must be at least five years old and have a proven track-record of safety and stability to use this plan, and you must have access to capital. Only worthwhile if your company has high-risk jobs.
Next time, we’ll talk about the PEO Solution.
William Hollar works for PEO Select – a fast-growing company that connects businesses all over the U.S. with a PEO ideal for their needs.
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