Employee Benefits: Disability
Disability coverage is a vital component of a benefits plan: it’s what employees need when life circumstances make working difficult. For many employers, disability benefit costs account for a significant portion of the total cost of providing benefits, and even a single disability claim can have a significant impact on future rates. The key question for employers is: how do I protect my employees while maintaining financial discipline?
Disability and Disability Benefits
In employee benefits and insurance terms, a disability is a physical injury, illness or psychological disorder. Disability benefits provide coverage for loss of income due to a disability. There are different types of disability benefits; they depend on the length of the employee’s disability and the employee’s ability to return to employment.
Many employee benefits providers offer short term disability (STD) benefits and long-term disability benefits (LTD). At GroupHEALTH, we like to challenge the status quo, so we actually offer three types of disability benefits: short term, mid-term and adaptive long-term disability.
When looking at an employee’s inability to return to work and deciding whether to pay a claim (or continue to pay a claim< insurers look at two scenarios:
- Own Occupation – is the employee able to perform the essential duties of their regular occupation (usually the job they were working when they submitted the disability claim)?
- Any Occupation – is the employee able to work in ANY occupation that they are reasonably qualified or could be reasonably qualified to do (for example, with education and training)?
Over time employees on disability benefits move through milestones – the “own occupation” period first, and then the “any occupation” period after. Each plan is different in terms of the legal definitions and timeline during which an employee moves from “own occupation” to “any occupation.”
Short Term Disability (STD) Benefits
Short term disability benefits usually cover loss of income (due to a disability) for a relatively short duration (often around 17 weeks). The length of STD coverage varies based on the provider and the plan. Some employers choose not to provide STD coverage at all. This is because, in the big picture, the disability is relatively short term. The employee does have the option to apply for medical employment insurance (EI) through the federal government.
Mid-Term Disability (MTD) Benefits
Traditional employee benefit plans often include short term disability (STD) and/or long term disability (LTD). The first two years (typically) of the LTD claim were considered the “own occupation” period (meaning the employee couldn’t do their own occupation). After the two years, the LTD claim moved on to “any occupation” (where the employee couldn’t do any occupation).
In this scenario, when an LTD claim begins, the employer is required to set up extensive reserves (usually 50 months worth) to cover the cost of the LTD claim. Typically, less than 30% of claims actually move past the “any occupation” period. The result is a very large amount of money tied up for the employer (often unnecessarily).
To address this, GroupHEALTH introduced mid-term disability benefits (MTD). MTD coverage segregates the “own occupation” period of long-term disability benefits. It’s basically for disabilities that move beyond short-term, but are not really long term in nature. The employer is still required to set up reserves for the disability claim, but MTD reserves are much lower than those required for an LTD claim (they can be a quarter of reserves required for traditional LTD!). The employer then benefits from cost savings, as they’re paying less towards reserves.
Mid-term disability gives you, the employer great flexibility in the coverage you offer. You choose the duration (during the “own occupation” period) and the percentage of earnings covered. You can choose a different percentage of earnings to cover for mid-term disability and adaptive long-term disability.
Adaptive Long-Term Disability Benefits
Long-term disability benefits cover loss of income due to a disability; they begin after short term or mid-term disability benefits end, or after a specified waiting period. Adaptive long-term disability begins during the “any occupation” period of disability coverage. It’s flexible in that (like mid-term disability) you can choose the duration and percentage of earning covered.
Handling a Disability Claim
When one of your employees is disabled, it can be a complex and sensitive situation. As the employer you won’t just be concerned about their welfare, you will also be anxious about when they will return to work (and IF they’ll return to work) and apprehensive about the cost of the claim. You will likely have many questions, but to protect your employee’s privacy you can’t actually ask the employee all of these questions. As an employer, there is definitely information you need (for alternate staffing etc.) but there is also information that the employee won’t be sharing with you.
It’s a fine line between getting the information you need and protecting the privacy of the worker. As such, it can be very helpful to have an independent third-party administer the claim and interact with the employee. At GroupHEALTH, all our disability coverage comes with built-in services from the Disability Management Institute (DMI).
DMI is an independent third party that advocates and supports both the employer, and the employee during a disability claim. The services they provide are valuable because they help control the costs associated with disability claims.
Good Advice is Key
Are you interested in a sustainable disability plan that is designed with you, for your business? It can be done. Review your options with one of our licensed advisors on the phone, or contact us for a comparison quote.