What is Short Term Disability (STD)?

Short Term Disability (STD) is also known as Weekly Indemnity (WI). It provides an almost immediate income in the event that an employee is unable to work due to an accident or sickness. It is often used once an employee has run out of available sick/health days (which are used first as they typically pay 100% of an employees salary).

An advantage of incorporating STD into a clients benefits plan is that it allows the disability claim to be assessed and managed by the insurance carrier earlier in the process, which may help to return employees to work faster and reduce Long Term Disability (LTD) claims.

STD plan designs are sometimes expressed in a shorthand containing accident & hospital elimination period (in days), followed by sickness elimination period (in days), followed by benefit duration (in weeks). This looks like 0/7/17 or 0-7-17.

STD components:

There are many components of the STD benefit. The following is not intended to be an exhaustive list, rather these are the most common components:

Volume:

How much the employee is paid while they are off on disability. 70% is a typical amount. Amounts above 75% are typically considered higher risk unless the benefit is taxable, as the employees income will be comparable to when they were working, making it more difficult to return them to work.

Taxable Benefit:

Whether or not the benefit payment amount is taxed. This can have a major impact on the amount of the weekly benefit the employee receives. If the employer contributes anything to the STD premium payments the benefit is automatically taxable.

Termination Age:

The age at which the STD benefit ceases to be paid. 65 is the standard STD term age, but unlike LTD the STD term age can go higher than 65. 

Elimination Period:

The STD Elimination Period is actually broken out into several components, with varying elimination periods based on the reason that the employee is off work. Absence due to an accident, hospitalization or surgery typically have shorter elimination periods, as low as the 1st day (expressed as 0 days), but as long as 15 days. On the other hand absence due to sickness typically requires an employee to be absent for 8 to 15 days before the STD benefit kicks in. 

Non-Evidence Maximum:

The Non-Evidence Maximum (NEM) is the amount of STD coverage a carrier will automatically provide to all employees that are eligible for STD. Any STD coverage in excess of the NEM will typically need to be medically underwritten on an employee by employee basis. Higher NEMs are therefore a benefit to the client as it will ensure more employees in the group have adequate STD coverage. The size of the group and the average STD amount are the two factors typically used by insurers to determine the STD NEM, with larger groups and higher average STD amounts receiving larger NEMs.

Maximum:

The maximum weekly amount that will be paid out. This number only affects employees who’s volumes are above the weekly maximum. For example, if the benefit is 70% and the maximum is $1000 a week, an employee earning $1000 a week would receive $700 of weekly benefit. An employee earning $2000 a week would be eligible for $1400 but would only receive $1000 due to the STD maximum.

Benefit Duration:

This determines how long the STD benefit will continue to be paid. The three most common STD durations are 15 weeks (to align with EI), 17 weeks and 26 weeks. For groups that also have LTD it is standard to align the STD duration and the LTD elimination period, to ensure there is no gap in an employees disability coverage.

E.I. Integration:

Employment Insurance is a viable alternative for groups that don’t have STD coverage. In cases where STD coverage is in place, E.I. takes the position of second payer, with EI being reduced on a dollar for dollar basis against the STD benefit. E.I payment lasts for 15 weeks and doesn’t kick in until the 15th day of an employees absence.

Employers that opt to provide STD that is at least comparative to E.I. can receive a reduced E.I. premium rate, as the STD benefit will cover employees off work for the short term.

Previous STD Claims Experience:

STD is an experience rated benefit, meaning that the groups previous claims experience for STD will have an impact on the future STD rate. How much of an impact depends on the size of the group and the credibility factor applied by the insurance carrier. Larger groups typically have higher credibility, and therefore their previous STD claims experience will have a more significant impact on the STD rate. Sometimes more than one years STD experience will be used in the calculation. It is common for different years to be given different weightings in the calculation.