One of the most common questions we’ve gotten over the past few weeks in light of the MA PFML law is, “Should I cancel my STD plan?”
Employee benefits are often more art than science, so there is probably no absolute answer to this question. My opinion, given what we know today, is no. Here’s why:
Timing
Despite the fact that we all have to start making contributions on July 1, no benefits are payable until January 1, 2021. We will certainly want to look closely at group disability plans leading up to that date, but not yet.
Maximum Benefit
Your higher paid workers will be capped out by the $850/week cap. If the average weekly wage base is $1383.41 (provided to me by an attorney), and the maximum benefit is $850/week, anyone who earns more than $66,818 will be capped by the plan. Your STD plan could be a supplement for those employees.
Remember the Family Leave Component
An employee has access to up to 26 weeks of paid family and medical leave in the course of a “benefit year.” Family leave is up to 12 weeks, but if leave is care for a covered service member, it could be up to 26 weeks. It’s possible that an employee could exhaust or greatly diminish his or her amount of PFML with paid family leave, leaving less or no paid medical leave available for their own illness. STD plans ONLY cover the employee’s own disability, so this protection will still make sense.
Pricing
Years ago, I was a group disability underwriter. I’m glad I escaped, but those pricing concepts remain in my head. Before this era of paid family and medical leave, a few states had statutory disability benefits laws (DBL). New York is one of them. If we had two companies, identical in industry, demographics, and plan design, with one in New York and one in Massachusetts, the price for the STD plan in New York had to be lower because the insurance company would offset against the statutory DBL. In other words, rates were lower in New York because the insurance company had less exposure in New York due to the DBL.
As it stands today, the MA PFML will become a new offset for STD insurance companies in Massachusetts. In this case, it will be a fairly substantial offset, particularly for employees with average and lower wages. As such, the STD rates in Massachusetts will HAVE COME DOWN effective January 1, 2021. They have to because the insurance company’s exposure will be less.
Of course, it’s possible, maybe even likely, that the insurance companies will develop plans that include both medical and family leave, making an insured private option available to employers. If this happens, the insurance company’s exposure will increase, and prices will need to be higher than those that cover just STD.
To conclude, I really think it’s too early to consider cancelling group STD plans, but developments over the next several months will likely give us more direction on what to do as we approach January 1, 2021.
If you would like to talk about Massachusetts Paid Family Leave and how it relates to your benefits package, feel free to call us at (866) 724-0008 or click the link below.
