I continue to serve as a faculty member for the Big “I” Virtual University. Recently, we received the following question from an agent:

“Can a health insurance company deny a claim if the injured party got hurt on the job, was an owner of the company, and chose to exclude themselves from the workers compensation policy?”

I am not well versed in the health and disability insurance area, but my understanding is that this is not uncommon and hasn’t been for decades. Owners or officers of a company might have excellent health and disability insurance. So, to save a few hundred dollars, they elect to exempt or continue to exempt themselves from the workers compensation law. This may increasingly be a mistake as, in an effort to make coverage more affordable, health and disability policies expand their exclusionary provisions.

One of the faculty responders was Jim Mahurin, CPCU, ARM, a risk management consultant, who advised:

“With very few exceptions, health insurance policies, self-funded benefit plans, self-funded benefit reinsurance programs, and affinity health programs, expressly exclude injury or illness arising from employment-related activities. The language often reads ‘…for profit or gain…’, so the scope of the exclusion is very large.

“I conducted a national search seeking evidence of health plans providing what was once called ’24-hour accident’ coverage for officers, partners, LLC managers, and sole proprietors.  The findings were (a) extremely small, and (b) conditional. There was an insurance company in one state providing a health policy to people who worked at home and didn’t have the ‘for profit or gain’ exclusion. There were some health plans for farmers. There were some very old and very high quality (read expensive) private insurance plans with ’24-hour accident’ coverage for officers, partners, LLC managers, or sole proprietors. However, they were limited to very low hazard business operations. These same providers do not appear to provide this coverage in newer policies.

“In addition, Medicare can subrogate a work-related injury and Medicare Supplement policies expressly exclude any work-related injury.

“I tell any person involved in any activity ‘…for profit or gain…’, they need Workers’ Compensation coverage.

“I receive a continuing stream of inquiries from people, some of whom are in the hospital, asking why their health insurance isn’t going to pay for their injuries arising from an auto accident. You can be admitted to the hospital at 9:00 a.m. and Blue Cross will deny your claim before the day is over when they determine you were at work.

“I spent over a year on a case where a horribly injured business owner incurred $1,700,000 in medical expenses while on a business trip. He and his partner had removed themselves under the Workers’ Compensation policy to save $600 to $800 a year in premium. Both partners had health insurance as part of their retirement from a different employer. The health plan denied the claims. The partners used to be wealthy. They certainly aren’t wealthy today.

“The same situation goes for the firms using these individuals. Loads of Medicare-eligible retirees and semi-retirees ‘consult.’ When they are injured on the site of their projects, medical bills arise and trouble starts. Medicare may subrogate their expenses against the constructive employer. Medicare Supplement policies are very strict about excluding work related injuries. The injured person sues their customer alleging a condition in the premises. A computer guy running a cable through a ceiling fell about 15 feet onto a concrete floor.  What did he do? He sued his own customer.

“My Workers’ Comp policy costs about $600 a year. It’s a bargain.”

Do you insure business owners or officers that exempt themselves from workers compensation coverage? If so, has everyone adequately investigated the potential ramifications?

Photo by Jeff Kubina

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Bill Wilson

Founder at InsuranceCommentary.com
One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information

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