When an employee suffers from a debilitating injury, illness, or condition that prevents them from working for an extended period, they may qualify for long-term disability (LTD) benefits. Long-term disability insurance provides financial assistance to employees who cannot work due to serious health issues that extend beyond short-term disability periods. The decision to go on long-term disability is not one employees or employers take lightly, as it has significant financial, personal, and professional implications.
In this post, we will explore what happens when an employee goes on long-term disability, covering eligibility requirements, the application process, benefit payments, and the impact on employment, health insurance, and retirement benefits. Additionally, we will discuss what employees can expect in terms of job security and any steps they might need to take to return to work when they are able.
1. Understanding Long-Term Disability (LTD) Insurance
Long-term disability insurance provides a portion of an employee’s income in cases where they are unable to work due to severe and lasting health issues. LTD policies vary by provider, employer, and policy specifics but commonly cover between 50% and 70% of the employee’s gross income, offering a crucial source of financial support during a challenging time. LTD benefits are typically activated after an employee exhausts short-term disability coverage, which usually covers the initial weeks or months of absence.
Employers often offer LTD insurance as part of their benefits package, though some employees purchase individual plans to ensure more robust coverage. To receive LTD benefits, employees typically must provide medical documentation that confirms the severity and expected duration of their condition.
2. Qualifying for Long-Term Disability
To qualify for long-term disability benefits, an employee must meet certain criteria outlined in the policy. These requirements generally include:
- Medical Evidence: The employee must submit thorough medical documentation from a licensed physician that details the nature of their illness or injury, as well as how it impacts their ability to perform job functions.
- Inability to Work: Most LTD policies require that the employee be unable to perform their job duties. In some cases, LTD benefits extend only if the employee is unable to perform any job, not just the job they held before the disability.
- Exhaustion of Short-Term Disability Benefits: Long-term disability insurance often requires that short-term disability benefits be exhausted before LTD benefits begin. Short-term benefits typically last up to six months, after which LTD benefits may take over.
Policies also may have pre-existing condition clauses, meaning that if an employee has a pre-existing condition when enrolling, it might not be covered for a specified period.
3. The Application Process for Long-Term Disability
Applying for long-term disability benefits is usually a multi-step process that involves both the employee and their medical provider. Here’s what typically happens during the application process:
- Initial Paperwork: The employee must complete forms provided by their insurance company or employer. These forms typically request personal information, job details, and the specific nature of the disability.
- Medical Verification: The employee’s physician or medical specialist will complete a portion of the application, verifying the diagnosis, symptoms, treatment plans, and estimated recovery time. Insurance companies generally require detailed evidence that the disability prevents the employee from working.
- Review Period: Once the application is submitted, the insurance company will review it. This process may include follow-up questions, additional medical evaluations, or independent assessments. The review period can vary, but employees can expect to wait several weeks to a few months for a decision.
- Approval or Denial: If the application is approved, the employee will begin receiving monthly LTD benefits after the policy’s elimination period. If the application is denied, the employee may have an opportunity to appeal the decision.
4. Receiving Long-Term Disability Payments
Once approved for LTD benefits, employees receive a monthly payment to replace a portion of their lost income. This amount is typically between 50% and 70% of their pre-disability earnings, depending on the terms of their policy. LTD benefits are generally not taxed if employees pay the premiums themselves, but if the employer covers the premiums, the benefits are usually taxable.
It’s important to note that LTD benefits are not permanent; policies have time limits. Many LTD policies provide coverage until the employee reaches a certain age, often 65. Others may end after a specified number of years. If an employee’s condition improves, they may be able to return to work and cease receiving LTD benefits.
5. Impact on Employment and Job Security
Going on long-term disability raises questions about job security. Employers are generally not required to hold a position indefinitely if an employee is on extended disability leave, especially if the leave extends beyond the protections provided by the Family and Medical Leave Act (FMLA). The FMLA provides job protection for up to 12 weeks, but it does not apply to all employees or employers, and it covers only short-term disability.
Some employers may offer additional job protection policies or may choose to work with employees to provide a return-to-work plan. However, after extended periods, an employer may legally fill the employee’s position if operational needs require it. In some cases, employees may have an option to return to a comparable role if they are eventually able to resume work.
6. Health Insurance Continuation
Employees on long-term disability often wonder about the continuation of health insurance. Many employers continue health insurance benefits during short-term disability leave, but when it extends to long-term disability, employees may be responsible for paying premiums if they wish to maintain coverage.
Employers may offer continued health insurance coverage as part of the LTD benefits package, but if not, employees may need to explore other options. COBRA (Consolidated Omnibus Budget Reconciliation Act) allows employees to continue their employer-sponsored health insurance for a limited time, but they must pay the full premium cost, which can be expensive. Alternatively, employees may qualify for government-subsidized health insurance through programs like Medicaid or seek coverage through the Affordable Care Act (ACA) marketplace.
7. Retirement and Other Benefits
If an employee is on long-term disability, retirement benefits such as 401(k) matching or pension contributions may be impacted. Employers are typically not required to continue retirement contributions during long-term disability, though some employers may offer partial contributions as part of their benefits plan. Employees should contact their HR department or benefits provider for details on how their specific retirement benefits are impacted.
Employees who have long-term disability insurance outside their employer’s policy may still be able to make contributions to a retirement account, depending on their financial situation and the terms of their benefits.
8. Returning to Work: Possibilities and Plans
If an employee’s condition improves to the point where they can return to work, the process for doing so depends on the employer’s policies and the employee’s recovery. Some LTD plans offer “rehabilitation benefits” or vocational services to help employees transition back into the workforce gradually. Employers may offer modified roles, part-time options, or accommodations to support the transition.
If returning to the exact previous role is not feasible, some LTD policies allow a “trial work period,” during which the employee can attempt to work without fully losing benefits in case they cannot sustain employment. Communication with both the employer and the LTD insurance provider is essential during this transition.
9. The Role of Social Security Disability Insurance (SSDI)
In some cases, employees on long-term disability may qualify for Social Security Disability Insurance (SSDI). Many LTD plans require beneficiaries to apply for SSDI, which can supplement LTD benefits. If the employee qualifies for SSDI, the amount of LTD benefits may be reduced by the SSDI payment, but it can extend the duration of support beyond what the LTD policy alone would cover.
Understand Employee’s Long-Term Disability
When an employee goes on long-term disability, it’s a significant transition that impacts their financial stability, health insurance, retirement benefits, and job status. LTD insurance provides essential financial support, but understanding the specifics of one’s policy is critical to navigating this period effectively. Both employees and employers should work together to ensure that necessary accommodations, communications, and support are in place.
While LTD benefits provide financial assistance, maintaining connections with HR and reviewing options for returning to work when possible can provide a clearer path forward. Understanding these aspects of LTD helps employees focus on recovery while knowing their financial needs are supported during challenging times.
