Benefits Chalk Talk: Short Term Disability Insurance

Welcome back to another edition of “Benefits Chalk Talk.” This series at our blog is aimed at providing valuable, up-to-date, relevant information about all of the different concepts that go into funding healthcare. One of our biggest goals is to help our clients and potential clients put the things in place that make the most sense.

The topic of this blog post is Short Term Disability Insurance. Think of it as a “paycheck protector.” It literally insures a portion of your paycheck in the event that you find yourself disabled and unable to work.

You insure your house, you insure your car… but do you insure your paycheck and income? That’s a very important question to ask yourself, because in the event of a disability, you’ll want to maintain your standard of living as best you can.

There are two types of disability plans:

1. Short Term Disability Insurance
2. Long Term Disability Insurance

There are specific differences between the two. Short Term Disability Insurance is our area of concentration in this blog post. Short Term Disability Insurance means just that: it insures your income/paycheck for the short term.

Typically a short term plan will have a benefit period of between 3 and 18 months. The benefit period is the period of time that your insurance plan will pay you in the event that you become disabled and are unable to work. If you’re anticipating a situation where you’ll be off of work for a year or more, you may want to look into a long term disability plan.

The benefit amount (the amount of money you receive from your plan) is dependent upon income. The benefit typically replaces a percentage (or portion) of your wages. In most cases, that amount is between 50%-70% of what you would normally earn. You will not typically find a plan that will cover 100% or more of your income, because there needs to be incentive to go back to work.

Disability plans also have what is called an elimination period. The elimination period is the amount of time that you must wait in order to begin receiving your benefit. For example, if you have a 0/7 (accident/sickness) elimination period, your plan will begin paying you right away (0 days) for an accident, and on the 7th day for a sickness. Typical elimination periods in a short term plan are: 0/7, 0/14, 7/7, 7/14, 14/14 and so on. The elimination period will adjust your premium payment (up or down), based on the amount of time you are willing to wait to receive your benefit.

Another important thing to consider is if you have off-the-job coverage only, or if you are also covered on the job. Many plans are off-the-job coverage only (because worker’s compensation typically pays for on the job disabilities). Make sure that you understand where you are covered under your short term disability plan.

A final thing to consider are state disability programs. If your state has a disability program, in most cases, you’ll need to factor in the amount of benefit you’d be eligible for from the state if you were to file a disability claim. In California, it’s up to ~56% of income. Beyond that, a person is on their own. If a person wants more income protection than what the state is providing, he/she can find a private plan that will help bridge that gap up to ~70% of income. The following states and territories have state disability income programs:

• California
• Rhode Island
• New York
• Hawaii
• New Jersey
• Puerto Rico

That’s all for now on Short Term Disability Insurance. This can be a very important concept for many people because it insures your income and your livelihood (paying for rent, mortgages, car payments, child care, groceries, utilities, etc). Make sure to contact us if you have questions.

Thanks for stopping by, we hope you found our information to be valuable. Check back at our blog to get further information about funding healthcare. Also, please share with your friends, clients, colleagues, and family. Here are a few of our other information outlets:

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Phrases Made Easy: “High Deductible Health Plan” (HDHP)

Welcome back to another edition of “Phrases Made Easy.” Our intention with this series is to help make all of those long, drawn-out insurance phrases easier for people to understand. One of our biggest goals is to give our clients and potential clients the power to put the things in place that make the most sense. Well-informed consumers can make a big difference.

This post is about High Deductible Health Plans (or HDHPs). We selected this phrase for a few different reasons:

• In many cases (but not all), High Deductible Health Plans (HDHPs) are the cornerstone of Consumer Directed Healthcare.
• High Deductible Health Plans are usually used in coordination with HSAs and HRAs.
• Consumer Directed Healthcare & High Deductible Health Plans are currently very popular within our industry.

To put the concept in perspective starting off, a High Deductible Health Plan (HDHP) usually works with other products in a system. Much like systems in a house: you have to have plumbing first to run your sink; you have to have electricity first before you can turn on your TV; and you need to have the walls and windows completed, before you turn on the heater or air conditioner.

The visualization mentioned above is similar to the components that work with a High Deductible Health Plan (HDHP). There are four things that usually work in the system:

1. A High Deductible Health Plan (HDHP)
2. A Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA)
3. Supplemental Health Insurance
4. Tax Incentives (Section 105/106 & 125)

The management and coordination of the above concepts all make up a system that can help people manage their own health services more affordably and efficiently. In most cases, the system we just described is commonly referred to as Consumer Directed Healthcare.

Here are some additional facts about High Deductible Health Plans (HDHPs):

• Insurance premiums can be most easily controlled by raising or lowering the deductible.
• A High Deductible Health Plan can be referred to as a “catastrophic plan” that covers the lion’s share of the bills in the event of a hospitalization. HDHPs also usually have at least one yearly wellness visit.
• Cash payments for other services (ie: deductibles, co-insurance, co-pays, physician visits, cash payments for lab work, cash payments for primary care, etc) can be funded w/ tax-advantaged (or sometimes tax-free) arrangements such as HSAs and HRAs. In most cases, unused cash is retained by individuals or employers.
• Cash payments through an HSA or HRA encourage providers (doctors, hospitals, and dentists) to be more transparent with their pricing.
• Additional concerns (accident, cancer, etc) can be “shored up” with supplemental health insurance plans.
• High Deductible Health Plans work very well with the evolving Defined Contribution Healthcare model.

A High Deductible Health Plan was defined in 2013 (for HSA qualification) as a plan with a minimum individual deductible of $1,250/year, and minimum family deductible of $2,500/year. Should you have further questions about how a High Deducible Health Plan might work for you, we encourage you to contact us any time.

Thanks for stopping by, we hope you found our information to be valuable. Check back at our blog to get further information about funding healthcare. Also, please share with your friends, clients, colleagues, and family. Here are a few of our other information outlets:

Home Page: http://www.policyadvantage.com

Twitter: http://www.twitter.com/policyadvantage

Facebook: http://www.facebook.com/policyadvantage

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