The Hidden Value of Social Security Disability Insurance: Why It’s Important During Benefits Enrollment
For the consumer, this alphabet of various programs must truly be daunting, and the same is likely true for firms with employees. The current myriads of various programs might be described as a ‘patch work’ of benefit programs, and what is available for an individual facing a loss of income due to their own or a family member’s health problems is highly dependent on where they reside. My hope is to at least create a level set on what these programs are, and how they might interact within the CDIA’s three constituencies . . . the working American worker, the agents/brokers and benefit consultants that advice both the working American and/or the employer groups they represent, and finally, the insurance companies and ancillary firms that make up the membership of the Council for Disability Income Awareness.
To begin this discussion, let’s ensure that we have a handle on the plethora of various programs that are out there.
Family Medical Leave Act (FMLA) – a federal program that was established in 1993. Officially known as the Family and Medical Leave Act, it requires employers to guarantee employees time off for family or medical reasons. Additionally, the employer must offer them a job upon the completion of their absence at comparable pay and benefits, however, not necessarily the same job. FMLA provides for up to 12 weeks of 12 weeks of leave, however, that time is unpaid. Additionally, employers with fewer than 50 employees are exempt from FMLA. The Paid Family and Medical Leave programs that many states have installed are in addition to FMLA and also provide coverage for the smaller employers not subject to FMLA.
Employer sponsored Group Short Term and/or Group Long-term Disability Insurance:
Short-Term Disability – The Short-Term Disability or Weekly Indemnity benefit is designed to compensate an employee following an accident or sickness by providing an income lost. Typically, STD plans provide coverage from the first day following an accident and, on the 8th, or 15th day following an absence due to sickness. Often the employee must meet some minimum period of employment prior to being covered. The Benefit period is the maximum amount of time for which STD benefits are paid for any specific loss. Common benefit periods are 13 and 26 weeks and are generally integrated with the employer’s Long-Term Disability (LTD) plan.
Long-Term Disability (LTD) – The elimination or waiting period is the period of time that the claimant must be disabled before receiving benefits. The most common elimination or waiting periods are 90 and 180 days. The length of the elimination period and the benefit duration have a direct impact on the charged premium, typically paid by the employer. Most LTD plans will pay a partial or residual benefit if the employee is disabled, but able to work a reduced schedule. All group LTD plans have a percentage of income that is covered, often 60%, and a policy maximum payable for any month. Long-term disability (LTD) benefits begin after short-term disability benefits end. Examples of qualifying conditions may include cancer, accidental injuries, and mental health conditions. Long-term disability benefits are paid monthly. The amount of time a person can receive LTD benefits varies, but usually coverage is provided until the employee returns to work, receives benefits for a certain number of years or reaches age 65.
Cash Sickness State Disability Programs – Temporary disability insurance, sometimes referred to as cash sickness benefits, provides workers with partial compensation for loss of wages caused by temporary nonoccupational disability. Only five States, Puerto Rico, and the railroad industry have temporary disability insurance laws. These states are Rhode Island, California, New Jersey, and Hawaii. Puerto Rico also has their own plan. The last programs were initiated in 1969. In all seven temporary disability insurance systems, as with unemployment insurance in the United States, weekly benefit amounts are related to the claimant’s previous earnings in covered employment. In general, the benefit amount for a week is intended to replace at least one-half of the weekly wage loss for a limited time. All the laws, however, specify minimum and maximum amounts payable for a week. In three States (Hawaii, New Jersey, and Rhode Island), the maximum amount is recomputed annually so that it equals a certain percentage of the State’s average weekly wage in covered employment. Rhode Island also pays benefits to dependents. The maximum duration of benefits varies between 26 and 52 weeks. The length of time that benefits are payable depends on the total amount of base period earnings and the length of employment.
Social Security Disability Insurance (SSDI) – Social Security pays benefits to people who can’t work because they have a medical condition that’s expected to last at least one year or result in death. In addition, one must have worked long enough — and recently enough — under Social Security to qualify for SSDI benefits. While other disability programs provide for partial disability or short-term disability, Social Security does not.
SSDI is funded through payroll taxes. Recipients have worked for years and have contributed to the Social Security trust fund in the form of Social Security taxes – received under either the Federal Insurance Contributions Act for employees or the Self-Employment Contributions Act for the self-employed. These taxes translate into Social Security “credits.” Qualified dependents of a disabled worker may also receive benefits even though they may not have worked.
The amount needed for a work credit changes from year to year. In 2024, for example, you earn 1 credit for each $1,730 in wages or self-employment income. When you’ve earned $6,920 you’ve earned your 4 credits for the year. The number of work credits you need to qualify for disability benefits depends on your age when your disability begins. Generally, you need 40 credits, 20 of which were earned in the last 10 years ending with the year your disability begins. However, younger workers may qualify with fewer credits.
Other programs that may provide some relief include state Worker’s Compensation plans and for federal employees, with an executive order signed by President Obama in 2015—officially known as Paid Sick Leave, Executive Order 13706—which requires companies with federal government “covered contracts” to provide paid sick leave to employees. Granted, both policies are otherwise fairly similar. For instance, both allow employees to earn paid sick leave hours in exchange for a certain number of hours worked, and both offer job protection.
OK, now that we have looked at the traditional programs that exist and have provided the traditional basis for protecting one’s income during short and extended disabilities, let’s look more closely at PFML and discuss what it is, isn’t, and what states currently have or are contemplating their own programs. Remember, PFML is currently only found in states that have implemented such a program or are considering such a plan. Additionally, there are significant differences between the various plans.
Paid Family and Medical Leave (PFML) – A small but growing number of states (plus the District of Columbia) have stepped in to fill the gap. In 2016, just four states had PFML laws on the books. Today, that number has more than tripled—to 17 out of 50—though laws in four of those states won’t go into effect until 2026. Each program is unique . . . with most providing up to 12 weeks of coverage and having similar triggering provisions. However, some are funded entirely by the employer, while many have both employer and employee funding, and the benefit formulas vary across the plans.
The U.S. Department of Labor defines PFML as paid time away from work due to circumstances that require a longer-term period of absence than the employer’s regular sick days policies provide. As part of their paid family leave policies, four states also offer what’s known as “safe leave.” Occasionally referred to as “safe time,” it refers to absence from work to address certain medical and non-medical needs that arise from situations such as domestic violence, harassment, stalking, or sexual assault. The following chart provides a broad overview of the current programs in effect and the planned design for those states that will go live in 2026.
Click here to see a chart that shows information from each of the states that have in-force or pending that are considered PFLA plans.
If you have further questions or need clarification, whether a working American or an employer, consider that several of our members are heavily engaged in PFLA, and either provide private options for PFLA or act as consultants to Human Resource representatives to employers.
As the literature clearly points out, the United States is one of the few advanced countries without universal paid time off for the care of family members. Certainly, additional states will join the 15 states and the District of Columbia in the future. However, as noted in the chart, each of the state’s programs are highly unique, from plan designs to the funding methodology. At some point it would seem likely that a national plan will be in our future and standardize the benefits across the states.
Sources:
‘History of Paid Leave in the United States’, Women’s Bureau, The Department of Labor, March 2024
Various state PFLA websites
Department of Labor website
Fact Sheet, Women’s Bureau, US Department of Labor, June 2024
Social Insurance Programs, Office of Retirement and Disability Policies
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