Protect Your Benefits Plan From The Hidden Cost of Long Term Disability

If one of your employees becomes disabled tomorrow and is no longer able to return to work you could be paying for their health and dental benefits until age 70 or longer. Over time this could represent a very significant cost to the company. Employee benefit plans currently average 6 to 10 % of payroll cost.   Over the past ten years health care costs have been rising 3 to 4 times faster then the consumer price index (CPI).

Drug and healthcare costs have risen rapidly, in part because of the emergence of new drugs and treatment protocols, that have helped people, including disabled individuals, live longer more productive lives. This is beneficial, but there is a cost and it makes sense that company management consider what the corporate policy should be, in the event an employee becomes disabled.

The normal response is usually to try to help, by initially paying all of the benefit costs, no matter what the cost sharing arrangement with employees is. Without a written policy in place, this usually means providing health and dental benefits for as long as the individual is disabled or they reach the program age limitation which could be 70, 75 or 85.   Further, depending upon the nature of the disability/illness, they could be on a very expensive treatment protocol that could be driving up health and drug costs for all other employees.

To protect the company and the integrity of the employee benefits plan, we recommend that management review the issue of long term disability and decide how long the company is prepared to pay for the health and dental employee benefits of a disabled individual. This can be anywhere from 2 years to the normal termination of your health benefits program, at possibly age 70. If the decision is made to cap the available coverage this needs to be communicated to employees in a written policy. The best way to achieve this goal is to integrate the message within a policy manual that is provided to all employees. Ideally, written acknowledgement is obtained that all employees have reviewed and are familiar with the contents of the policy manual.

If a change is contemplated for employees already on disability leave, the situation should be reviewed with your legal counsel and a grandfathering strategy developed that includes written communication with the disabled employees and bridging relief that could extend benefits an additional two years.

All health benefit plans face increased challenges from the rising cost of health care. Taking the time to make a decision with respect to how the company will handle future health and dental coverage for disabled employees will help protect the benefit plan for all employees by linking the extension of benefits to the company’s capacity to pay.

Author: Michael Greenwood, CPA, CA, CFP, TEP

Michael Greenwood - is principal and managing partner at Pelorus Benefits and has more than 20 years’ experience developing group benefits and wellness solutions for clients across a range of industries. READ MORE

Posted on Categories Managing Costs