The Issue: Many employers attempt to save short-term disability (STD) costs by implementing plans with longer elimination periods (EPs) and shorter maximum benefit durations (MBDs).
Evidence: Regression models and cost simulations using 550,000 STD claims from 6,200 employers in IBI’s 2011 Health & Productivity Benchmarking data show:
- Longer EPs generate fewer claims, but also longer disability durations per claim.
- Shorter MBDs generate fewer claims; claims with an MBD of 13 weeks have the shortest average durations, but average claim durations for 6-month and 1-year MBDs are statistically similar.
- Some of the lost time and wage replacements employers save through the use of longer EPs is shifted to unmanaged sick day benefits. Counting paid sick days taken during the EP and for shorter-duration illness events that would qualify as claims under other plans essentially eliminates the cost advantage of a longer EP. With a 1-year MBD, the impact of EP reverses – costs increase as EPs get longer.
Solution: When designing a disability plan, employers should consider how they would likely compensate both claimants and employees with serious illness incidents who do not immediately qualify for STD benefits.