Similar But Not Equal: Comparing PML with STD Coverage in States with Paid Leave
By Rebecca Ford, Esq., Product Director, Reliance Matrix; Margaret Guerrette, JD, Product Director Reliance Matrix
As states continue to implement paid leave programs, more employers are left with a burning question: What is the point of short-term disability (STD) coverage if I have to provide employees with coverage under a mandatory, statutory paid leave program?
Statutory paid leave programs, which include paid family and medical leave programs, include two components: paid medical leave (PML), which is leave for an employee’s own medical condition, and paid family leave (PFL), which applies when an employee takes leave to bond with children or to care for someone else. While the PML portion of most paid family and medical leave programs is similar to STD coverage because it provides a portion of income replacement when leave is taken for an employee’s own serious health condition, PML and STD are not created equal. There are many factors to consider when employers evaluate employee absence solutions, including:
- whether employees work in states with statutory paid leave programs;
- average employee salary; and
- potential circumstances of employee leaves (e.g., intermittent, accommodations, return-to-work ramp-up plans, multiple leaves in one year, etc.).
Depending on the circumstances, STD insurance may remain a crucial coverage. There are three tricky and nuanced areas in which STD coverage can ensure adequate coverage for employees on medical leave: percentage of income replacement, duration and availability of leave within a given year, and availability of work rehabilitation benefits and value-added services.
Percentage of Income Replacement
While PML and STD both provide income replacement for an employee’s own serious health condition, one big difference is the portion of income replaced. Most STD plans offer straight income replacement based upon a percentage of income (typically 60% to 70%) up to a maximum benefit, while the common trend with paid family and medical leave programs is a tiered benefit, which replaces income based on a percentage depending on an employee’s average weekly wage. As a result, lower wage earners typically receive a larger portion of overall income replacement and higher wage earners typically receive a lower portion.
For example, the Massachusetts Paid Family and Medical Leave (MA PFML) program pays weekly benefits to employees earning equal to or less than 50% of the state’s average weekly wage (SAWW), which is $1,765.34 for 2023,80% of their average weekly salary while employees earning greater than 50% of the SAWW will receive 50% of their average weekly salary up to the maximum benefit.
While some employees receive almost their full average weekly wage, employees who earn more than $882.67 per week (50% of the SAWW for 2023) will receive half of their average weekly salary up to the maximum benefit of $1,129.82. One way employers can help their employees get closer to their average weekly salary is to offer STD plans that pay concurrently with a statutory paid leave plan.
Most STD and statutory paid leave plans account for concurrent leave payments and do not allow employees to earn more than their average weekly income. It would be against public policy to allow employees to earn more while they’re on leave than they do while working, a point that most insurance plans and statutory paid leave plans take into account. However, if employees receive STD while receiving a PML benefit under a statutory paid leave plan, even with the offset they will receive a higher portion of income replacement than with a PML benefit alone.
Durations for Statutory Leave Plans vs. STD and Why It Matters
While statutory paid leave programs vary, they tend to provide leave durations in two ways: a set leave duration maximum for each leave type or a maximum leave duration for all leave reasons.
For example, the MA PFML program allots a set leave duration for each leave type. PFL for bonding gets 12 weeks while PML gets 20 weeks. When leave types are taken within the same benefit year (for a combination of leave reasons), there is a 26-week maximum duration.
The Connecticut PFML (CT PFML) program provides one bucket of 12 weeks maximum across all leave reasons and when used in combination. However, in Connecticut, additional time is available for employees who experience a serious health condition during pregnancy. Once employees reach their maximum duration of leave, the bucket is empty, and they cannot take any additional paid leave for the benefit year. In contrast, STD plans reset for each independent condition.
Essentially, if employees need to take multiple periods of leave within a given year, those who have statutory paid leave coverage only would be limited in the duration of leave they have available. In comparison, employers with statutory paid leave coverage and STD ensure employees can reset their STD allotment when new medical conditions arise.
For example, Gina is a nurse who has CT PFML coverage and does not have STD coverage. She delivers a baby via vaginal delivery and goes out on leave under CT PFML on Jan. 1, 2023. She is certified for six weeks of CT PML leave and does not require the additional PML for her pregnancy. She also takes six weeks of CT PFL to bond with the baby, which means there is no additional CT PFML leave left for the remainder of the year. Later that same year, Gina breaks her leg and requires surgery with a recovery period of six weeks. While Gina’s absence from work may be protected by federal and state unpaid leave absence laws (e.g., FMLA, CT FMLA), she does not have access to paid leave under the CT PFML program. In this scenario, if Gina had STD coverage, she would be able to use it as these plans reset for each independent condition.
Work Rehabilitation and Value-Added Services
In addition to income replacement, STD plans often include return-to-work rehabilitation support, return-to-work accommodation support, dependent care reimbursement, and work incentive benefits. Some carriers also offer value-added services in addition to STD plans, which include employee assistance programs, travel assistance, financial wellness, and/or identity theft protection. Statutory paid leave programs do not have these programs and services.
What Does It All Mean?
Keeping STD plans in place even if employees work in states with statutory paid leave programs ensures coverage for all approved medical needs. And that type of employee support matters. A growing number of studies show that comprehensive paid leave programs attract and retain talented employees.
The question is how much coverage is enough? Comparing available coverage helps identify gaps so employers can make informed decisions and can communicate their investments in ways that help employees understand their benefits because while the PML portion of statutory paid leave programs is similar to STD, the programs are not created equal.