Disability Insurance Benefit Plan Protects Workers Short Term Needs at Reasonable Cost
Do you offer a disability insurance benefit plan?
If not, ask yourself this question:
What is an employee’s most valuable asset??
Her house? Her car? Her 401k account?
As valuable as those things are, they pale by comparison to the value of the employee’s ability to earn a living. Without the capacity to get up in the morning and get to work, all those other assets will disappear sooner rather than later.
That ability is of immense importance, yet most workers don’t protect it. Fewer people own disability insurance than almost any other coverage. Perhaps one of the reasons employees don’t buy more disability insurance it that they believe they are covered by Worker’s Compensation.
State law requires employers to provide Worker’s Compensation protection. But it only covers job-related disabilities. It does nothing for the pregnancy, the auto accident, the heart attack or other serious illness. Most disabilities occur off the job, not on.
Employers can plug the gap at a relatively low cost (about 0.25% to 0.5% of payroll). Group disability programs come in two flavors, short-term (covered here) and long-term (covered elsewhere). Short-term plans cover the first three to twelve months of a disability, and long-term plans cover the period after that.
The major cost determinants are:
- Your Industry
- Your Employee Sex Mix (STD has a heavy maternity component, which makes females more expensive than males)
- Your Age Profile (generally, older is more expensive, but so are males under age 30
The Hidden Money-Saving Component of STD
One of the advantages STD plans give the employer falls in the area of Workers Compensation.
Every employer must offer workers compensation insurance (in Massachusetts that’s true even if you’re a one-person firm!.) It’s state law.
Because of that, many employers don’t offer short-term disability, which covers off-the-job injuries and illnesses. They figure they’re already protecting the employees with Workers Comp.
So what happens to the employee who tears up his knee over the weekend? He can’t work because his knee’s killing him, but he can’t afford to miss a week of work.
Sometimes his answer is to come to work where — an hour or so after arriving — he has an unfortunate “accident.”
Voila! Problem solved. In fact, one study showed that 20% of all workplace “accidents” in a typical blue collar environment occurred in the first hour of Monday mornings!
Here’s the problem: Workers Comp rates are modified (upward) when you have a claim. So that softball victim just increased your premium for next year.
But with a short-term disability plan in place, that temptation disappears. Your employee knows he has coverage, so he never comes in at all.
Result? Your workers compensation mod factor isn’t adjusted upward, and the short-term disability program helps keep workers compensation costs under control. What about the increase in the Short Term Disability rates?
For companies under 100 employees, there probably isn’t one.
- There isn’t any reporting of actual claims for groups <100 employees
- Carriers will raise your rates at renewal if you have bad claims, but
- You can move to another carrier without them expecting to see your claims history
- So the next carrier will look only at the age/sex/job makeup of your group
- Isn’t it funny how carriers will tell you that they “don’t give claims rating credibility to small accounts” when your claims are good, but
- they’ll point to how bad your claims are (as an excuse to raise rates) when your claims are bad?
At any rate, that means that if you’re smaller than 100 employees you can readily jump from carrier to carrier whenever you desire. You lose that flexibility when you’re larger than 100 employees, but there are other ways to manage that, and they’re covered under a different STD design section.