Question

It is time for the annual review of benefit offerings at Medfirst Pharmaceuticals. With more than 1,500 employees and growth on the horizon, Director of Compensation Harold Jones knows that he must ensure that the benefit package is attractive to potential new employees while still meeting the needs of current employees. Medfirst has a diverse workforce that includes scientists, administrators, support staff, and field sales employees. Harold thinks that the current package is attractive but that more options might add overall value.

The company currently offers a health insurance plan, a retirement savings plan, a generous paid time-off allowance, life insurance, and short-term disability insurance. Harold has reviewed benefit utilization reports and also an employee satisfaction survey and finds that, overall, employees are satisfied with their benefits. Medfirst is focused on retaining employees over the long term, and several questions on the employee satisfaction survey ask about their concerns related to their employment at Medfirst. While employees seem confident that the company is on the right track to remaining successful, employees noted that they were concerned about their financial security and long-term opportunities at Medfirst. Harold thinks that these feelings may be a result of external forces, such as 187the recent downturn in the economy, coupled with excessive media coverage of health problems that continue to plague the public in general.

As Harold reflects on these employee concerns, he considers some employees over the last several years who have had to take extended leaves of absence due to medical problems. One employee in particular had to have back surgery that left him out of work for almost a year. Harold knows that the absence of income and the high medical expenses caused a toll on this employee, who had to borrow from his retirement account in order to pay his home mortgage during that time period. Harold knows that stories such as this are becoming more common and that giving employees some relief from such concern would be welcomed. Thus, he is considering offering a long-term disability insurance option for employees.

A long-term disability insurance benefit would provide employees with income continuation in the event of an illness or injury that leaves an employee unable to work for a period of greater than six months. Harold learns that there are some options such as partial disabilities coverage, which provides employees some payments if they are able to continue working only in a part-time capacity due to their illnesses or injuries. Such an option hadn’t occurred to Harold, and he realizes that he needs to learn more to determine if Medfirst should offer long-term disability insurance.

1. How do disability insurance benefits differ from workers’ compensation?
2. If a company already offers short-term disability insurance, why should the company consider long-term disability insurance?
3. Do you think the long-term disability insurance benefit would be a valuable addition to Medfirst’s benefit offerings? Should the company include the partial disabilities coverage?

Answer 1

1. Workers’ compensation only provides coverage for injuries and illnesses that are work-related. Disability insurance benefits will cover all injuries and illnesses. As a result, an employee may be able eligible to receive state benefits under workers’ compensation as well as Social Security disability in addition to their disability benefits. Employers therefore include offset provisions in their policy reduce the company sponsored benefits obligations based on payments received from other sources. workers’ compensation offers protection against work-related injury and illness, disability income insurance extends coverage outside of the workplace. disability income insurance covers injuries and illnesses that occur both on and off the job, while workers’ compensation, again, only kicks into gear for work-related illnesses or injuries. Workers’ compensation only covers work-related injuries or illnesses. Injuries or illness that occur outside of working hours, or when you are on personal time, are not covered.

2. The number of illnesses and injuries that cause incapacitation for a period of greater than the six month typically provided by a short-term disability plan is growing. As a result, employees may be devasted financially more often by a long-term illness or injury. Providing a long-term disability benefit can ease employee concerns and also provide an opportunity to help a committed employee sustain over a period of time and in many cases, return to work successfully.

3. In this case it seems that there would be some value in providing a long-term disability benefit. As the company is trying to attract and retain a long-term workforce, offering such a benefits can provide employees some assurance that they will be financially secure if faced with a longer-term illness or injury. Given that such incapacitation is more likely, and that employees have noted concern with financial security, it seems to be a good option for the company. If Medfirst moves forward, it would be wise to add the partial disabilities inclusion. The company can save if employees are able to return to work at least partially as opposed to continue to collect payment on full disability. Allowing employees to return to work part-time also helps Medfirst achieve its objective of retaining employees that have used the disability benefit by easing them back into the work routine.