Fall 2004 – Seamless Disability & Statutory Plans
Seamless Disability With Statutory Plans Requires Caution
Over the past several years, various insurance companies have been touting the
advantages of writing both short term (STD) and long term disability (LTD) and possibly
even workers’ compensation coverage with one carrier.
The argument is that by utilizing one carrier there will be ease of administration, faster
claim notification, lower overall cost and better service if the coverages are with one
While the above may be true in states that do not mandate off the job short term disability
coverage, the advantages become less clear in statutory states. Statutory states include
New York, New Jersey, California, Hawaii, Rhode Island and Puerto Rico.
A closer look reveals that some of the expected advantages may be more sizzle and less
substance and savvy buyers need to look closely to ensure the anticipated benefits, in
fact, put them in a better position.
Here are some of the key areas that need to be looked at when considering a seamless
approach with state mandated disability:
While many carriers are very competent in LTD and STD, their experience in State
Mandated Disability may be much less extensive. Laws and regulations vary from state
to state so an STD case cannot be treated the same across the board. A good example of
this is that in New Jersey, benefits revert to day one after 7 days of disability – a variable
unique to New Jersey. Another example is that in a case where there is salary
continuation, the employer can request reimbursement in New York but not in New
Jersey, where the check must be payable to the employee, regardless of whether or not
there is salary continuation.
Because each statutory state has differing benefit levels, regulations, contribution
amounts, etc., carriers are required to issue separate policies in each statutory state and
administer the plans accordingly. Each plan must be filed with the regulatory authority in
Rating structures vary by statutory state meaning that a payroll rate in New York is much
different than in New Jersey or California. For example, payroll rates in New York are
normally based on a rate per hundred of weekly payroll, with a maximum of $340 per
week. In New Jersey, the rate is per hundred of annual taxable wages, and once the
maximum is hit, no additional premium is due. Maximum employee contributions also
vary by state and once again cannot be handled by an overall approach. Keep in mind
that most STD plans in non-statutory states rate on a per $10 of benefit, a format rarely
used in statutory states, so unless a change is made on one or several policies, cases in
multiple statutory states will still require separate bills in addition to separate policies.
Claim forms vary by state and no single uniform claim form can be used. The formats of
the claim form are prescribed by each state and do not allow for variance. The form in
New York is “DB450” and in New Jersey is “DS-1.” Carriers that advocate a single
claim form for all STD claims in statutory states may be in violation of the state specific
The state of Rhode Island does not allow for privately insured state disability and
California only allows private plans if the benefits are in excess of statutory. Therefore,
employers with employees in those states will still wind up with separate plans.
Many carriers, especially LTD carriers, will highlight the idea that if they have the
corresponding STD, the LTD claim will be handled more quickly. Although this may be
true, an average group of 500 employees will have less than 2 claims per year, and in
many years have no LTD claims at all. The overwhelming amount of administration
takes place on the STD policy so it is wise to choose a market that has demonstrated
proficiency in STD. It is even more critical on statutory plans to look at the proficiency,
experience, and premium volume that a market has in the specific covered state as the
various regulations can create administrative as well as legal filing problems. Many
times employers do not realize there is a problem until they are fined by a statutory state
for being out of compliance – because they did not file an approved plan.
Caution is required with markets that attempt to manage a short term disability plan in a
statutory state. In New York for example, the law allows carriers to do only 2 things with
a properly submitted claim: pay it, or deny it with cause (e.g., incomplete claim form). If
denied, the claimant can submit it to the NY Workers Compensation Board for review.
Carriers have the right to request additional information from the treating physician on
what is known as a “supplemental medical form.” Attempts by a carrier to return a
person to work on a part-time basis (which makes a person ineligible for benefits as there
is no partial benefits payable under New York law), subject a person to additional
medical exams, or any other claim management technique need to be done within the
guidelines of New York Workers Compensation laws. An excellent reference is
“Workers Compensation law,” Article 9, sections 208 and 217.
Both broker and employers should recognize that there are companies that specialize in
providing State Disability plans. As these so-called “boutique” or specialty carriers
specialize in state plans, the level of service, expertise, relationships with state agencies,
and familiarity with various State regulations are excellent. Employers with a high
volume of claims in statutory states should look at these markets as potential vendors.
Since most of an employers disability claims are short term, claims need to be paid
quickly, efficiently, and in compliance with state regulations and these specialty markets
have a strong advantage.
From an administrative standpoint, employers should make the buying decision based on
the expertise of the carrier in state mandated disability, not the LTD or Life Insurance
market, since that is where the action is.
Finally, the specialty State Mandated Disability Carrier usually offers extremely
competitive rates. The reason is since it is a specialty for them, they have become very
efficient in handling the product. This efficiency is reflected in aggressive pricing for
In conclusion, when short term disability involves statutory programs, the one size fits all
approach may not be the best way to go. Emphasis needs to be given to the area that has
the most administration, government regulations, and claims frequency. In most cases,
this is the state disability coverage.
Brokers and policyholders need to look at providers that have the specific expertise in
statutory plans, not just disability in general.
Ensuring smooth administration of the State disability may be much more valuable than
going with a carrier that does a good job on LTD, where the probability of a claim on
small to mid size groups is minimal. Since LTD carriers strive to get people back to
work to lower their reserves (and increase profit), it is a good bet that your LTD carrier
will do just as good of a job on an LTD claim whether or not they have the State
References: 1. Article 9 – New York Workers Compensation Law
2. State of New Jersey Employer Handbook – Unemployment & Disability programs.
Reuben Warner Associates provides a “Statutory Plans Chart” which highlights the
coverages in statutory states. Please feel free to contact us for a complimentary copy.