Disability Insurance in Mid-Sized Companies

In a prior briefing, I shared the all-too-common dilemma of business owners with a now-disabled employee and no disability insurance or company policy on disability: Disability Insurance -- CEBI Member Feedback

This was such a meaningful response, I thought I'd share it as its own post. It's from a long-time friend of Chief Executive Boards International, John Robie, of Benefit Plan Alternatives. Here's what John had to say:

"In our practice we have this issue come up frequently. No one seems to make the decision on company policies...employment policies (not insurance policies) until they are faced with the dilemma of an employee being off work. The decision they make is frequently made based on the personality of the disabled person..."we like this person", or "this is someone that we'd like to get rid of." Hence the past practices policy begins to form.

"If the disabled is a key employee or someone that is liked, there is an inclination to continue their wage. It might be a bit of a burden but after all...the disabled person is important and "liked". Two things usually happen. Most often, they return to work and all is well until the next time someone is disabled. Or, the person isn't coming back and the gut wrenching decision of when to stop the paycheck has to be made. Many business owner crumble when faced with telling the spouse of a disabled employee that they can no longer continue wages to the family...,contrary to popular belief, many tough business owners are softies in disguise.

"The offshoot of the first thing happening...returning to work and all is well...is that the next employee to become disabled is the guy that you were ready to fire for incompetence. Now what do you do? You have set the stage to continue his wages since you established your ad hoc/past practices disability policy that says you will continue wages to disabled employees. After all you continued wages for the guy you "liked" so now all employees will expect similar treatment. You think employees don't know you did that but they do...everyone knows...you just think they don't. You tell Mr. Incompetent that his wages are done and the first thing he does is go to the lawyer. Not just any lawyer, but the one on the back of the telephone directory. How do you think this is going to work out? Oh, I forgot to mention, Mr.. Incompetent was in a drunken car accident , is a quadriplegic and will never return to work. Since you continued to pay the pervious disabled employee until his disability ended, Mr. Incompetent expects his wage to continue until he is better...he thinks he will get better with the right medical care. (Read that sentence as CATASTROPHIC CLAIMS ON YOUR INSURANCE EXPERIENCE AND THE RATE INCREASES THAT FOLLOW).

"Our recommendation always is to make decisions about disability wages before the fact, before personalities cloud the decision and when cool business-focused heads can prevail. From there, decide what the business can afford in the way of insurance. We mostly recommend insuring the catastrophe (long term disability) and self-insuring the nuisance (short term disability). If funds are an issue, I would suggest Long Term Disability coverage with a 90 or 180 day waiting period and communicate to employees exactly what they can expect if they become disabled. Many clients then will offer a Voluntary Short Term Disability plan (fully paid by employees) to the group. Employees that feel the need will cover their risk with the voluntary plan. Employees that can go 90 or 180 days without a paycheck (until the LTD begins to pay) do not buy the voluntary plan. Everyone makes the appropriate decision for their needs with a full understanding of what to expect from the company. No guilt, no hard feelings, no tough decisions. This kind of fore thought to the issue really takes the monkey off the back of the business owner.

"The issue that comes up even more frequently is when to terminate disabled employees or laid off employees from the medical plan. That is another issue that is best decided now rather than in the heat of the moment. A little proactive planning would make life so much easier."

Thanks, John, for this excellent "how-to" on the subject of disability insurance in mid-sized companies.