mod 4 set 2 Employer - Disability

Question 1

does the employer only offer coverage if it was related to work?

Answer 1

no

Question 2

what plans do they offer? (usually 2 of):

Answer 2

Sick Leave (Salary Continuance) Plans
Short-Term Disability Plans (STD)
Long-Term Disability Plans (LTD)

Question 3

What are sick leave plans referred to as

Answer 3

Salary Continuance Plans

Question 4

what do these plans allow employees to do

Answer 4

to miss up to a certain number of days of work due sickness/illness and still receive pay (often 100% of salary)

Question 5

how many annual sick days are allowed?

Answer 5

20

Question 6

what does it mean if a sick leave plan is more formal?

Answer 6

benefits may begin after a waiting period (sickness) or on first day
of absence (accident/hospitalization)
o benefit often are 100% of income but can be less
o benefit period can be stated as a fixed number of sick days per year or as a number of months

Question 7

what does It mean if sick leave plans are self insured

Answer 7

They are adjudicated/administered by the employer(er). Benefits are not funded, but are paid out of payroll

Question 8

what does it mean if a plan is self insured?

Answer 8

his means that the employer takes all the financial risk and benefits are considered wages (which means er must make CPP, EI, WC contributions, etc)

Question 9

what is short term disability plan? (STD)

Answer 9

• usually this or sick leave plans are offered
• If an er offers both a sick leave and STD benefits, the sick leave plan is less formal
• If an er offers a sick leave(salary continuance) plan only it would be more formal and more akin to an STD plan

Question 10

what are the key differences between STD and Sick leave plans (are that with STD):

Answer 10

Plan is usually insured, or at least has some involvement by
an insurance company
Maximum benefit period is longer than for a sick leave plan

Question 11

What are the STD plans funding methods

Answer 11

1) Fully insured plan
2) self insured plans
3) administrative services only ASO plans

Question 12

Fully Insured plan

Answer 12

Financial risk is transferred to insurer in exchange for a premium paid by the er
– Fully Insured plans are underwritten by an Ins. company
– Er has a contract with Ins. co. to provide STD plan to their ee’s
– Insurer agrees to adjudicate & pay all claims out of insurer’s money

Question 13

Self Insured Plans

Answer 13

benefits are paid by Er out of payroll
– This means that Er must make CPP, EI and WC contributions plus
pay payroll taxes on any disability benefits paid out
– Eee will have CPP, EI and income tax deducted from any disability benefits received
– self insured plans tend to use a 3rd party for claims adjudication

Question 14

ASO Plans

Answer 14

• use an insurance company only to provide administrative services
• insurer provides services to the er such as adjudicating disability claims and mailing out the disability checks
• er provides the money for the disability claims
• er plays flat fee to insurance company
• er still pays benefits

Question 15

Benefits of ASO plans?

Answer 15

if it is structured so that there is an “arm’s length” relationship for
claims adjudication, then benefits would NOT be subject to payroll taxes or CPP, EI and WC contributions (↓ er cost)
– disability benefits however would still be subject to income tax for the disabled ee, along with CPP and EI deductions

Question 16

STD benefits highlights

Answer 16

-usually stated as percentage of pay (usually between 55% and 70% of gross weekly earnings)
-payments begin on the first day of absence if disability is caused by an accident or hospitalization or on the 4th or 8th day for absences related to illness
-benefit period usually covers the elimination period before LTD benefits begin and is usually b/w 15-26 weeks
(can be up to 104)
-integrated with other disability benefits
-benefits are TAXABLE INCOME TO EE unless plan is insured and entire premium has been paid by ee

Question 17

LTD plan

Answer 17

• fully insured
• with a group, LTD whole ee class is underwritten (not each individual)
• LTD waiting period or EP is linked to any STD or salary continuance benefits offered
• LTD disability definition is often “own occ” 1st two years then “any acc” after that
• exclusions are part of LTD policy

Question 18

LTD benefits highlights

Answer 18

• ee must meet definition
• payments continue for as long as ee is disabled but typically ends at age 65 even if still disabled
• payments made monthly as expressed as % of pay (range is 50-70% of pre tax income)

Question 19

Who gets taxed for the LTD benefit?

Answer 19

depends on who pays for the benefit

• if er pays premium, LTD benefit is taxable income to ee
• if ee pays premium, LTD is not considered taxable income

Question 20

What is the LTD plans rehabilitation benefit?

Answer 20

allows ee to work under an approved rehab program
plan may only partially offset income earned under the approved rehabilitation program (e.g. “50% offset: if LTD monthly payment is $2,000 and income under approved program was $800 then only $400 would be offset, so ee would get 1,600 LTD plus the 800 )

Question 21

what does it mean that “LTD benefits are integrated”

Answer 21

• integrated with other sources of Disability Income such as WC, CPP, and other employer and government sources
• this is done to limit income received from all sources to a reasonable % of pre-disability income
• goal is to still provide adequate income to the disabled ee but also needs to be an incentive for ee to return to work

Question 22

integration example- direct offset method

Answer 22

LTDprovidesfor60%ofgrossincomepriortodisability.
Assume gross annual income is 60,000.
LTD benefit = (60,000)*(.6) = 36,000 yrly or 3,000 mthly
If ee is receiving CPP monthly Disability benefit = 800
Er then adjusts the er sponsored LTD benefit down to $2,200

Question 23

Group disability plan costs?

Answer 23

disability benefits are a substantial cost to the employer and these costs have been rising
there has been increased focus on early intervention programs, rehab support, progressive return to work programs
o likelihood of an ee returning to work after being on disability for 6 months is < 50%

Question 24

What are some current challenges?

Answer 24

Disability due to mental and nervous disorders have risen and now account for more than 20% of LTD Claims
– There has also been a sharp increase in the number of claims attributed to new diagnosis such as; chronic fatigue
– These new emerging illnesses require a multi-disciplinary approach
o need to address emotional and psychological needs of ee, along with physical condition and symptoms

Question 25

Changes in adjudication of claims shift to insurer

Answer 25

responsibility for adjudication now rests with the insurer and the insurer relies on physician (and now sometimes other health care practitioners) input
-insurer uses the information to make a conclusion

Question 26

Burden of proof

Answer 26

At time of claim, burden of proof lies with the ee
o ee must provide evidence of disability

After disability is admitted as a claim, the burden of proof shifts to the insurer
o is relatively difficult to show just cause to terminate benefits once they have started

Question 27

Taxation of ER provided DI Plan

Answer 27

-Er contributions to DI plan are tax-deductible expenses for Er
– Ee contributions to a DI plan are not tax deductible to ee
– Er contributions to a DI plan are not a taxable benefit to the ee
– DI benefits are considered taxable income to ee, except those DI plans that have been fully paid for through ee contributions

Question 28

WESTERN PLAN includes?

Answer 28

• Salary continuance and LTD
• also a critical illness benefit
• fully paid for by the er (western)

Question 29

Westerns Salary Continuance plan

Answer 29

pays 100% of salary for a max of 15 weeks o recurrence provisions
o partial disability provisions o integrated with WSIB

Question 30

Westerns Long Term Disability

Answer 30

15 week elimination period (co-ordination with above) –Own Occ/Any Occ definition(see webpage)
– monthly benefit determination:
o benefit= 70%(income up to 80,000)+ 65% of next 40,000 o so maximum monthly benefit capped at 6,834
– coverage ends at 65 (normal retirement date) at the latest
– LTD benefit is indexed annually
– is a partial disability benefit (if you earn at least 20% of pre-disability income but less than 80% of pre-dis income)
– recurrent disability provision

Question 31

Western Critical illness benefit

Answer 31

• benefts payable only once
• lump sum 2,000
• 30 day survival period requirement
• some exclusions