A contractor's employee is injured on a job site in Michigan. The contractor's workers' compensation insurance has a $500 deductible per claim. The total medical costs are $12,500 and lost wages are $3,200. What is the contractor's out-of-pocket cost for this claim?
Correct Answer
C) $500
The contractor is only responsible for the deductible amount of $500. Workers' compensation insurance covers the remaining medical costs and lost wages.
Why This Is the Correct Answer
With workers' compensation insurance, the contractor's financial responsibility is limited to the deductible amount specified in the policy. In this case, the $500 deductible is the contractor's only out-of-pocket expense. The insurance carrier covers all remaining costs including the $12,500 in medical expenses and $3,200 in lost wages, totaling $15,200 that the insurance pays beyond the deductible.
Why the Other Options Are Wrong
Option A: $15,700
This represents the total claim amount ($12,500 medical + $3,200 wages = $15,700) but ignores that workers' compensation insurance covers everything except the deductible. The contractor doesn't pay the full claim amount.
Option B: $12,500
This is only the medical cost portion of the claim. While significant, the contractor doesn't pay the medical costs directly - the workers' compensation insurance covers medical expenses after the deductible is met.
Option D: $3,200
This represents only the lost wages portion of the claim. Like medical costs, lost wages are covered by workers' compensation insurance after the contractor pays the deductible amount.
Memory Technique
Remember 'Deductible = Contractor's Debt' - the contractor only owes the deductible amount, while workers' comp insurance handles the rest of the financial burden.
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