Short Term Disability (STD), also referred to as Weekly Indemnity (WI), can provide a gap for employees while on sick leave, between their regular sick days, and a Long Term Disability (LTD) claim.
Employers often choose to set up a WI plan because they find themselves inadvertently continuing an employee’s payroll while they are off on sick leave, thinking that it will be short-term. However, when it spills over from weeks to months, an employer can often be left scratching their head as to:
- Can we continue to afford to pay this person’s full salary while they are off?
- How do I know if I should hire a replacement or hold out?
- Is this person truly on sick leave, or is there more to the story?
For this reason, it is a good idea to have a separate party in between the employer and employee, to both deal with the questions above, and to ensure that the employer is not exposed to the sensitive medical information of the employee.
Funding: Self-Insured Is Best
Most insurance companies package WI as a fully-insured product. However, if one takes a close look, premiums are not set as if it is full insurance. They are typically set as if it is a self-insured program. For example, in full insurance, one would expect that the premium is small in proportion to the expected claims. However, with WI, if the annual claims are $20,000, then the premium in the following year would be set at $30,000. Further, if the claims were to decrease to $0, the premiums do not also decrease – they would remain at about the same level. This is telling that although it is packaged as full insurance, it is funded more as a self-insured product.
Further, the risk on WI is low in comparison to LTD. Can an employer afford to pay someone 4 months salary for no productivity? Almost certainly. However, can an employer afford to pay that same person a salary for 10 years with no productivity? Not likely.
Therefore, WI is a low-risk benefit, while LTD is high-risk.
Self-Insuring the WI Benefit
Beneplan recommends that employers self-insure their WI benefits, and it can be managed in one of two ways:
- In-house at the employer level; or,
- Through a third party adjudicator, such as Beneplan Inc or an insurance carrier.
Let’s explore these options in detail:
- In-house at the employer.
If an employee needs to take a few months off, they can submit a request for WI benefits to the HR department, who should be sending the medical adjudication to a third party examiner. If the medical evidence supports the claim, HR would tell the Payroll department to continue the person’s salary, but at a reduced rate per the WI plan.
However, there are issue with this:
- The administrative burden;
- Having to remember to follow-up with an employee that is off on claim; and,
- Handling private medical information.
2. Through a third-party adjudicator
Using a third party solves a few problems. It allows the employer to:
- Take a hands-off approach with medical information;
- Get out of the way if there is a dispute regarding the legitimacy of the medical evidence;
- Allow an independent third party to examine the nature of the claim; and,
- Remove the administrative burden of dealing with the extra paperwork.
Beneplan Inc offers self-insured WI benefits at highly competitive fees. Please call 1-800-387-1670 to inquire more.