CEBS-GBA 2, Module 10
Explain the following PLTDI terms: (a) waiting period (b) benefit period (c)preexisting condition coverage limitations and (d) inflation protection
(a) Waiting periods: A person must wait after an illness or injury and be unable to work for a certain period before benefits are payable. The typical waiting period is six months, but it can range from a few months up to 365 days. (b) Benefit period: PLTDI policies may limit the amount of time for which an individual can receive benefits. Policies can vary significantly in this regard, with some offering lifetime benefits and some offering them for a set number of years (sometimes as few as two or five). Many policies pay benefits up to the age of 65 or the individual's retirement age. It is not uncommon for benefit periods arising from mental health conditions to be significantly shorter (typically limited to 24 months) than those arising from physical conditions. (c) Preexisting condition coverage limitations: PLTDI may have restrictions on coverage for preexisting conditions. For employer-sponsored group plans, coverage cannot be denied to someone who enrolls in the group plan during the initial enrollment period. However, the policy can include an exclusionary period, usually one to two years, in which there is no coverage for a preexisting condition. (d) Inflation protection: For a higher premium, PLTDI policies may include protections against inflation, in the form of cost-of-living adjustments (COLAs).
Short-term disability insurance (STDI)
A PSTDI policy is designed to provide income replacement when a disabling impairment precludes work for a limited time. Short-term policies have many of the same features as PLTDI policies. Benefit payments generally begin after an individual has used his or her paid sick leave, if any, and consist of a percentage of pre-disability income (most commonly 60%, but amounts can vary significantly by policy) when the individual can no longer work or can work only part-time under some policies due to a work-disabling condition. PSTDI pays benefits for between nine and 52 weeks, with the standard benefit length being 26 weeks. Elimination periods generally range from zero to 30 days; the industry standard is seven.
Categories of workers covered by STDI
A recent Bureau of Labor Statistics report shows that 39% of all workers employed in private industries are covered by employer-sponsored PSTDI. As with PLTDI, coverage levels vary based on the worker and industry characteristics and are higher for full-time workers, higher earners and workers employed with larger employers or in skilled occupations.
Salary continuation program
A salary continuation program is an informal program that allows employers to manage short-term absences for pregnancies and non-work-related illnesses or injuries without contracting with an insurance carrier.
private long-term disability insurance (PLTDI)
A typical PLTDI plan provides income replacement of 60% of pre-injury or illness earnings, though approximately one in four policies currently in place provide less than that amount for workers who become disabled.PLTDI companies provide beneficiaries with return-to-work or stay-at-work services. For an individual who appears likely to be able to resume working, the insurance company will provide services such as coordination of health care and vocational services (note though that companies generally do not cover the services themselves), negotiations of job accommodations (such as ergonomic work stations, part-time schedules or transfers to different positions), job placement services, resumé development and job skills training.
FAS 112 requirements
Also, employers subject to Statement 112 of the Financial Accounting Standards Board (FAS 112) need to annually estimate the accrued liability for these benefits, put aside (reserve) funds for it and report it on their annual financial statements. Employers that purchase short-term disability policies have no such obligations since their financial obligation is limited to the monthly premiums.
Short-term disability (STD)
Benefits under a short-term disability plan are typically provided through a group contract between an insurance company and an employer. Contracting with an insurance company to provide STD benefits has its advantages. It ensures that experienced professionals are managing claims, gives access to return-to-work support and fraud-prevention services, and locks in a fixed amount of monthly financial obligation (premiums) regardless of the disability benefits being paid. Some drawbacks of insurance contracts are less control in designing and administering the plan and exposure to additional costs from premium charges related to taxes, commissions and insurance profits. The tax charges are avoided when the plan is a self-funded plan. Typically, employers with large workforces opt to self-fund their STD benefits.
Definition of disability
For the purposes of determining eligibility for SSDI benefits, disability is defined as the inability to engage in any substantial gainful activity (SGA) by reason of any medically determinable physical or mental impairment. The impairment must be expected to result in death or to last for a continuous period of at least 12 months— called the duration requirement. Specifically, the disability must prevent the claimant from performing previous work or engaging in any other kind of work in which a significant number of jobs exist. It matters not whether such work is available in the claimant's immediate area or if the claimant would be hired upon applying for work.
Long-term disability (LTD) insurance
Long-term disability insurance provides income replacement to insured workers whose illness or injury precludes work for an extended period, usually six months or more.
Governance of private LTD policies
Most PLTDI plans replace 60% of the insured's predisability income, with one in four plans replacing less than 60%. For high earners, 60% generally exceeds what they would receive if they met the SSDI definition of disability and applied for and received benefits. SSDI benefits replace about 45% of lifetime predisability earnings for the average earner and as little as 29% for workers who consistently earned the taxable maximum, which was $118,500 for 2016. Workers with earnings above the taxable maximum have lower replacement rates. However, low and medium earners often get more than 60% of their predisability income replaced by SSDI, especially when dependent benefits are included. A fulltime worker earning the minimum wage, for example, would receive about 67% of his or her predisability earnings if eligible for SSDI, and an even higher percentage if the worker had dependents and received the maximum family benefit (approximately 85%).
Benefits and shortcomings of STD group policies
One advantage of a salary continuation program is that it may encourage employees to conserve their sick days for extended disability protection. Another advantage of such a program is that it is not deemed an ERISA plan and, therefore, not subject to ERISA reporting and disclosure requirements and fiduciary standards. There are, though, some drawbacks to this policy. Without the involvement of an insurance carrier, the employer has the burden of making determinations regarding disability criteria and duration of disability.
Elimination period
PLTDI insurance coverage requires an individual to be unable to work for a certain period of time before he or she becomes eligible for benefits, usually a minimum of six months but sometimes more. This elimination period is likely to pose a hardship for workers who do not have access to paid leave. Thirty-nine percent of all workers have no paid sick leave, and nearly one in four workers has no paid vacation. For part-time workers the shares are higher: three-quarters have no paid sick leave and just under two-thirds have no paid vacation. Among the lowest 25% of earners, more than two-thirds lack paid sick leave and more than half lack paid vacation. As noted previously, an eligible worker who works for a covered employer is entitled to up to 12 weeks of job-protected unpaid leave under FMLA, but that leaves the individual without income during that time. Additionally, approximately 40% of workers are not even entitled to take unpaid FMLA leave because they don't work for covered employers (that is, the employer has fewer than 50 employees) or they are not eligible employees (that is, they worked for their employer for less than a year or worked less than an average of 24 hours per week).
Income replacement
PLTDI policies provide two basic benefits to plan participants who file a claim and meet the eligibility requirements. The first is income replacement, and the second is services to assist the individual in staying at or getting back to work. Significant questions exist as to whether the stay-at-work and return-to-work services provided by PLTDI to educated, skilled, highly paid, salaried workers will be effective for the low-skilled, lower wage (often hourly) workers in blue-collar, retail and service occupations who are more likely to apply for and eventually receive SSDI benefits. Available data do not disaggregate the professions or characteristics of workers or the types of industries or work environments for which particular services are effective. Also, it is unclear whether and to what extent medical improvement plays a role in returning individuals to work rather than the provision of services by PLTDI carriers.
Offsetting LTD benefits with SSDI benefits
PLTDI, like most insurance products, is primarily regulated at the state level. Employer-sponsored PLTDI, which is currently paid for entirely by the employer for 94% of plan participants, is governed by ERISA, the Employee Retirement Income Security Act of 1974. ERISA and its implementing regulations set out basic requirements for plan documents and disclosures as well as basic requirements for notices and appeal procedures. However, there is significant concern that the current ERISA consumer protections in the areas of plan disclosures, claims procedures and remedies as they relate to disability insurance are inadequate and should be addressed if coverage is expanded. This is especially true if ERISA preempted state payroll withholding laws prohibiting automatic enrollment in employee-paid PDI plans. The federal ERISA law does require that plan summaries of employee welfare benefit plans, under which disability insurance plans fall, include "a statement clearly identifying circumstances which may result in disqualification, ineligibility, or denial, loss, forfeiture, suspension, offset, reduction, or recovery. . . ." However, the ERISA Advisory Council, an appointed body of employee organization representatives, employers, insurance industry representatives and other experts in the field of employee benefits and ERISA, found that the complex nature of many disability coverage contracts and their administration have often resulted in the insured, and sometimes the sponsoring employer, misunderstanding the details of the coverage and the true nature of the benefits that are available when a disability occurs.
SSDI eligibility requirement
The OASDI program provides for monthly disability insurance benefits after the onset of a severe physical or mental impairment. To become entitled to such benefits, a worker must: (a) Be insured for disability under the Social Security Act (b) File a claim for disability insurance benefits (c) Meet the definition of disability set forth in the act (d) Complete a five-month waiting period (e) Not have attained normal retirement age.
Social Security Old-Age, Survivors, and Disability Insurance (OASDI) program
The Social Security Old-Age, Survivors, and Disability Insurance (OASDI) program makes monthly income available to insured workers and their families at retirement or in the event of death or disability. The OASDI program consists of two parts. Retired workers, their families and survivors of deceased workers receive monthly benefits under the Old-Age and Survivors Insurance (OASI) program. Disabled workers and their families receive monthly benefits under the Disability Insurance (DI) program.
State-mandated temporary disability insurance (TDI)
The methods used for providing this protection vary. One state requires that the coverage is provided through an exclusive, state-operated fund into which all contributions are paid and from which all benefits are disbursed. The state does allow covered employers to provide supplemental benefits in any manner they choose. In other jurisdictions, coverage is provided through a state-operated fund, but employers are permitted to "contract out" of the state fund by purchasing group insurance from commercial insurance companies, by self-insuring or by negotiating an agreement with a union or employees' association. Still other jurisdictions, including New York, require employers to provide their own disability insurance plans for their workers by setting up an approved self-insurance plan, by reaching an agreement with employees or a union establishing a labormanagement benefit plan, or by purchasing group insurance from a commercial carrier. In New York, the employer may also provide protection through the State Insurance Fund, which is a state-operated competitive carrier.
SSDI definition of disability
The monthly benefits for a disabled-worker family are reduced when the monthly SSDI cash benefit amount plus state or federal workers' compensation benefit amount (or other federal, state or local disability benefits with some minor exceptions) exceeds 80% of the worker's average current earnings before the onset of disability. The offset is imposed for any month in which the individual is entitled to both SSDI benefits and other applicable benefits.
Return-to-work support initiatives
The services provided by PLTDI may not be as effective in helping individuals with significant mental health conditions return to or stay at work. Many of the services commonly provided, such as rehabilitation, ergonomic furniture, reduced hours and elimination of physical duties, appear to be most effective in assisting individuals dealing with physical impairments or fatigue and lack of strength. Additional information beyond what is publicly available would be needed to understand how the services typically provided by PLTDI companies would assist individuals with mental impairments in staying at or returning to work. As noted, many policies contain benefit period limitations on coverage for mental health conditions, and therefore insurers may have less incentive to provide expensive or difficult return-towork or stay-at-work services to individuals with mental impairments. The most successful approaches for assisting people with mental illnesses that meet the SSDI definition of disability involve ongoing support with no time limits, which is not a model PDI carriers are inclined to follow due to the ongoing commitment and cost.
Disadvantages of the silo approach to managing WC and STD claims
The silo approach may lead to missed opportunities to identify employees who are at a high risk for future lost work time and to develop prevention and intervention strategies for costly recurrences of illness or injury from crossing over from one disability system to another. An analysis of a large dataset of STD and WC claim systems reveals that claimants with multiple claims are common, and claimants cross over from one system to the other more often than risk and benefits managers may realize. The implications of these findings for employers is that coordinated strategies to identify employees with a high risk of repeat disabilities and to cultivate their sustained engagement with remedial and preventive care efforts may yield various benefits. Regardless of whether an employee initially files a claim in the occupational or nonoccupational system, remedial and preventive interventions could help mitigate costly medical treatments and lost productivity. Coordinated strategies may be particularly valuable for the management of costly occupational illness and injury claims. Nonetheless, managers of nonoccupational disability benefits stand to gain from the occupational system's depth of experience in return-to-work strategies. Risk and benefits professionals must recognize their mutual position as stakeholders in workforce health more generally. This will entail developing better information about the types of demographic and health-risk factors that indicate a high risk for claiming in either system. Encouraging risk and benefits professionals' involvement in the development, implementation, and evaluation of preventive and remedial interventions could also help the professionals recognize the advantages of a coordinated, organization-wide health and productivity strategy.
SSDI waiting period
The waiting period for SSDI benefits consists of five consecutive, full-calendar months beginning with the earliest full-calendar month, throughout which the worker satisfied both the disability insured requirements and the definition of disability. Benefits are not payable during the waiting period
SSDI insured status
To qualify for Social Security benefits for themselves and their dependents, individuals must work in employment covered by Social Security, or be self-employed, for a certain period of time prior to the onset of the disability.
Definition of disability under private insurance
To receive PLTDI benefits, an individual must meet the definition of disability contained in the insurance policy. Policies have different requirements to determine whether an insured individual is eligible for benefits. Some require only that the individual not be able to do his or her own job (own/regular occupation), whereas some require that the individual be unable to perform any job (any gainful occupation). Many policies will pay benefits for being unable to do one's own job for a certain period of time (two years is common) and then require the beneficiary to be unable to do any job to continue to receive benefits. Some pay partial benefits when an individual can work only part-time and his or her income has been reduced by a certain percentage as a result of the disability.
Structure and financing of TDI
Under each of the laws, employees may be required to contribute to the cost of the temporary disability benefit. In four of the jurisdictions (all but California and Rhode Island), employers are also required to contribute. In general, the government does not contribute.
Sick pay
With the exception of a few jurisdictions that mandate nonoccupational disability insurance, employers have had no statutory responsibility to pay individuals who are sick or injured and missing work for reasons other than those that qualify for workers' compensation benefits. This regulatory landscape is slowly shifting as states and cities enact laws mandating paid sick leave.
Types of workers' compensation (WC) benefits
Workers' compensation benefits can be classified into the following. (a) Temporary Total Disability: Most compensation cases that involve cash payments are for temporary total disability. In these cases, the worker is temporarily precluded from performing the preinjury job or another job with the employer that the worker could have performed before the injury. Most workers who receive these benefits fully recover and return to work, at which time benefits end. Most states pay weekly benefits for temporary total disability that replace two-thirds of the worker's pre-injury wage (tax free), subject to a dollar maximum that varies from state to state. (b) Temporary Partial Disability: In some cases, workers return to work before they reach maximum medical improvement and have reduced responsibilities and a lower salary. In those cases, they receive temporary partial disability benefits. (c) Permanent Total Disability: If a worker has very significant impairments that are judged to be permanent after he or she reaches maximum medical improvement, the worker receives permanent total disability benefits. Very few workers' compensation cases are found to have permanent total disabilities. (d) Permanent Partial Disability: When the worker has impairments that, although permanent, do not completely limit the worker's ability to work, permanent partial disability benefits are paid. The system for determining benefits in these cases is complex and varies across jurisdictions. (e) Death Benefits: Generally, compensation is related to earnings and to the number of dependents eligible as the survivors of workers who die from a workrelated illness or injury. (f) Medical Benefits: Most workers' compensation cases do not involve lost work time greater than the three- to seven-day waiting period for cash benefits. In these cases, only medical costs are paid. "Medical only" cases are quite common in workers' compensation, but they represent only a small share of overall payments.
Recurring occupational and nonoccupational claims
Workers' compensation programs are financed almost exclusively by employers and are based on the principle that the cost of work-related accidents is a business expense. Depending on state laws, employers can purchase insurance from a private carrier or state fund, or they can self-insure. No program relies on general taxing power to finance workers' compensation.
Basic Worker's Compensation (WC) system
Workers' compensation systems are designed to provide cash benefits (compensation for lost wages) and medical care when employees suffer work-related injuries or illnesses and survivor benefits to the dependents of workers whose deaths result from a work-related incident. In exchange for receiving benefits, workers who receive workers' compensation are generally not allowed to bring a tort suit against their employers for damages of any kind.
