In part one of our series, we covered three plan design challenges for self-insured short-term disability. Although one advantage to offering a self-funded short-term disability plan is increased flexibility and control, there could be some risks that come with ASO plan administration.
Salary continuation before claim decision
A common source of stress for employees out on disability is wondering when they’ll be paid. As a result, some employers decide to extend salary continuation to employees who are out on short-term disability, even if the claim is still pending approval. While there are good intentions in doing this, it can cause a poor claims experience for all involved.
Under a short-term disability plan, it’s the employee’s responsibility to provide a signed authorization-to-release-information form to their treating provider(s) and ensure that medical proof of disability is provided to support their claim for benefits. If the employee is still receiving full pay the disability carrier is gathering proof of disability on their behalf, it can reduce the employee’s incentive to cooperate with the claim investigation, which could ultimately lead to a denial if they fail to provide adequate proof. Additionally, if a claim is denied, but the employer continued the employee’s pay during the investigation, the employer must now go back and recoup the payments from the employee.
Instead of continuing pay while awaiting a claim decision, the employer may see better traction by ensuring the employee takes ownership of their claim and proactively partners with both the disability carrier and their treating provider(s).
Disability carrier withholding of benefit deductions
Many employers express interest in having their disability carrier handle withholding benefit deductions from an employee’s short-term disability payments, as they see this as an opportunity to lighten their workload. However, having the carrier manage benefit deductions may not always be the best option:
- Most benefit payments begin mid-pay period, raising questions about how the employer will handle benefit deductions to avoid duplicate withholdings by both the employer and the carrier. Will the employer take the full amount, the carrier take the full amount, or will each take a prorated amount? This issue may recur at the end of the claim or even in the middle, as approved-through dates rarely align perfectly with payroll cycles.
- What happens if there isn’t sufficient benefit available to withhold all applicable deductions—for example, due to an offset for state-paid leave or Social Security Disability Insurance (SSDI)? In that case, would the carrier withhold as much as they could and leave the employer to handle the remaining deductions, or would the carrier not withhold any deductions at all, making it the employer’s sole responsibility to resolve the issue?
- Deductions may change if employees enroll in or drop coverage or if the amounts change (which is common from one calendar year to the next). Updating these deductions is manual, which can lead to substantial added touch points between the disability carrier, eligibility file vendor and customer, and it can lead to overpayments or underpayments, resulting in a poor experience for customers and employees.
- Some benefits will ultimately not be paid by the carrier—for example, a short-term disability claim that’s denied or when a person is out on an unpaid leave of absence. How will the employer handle those situations with respect to benefit deductions?
• Carriers simply can’t withhold certain types of deductions, like 401(k).
These difficulties are why Symetra does not standardly offer benefit deductions as a service to our disability or paid leave customers. We recommend employers retroactively withhold benefit deductions once the employee returns to work (this may need to be spread over multiple pay periods) or direct-bill employees for their premiums while they’re out on leave.
Return-to-work note submission to disability carrier
Employers commonly require a return-to-work release or fitness-for-duty form before employees return from leave due to a serious health condition or disability. This helps protect the employer from liability for an employee who hasn’t been medically cleared to return.
Employers sometimes request the disability carrier to be the recipient of this documentation, but this isn’t best practice. Essentially, this forces the carrier to act as a middleman by having employees submit return-to-work documentation to the carrier, who then passes it on to the employer. Since most disability carriers can take up to five business days to review and act on incoming documentation, funneling return-to-work documentation through them instead of directly to the employer may cause unnecessary delays or miscommunications about whether an employee is ready and able to return.
Additionally, the disability carrier may not actually need the return-to-work documentation to adjudicate the claim, so it’s important for the employer to enforce their policy regarding return-to-work requirements if an employee doesn’t comply.
If an employee is approved for return to work with restrictions, they should contact both the disability carrier and their employer to determine whether the restrictions can be accommodated. At Symetra, we offer a standard or custom fitness-for-duty form in our FMLA eligibility notice and rights package to help educate employees about their employer’s requirements, we strongly recommend though that any return-to-work documentation be submitted directly to the employer for the reasons above.
Short-term disability takeovers when changing carriers
When an employer changes disability carriers, particularly if there are service issues with the previous carrier, they may request that the new carrier take over the claims management of any open claims the prior carrier was managing. However, this typically results in a poor experience for both the customer and employees (even with potential service issues driving the change). The transfer of claim information and data between carriers can be challenging and confusing for employees, who may need to submit information to two different carriers during the transition.
Additionally, tasks like EFT setup must be completed with the new carrier and may result in the employee receiving paper checks for initial payments. This can cause financial hardship for employees who rely on automatic bill payments and expect their EFT payments to arrive on the same schedule as with the original carrier.
Finally, if the employee reaches their short-term disability maximum duration and requires a long-term disability claim, the long-term disability liability remains with the prior carrier, not the new one, which can be confusing for all involved. Allowing the prior carrier to run out any open claims that began prior to the termination date is a typically better overall experience for both the employer and employee.
Summary Plan Description (SPD) creation and maintenance
With a fully insured policy, the disability carrier is responsible for creating the detailed policy, listing out all of the provisions and definitions, as well as providing summary plan descriptions for employees to better understand their benefits. With a self-insured plan, it falls on the employer to create and maintain a detailed summary plan description.
It’s not uncommon to see summary plan descriptions that either don’t include critical aspects of the plan or that vaguely define key provisions. We also often see during implementation that a summary plan description hasn’t been updated for some time and doesn’t reflect the current plan design/program, this makes disability administration a challenge, particularly when carriers need to reference language from the summary plan description to make an adverse determination and provide appeal rights. Employers with self-insured plans should regularly review their summary plan descriptions and other written policies for updates to ensure consistency with the plan administration and clarity in key provisions.
Understanding the risks that come with ASO plan administration is important. If you have questions about best practices and recommendations regarding short-term disability plans, please contact your Symetra representative.
