Articles | May 4, 2020

COVID-19’s Impact on Short-Term Disability Plan Costs

COVID-19 has cast a shadow over a variety of health and welfare benefits. We anticipate it could have a significant effect on short-term disability plan costs.

Even infected individuals with relatively mild symptoms who don’t require hospitalization could need extended time away from work to recover. More severe cases may require four to six weeks of recovery.

It’s important for employers with a disability program, whether insured or self-insured, to monitor disability claim experience. Each disability program has its own definition of disability, with some being more restrictive than others.

No matter what your disability plan looks like, we have a tool for assessing the impact of COVID-19 on your plan’s costs.

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It’s possible to assess the impact

To help project the increase in short-term disability claims associated with COVID-19, we’ve developed a cost estimator.

The forecast model incorporates the plan’s own disability experience as well as the incidence data from sources such as the Centers for Disease Control and Prevention and the Institute for Health Metrics and Evaluation.

As a disability plan sponsor, you can use the model to project disability claims costs under either an insured or self-insured program.

How to address disability programs with carriers

Individuals unable to work due to COVID-19 symptoms will likely meet criteria for short-term disability coverage. Whether COVID-19-exposed individuals who are not severely ill meet standards for disability coverage may differ from carrier to carrier.

This will depend on the plan’s definition of disability. Individuals who stay home due to a quarantine order would not be entitled to disability benefits. But those individuals could be eligible for various leave programs or, if they are furloughed or laid off, unemployment insurance benefits.

Plan sponsors should discuss these coverage issues with their disability carrier. In addition, there may be other conditions unrelated to COVID-19 that may cause entitlement to disability benefits, such as depression or injuries. Some of these conditions may arise during the public emergency period. You should also monitor these disabilities to understand the cost of disability benefits in the coming months.

The impact will differ for insured and self-insured plans

For sponsors of insured short-term disability plans, the next renewal will show the increased utilization related to COVID-19. How can you prepare?

• Review your insurance agreements to ensure you’re receiving accurate reporting concerning claims experience.
• When budgeting for renewal of these programs, make sure to build in expectations concerning utilization.

Disability plan sponsors that self-insure their short-term disability benefit could experience a significant increase in claim costs. Claims administrators should ensure that:

• Definitions in plan documents are clear
• Benefits are administered properly
• Regular reports concerning utilization are made available

We’re continually developing resources as the COVID-19 public health emergency evolves. If you have questions, don’t hesitate to get in touch.

This information is for informational purposes only and does not constitute legal or tax advice. Plan sponsors are encouraged to discuss the issues raised here with their legal, tax and other advisors before determining how they apply to their specific situation. On all issues involving the interpretation or application of laws and regulations, you should rely solely on your legal counsel for legal advice.

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