An employee is injured on a job site and incurs $25,000 in medical expenses. The contractor's workers' compensation policy has a $500 deductible. How much will the contractor pay out-of-pocket for this claim?
Correct Answer
D) $500
The contractor pays only the deductible amount of $500. Workers' compensation insurance covers the remaining medical expenses.
Why This Is the Correct Answer
With a $500 deductible on a workers' compensation policy, the contractor is responsible for the first $500 of any claim. The insurer covers all amounts above the deductible. For a $25,000 claim, the contractor pays $500 and the insurer pays the remaining $24,500. The contractor's out-of-pocket cost is exactly $500.
Why the Other Options Are Wrong
Option A: $2,500
$2,500 has no basis in this calculation. It might result from applying a 10% co-pay concept (10% of $25,000), but workers' comp deductibles work as fixed dollar amounts, not percentages.
Option B: $25,000
$25,000 would be the contractor's cost only if there were no insurance at all. The entire purpose of workers' comp insurance is to transfer this risk to the insurer above the deductible threshold.
Option C: $24,500
$24,500 is actually what the insurance company pays ($25,000 − $500 deductible). The contractor pays the deductible, not the remainder.
Memory Technique
Deductible = the contractor's 'skin in the game.' The policy says: 'You pay the first $500, we cover the rest.' $500 deductible = $500 out-of-pocket, full stop — regardless of how large the total claim is.
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