Taking the Mystery out of Short-Term Disability
Disability Insurance for Public Sector Employees in Arizona
The purpose of offering short-term disability (STD) and the benefit of signing up for short-term disability is often misunderstood by public sector employers and employees alike. Why? On both sides, it may be confused with the long-term disability plan offered through the state’s retirement system, such as ASRS right here in Arizona. That plan kicks in after 6 months of disability.
Another reason may be an employer’s perception of the paid-time-off program or the employee’s perception of their earned paid time off (PTO), thinking it can carry them through the 6-month waiting period before long-term disability kicks in. Organizations, regardless of their PTO program, should offer qualifying employees the option to elect at least a 3-month or 6-month short-term disability plan, which is typically the stop-gap measure to help employees maintain an income during that time. This is especially important for newer employees that have not had the time to accrue those valuable days.
Why it’s Important to Offer Short-Term Disability Insurance to Your Employees
Offering a short-term disability plan is essential for a few reasons.
First and foremost, it helps employees protect their own financial and emotional wellness if they become disabled in the short-term, while they wait 6 months to qualify for long-term disability. A disability may be due to medical circumstances, like pregnancy, illness, or injury.
Second, short-term disability is a great tool for the recruitment and retention of employees. Disability is one of the top benefits that employees may be looking for when considering working for an employer, outside of medical, dental, or retirement.
Third, offering disability coverage, especially employer paid, help protect an employer’s investment in an employee by providing that employee with financial stability — just enough to help them recover from their disability and return to work. Employers offering disability coverage have also experienced a reduction in their worker’s compensation claims.
Disability, like any other benefit, must be customized to meet the needs of your organization. Take the time to ensure that your short-term disability plan makes sense for your workplace and the demographics of your workforce.
Evaluate and get educated on your short-term disability plan design, waiting period and benefit duration options, integration with other disability benefits, and especially, coverage exclusions to determine suitability. Some policies actually exclude conditions, such as musculoskeletal conditions, that contribute to some top reasons why people become disabled.
How Best to Educate Employees on Short-Term Disability
Benefits education is crucial, especially when dates and deadlines are involved. Educating your employees on the when and how their short-term disability plan can be used, not only reiterates the value of purchasing it. But, it also communicates your commitment as an employer to help them understand it and use it to protect their own financial health and wellbeing.
Educate employees both prior to and during open enrollment on the ins and outs of disability coverage, especially if it’s a newly offered benefit. Be sure to cover how short-term disability works, how it works with long-term disability, and why it’s important for them to consider now and for the future.
Case scenarios are a great way to educate employees on the value of disability coverage. Provide employees with scenarios of how their disability plan would work if that employee becomes disabled due to pregnancy, illness, or an accident-related injury that occurs outside of work (on-the-job injuries are often excluded).
It’s also important to bring up key questions that employees should be asking themselves when deciding to elect or waive this benefit. For example, if they were disabled and unable to work, and thus not receiving a paycheck, how would they pay for their core monthly expenses? If they don’t know, what are their core monthly expenses? Do they have enough money saved to cover those expenses in the event they cannot work? Do they want to use their savings in that scenario?
Employees may have savings they are comfortable with towards those using for those expenses should they become disabled, others may not want to use their savings or not have enough savings to cover those expenses. Short-term disability coverage, if possible, should be customized to meet the employee’s specific financial needs. Not all employees may need 60% of their pre-disability earnings to cover their expenses. Some employees may only need enough to cover their car, mortgage, or rent payment.
Understanding the Details of Your Short-Term Disability Plan
Not only is it important for employees to understand their own needs, but employers and employees, alike, need to have a basic understanding of the “fine print” details of their short-term disability benefits. Here are a few of those “fine print” details to know and know well.
Definition of Earnings
Earnings definition is used to calculate how much benefit an employee may be eligible for if they become disabled. Some policies have a definition of earnings that includes commissions, bonuses, and/or overtime in pre-disability earnings, while others may only look at annual base salary. Get clear on your policy’s definition of earnings, especially if it’s an employer-paid policy. Knowing and communicating how much coverage an employee is entitled to or has the option to elect is key to its value proposition.
Offset and Integration
Offset and integration is another fine print detail of your plan that needs to be looked at closely and communicated clearly as it tells you what other income the insurance carrier may look at when determining the disability payment a policyholder would receive if they filed a claim. Many short-term disability policies integrate with other income, including primary and/or family disability and social security benefits (i.e., benefits could be reduced if the employee or their dependent is receiving disability income). For example, let’s say you sign up for $1,000 a week (representing 60% of your income), but you are already receiving, or your dependent is receiving $250 a week from social security. At the time of claim, your weekly benefit amount would be reduced by 25% – to $750 a week. Getting a check for 25% of the amount you expected, which was 60% of pre-disability income, could certainly leave anyone confused and upset, especially in times of physical, emotional, and financial distress.
Pre-existing Limitation
Pre-existing “pre-ex” condition limitation is another detail of your policy to know well and emphasize to your employees. Pre-ex determines how long you need to have your coverage in effect before it will pay for a condition you’ve been diagnosed with within a specific timeframe preceding the effective date of the policy. Some short-term disability plan options are generous with either a 3-month or 6-month look back / 12-month look forward, but most have a 12-month look back / 12-month look forward. Pregnancy usually has a 9-month look back / 9 month look forward. Once you’ve surpassed your forward-looking waiting period, that condition you were diagnosed with in the specific timeframe before the effective date will then be covered like any other condition moving forward.
Waiting Periods and Benefit Durations
Be sure to highly communicate your plan’s waiting period (i.e. how many days before benefits are payable) for both accident and illness, as well as benefit durations (i.e., how long benefits are payable) options. Some policies can have waiting periods of 7 days or 14 days for both accident and illness, while others could have no waiting period for accident and a waiting period of 7 or 14 days, even 30 days, for illness. In terms of benefit duration, there are options for 11 weeks, 13 weeks, and 24 weeks. Maternity benefits are usually payable 6 weeks for conventional birth and 8 weeks for a c-section, but pregnancy benefits can also be treated (i.e., payable as “any other illness”). The shorter the waiting period and the longer the benefit duration = the higher the cost.
Partial Disability and Return to Work Incentives
Many plans also come with a built-in partial disability and return to work incentive benefits, which can be valuable for both the employer and the employee. With partial disability, employees can return to work part-time and still receive a portion of their disability benefits, while they progress toward coming back full-time. Return-to-work incentives encourage employees to literally get better and come back to work. Many have money incentives that are simply an increase in their disability benefits, such as 5% or 10% if the employee goes to a mandatory rehabilitation – which can be a win-win for all parties involved.
With many plan options available and fine details, it can be hard to not only choose the right short-term disability insurance plan for your organization, but also communicate those fine print to employees in a way that’s clear and understandable. Not to mention, understanding how state coverage and social security benefits factor in.
Engage your insurance carrier representative and/or employee benefits consultant for assistance in helping you create and truly understand the details of your organization short-term disability plan. If you do not have a short-term disability plan or a benefits consultant to go to for advice, send us a message!
About VSMG
Built by and for Arizona public sector employers, VSMG is a leading employee benefits consultant dedicated exclusively to serving Arizona school districts, municipalities and other public entities for over 19 years. With offices in Phoenix and Tucson, we are committed to delivering expert advice, best-in-class benefits, forward-thinking strategies, and cost-effective solutions to help our school district clients attract and retain their talent. Reach out to us today for more information.
For more information on how we can help your organization at no cost, don’t hesitate to reach out.
