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Analyzing short-term disability benefits.

Analyzing short-term disability benefits For the first time, BLS has combined data on sick leave and sickness and accident insurance; results show that short-term disability benefits vary by length of service and between the private and public sectors Since 1979, the Bureau of Labor Statistics Employee Benefits Survey (EBS) has reported on the availability of benefit plans that replace earnings lost during periods of short-term disability. Through 1986, this annual survey was conducted on full-time workers in medium and large private-sector firms whose minimum employment ranged from 50 to 250, depending on industry. Industries covered included manufacturing; mining; construction; transportation, communications, electric, gas, and sanitary services; wholesale trade; retail trade; finance, insurance, and real estate; and selected services.(1) In 1987 the survey was conducted in State and local governments,(2) and in 1988 it returned to the private-sector arena, for which survey findings are currently being tabulated. Regardless of year, the reports show that nearly all full-time employees of the sources surveyed have short-term protection, through either paid sick leave, paid sickness and accident insurance, or a combination of both.

All these EBS reports focused separately on the terms of sick leave and of sickness and accident insurance plans. This article, the first to look at combined benefits from the two sources, presents new measures of the number of days of paid time off available to employees for short-term disabilities.(4) By displaying the combined benefits of employees under more than one short-term disability plan, the new tabulations add to the existing data on individual sick leave and sickness and accident insurance plans. Beginning with the publication of the 1988 survey findings, the new measures will be regular features of EBS reports.

In the 1986 EBS, private-sector employees with 10 years of service had available an average of 127 days of short-term disability benefits. Since many of these days, particularly those from sickness and accident insurance plans, were paid at less than the regular rate of pay, the average number of full-pay equivalent days available was 76. The comparable averages for State and local government employees in 1987 were 47 days available and 28 full-pay equivalent days.

Short-term disability benefits

Of the two forms of short-term disability benefits, sick leave is often considered a continuation of salary and thus is most frequently found among salaried workers. As a result, it covers the large majority of public-sector workers, as well as white-collar workers in the private sector.(5) Sickness and accident insurance plans are more common among blue-collar workers in the private sector, who are often paid an hourly wage rather than a salary.

Sick leave provides income replacement through operating funds of the establishment. The employee's full salary is generally replaced for a specified number of workdays lost, such number often increasing with length of service. Additional days off at less than full salary may also be available. (In 1986, 2 percent of the private-sector workers covered by sick leave plans had only partial-pay benefits available.)

Sick leave plans typically specify a number of paid days off. (A few plans grant leave "as needed.") When such days are specified, they can be on either an annual or per-disability basis. Annual plans (for example, 12 days per year) may allow employees to cash in unused benefits or carry them forward to future years. Per-disability plans (for example, 60 days per illness) renew the entire benefit duration for successive disabilities, eliminating the need to carry days forward. Annual plans are far more common than per-disability plans, particularly in the public sector. In both plans, benefits are seldom subject to a waiting period.

By contrast with sick leave, sickness and accident insurance plans provide less than full pay--either a dollar amount or a percent of wages--for a stated period, often 6 months. Moreover, benefits generally do not begin until after a waiting period, such as 1 week, is completed, thereby reserving payments for disabilities of longer duration. Typically, benefits do not vary with length of service.

Although most employees have only one source of short-term disability benefits, 25 percent of the full-time employees in medium and large private-sector firms and 14 percent in State and local governments could receive both sick leave and sickness and accident insurance. In these instances, benefits are coordinated by either starting insurance payments after sick leave pay ends or reducing sick leave pay by the amount of the insurance benefit.

The new data

The new data show that large numbers of short-term disability days are available to employees as a result of sickness and accident insurance and per-disability sick leave plans. In addition, because of sick leave provisions, the duration of short-term disability benefits varies markedly with length of service. In 1986, medium and large private-sector firms made available to full-time employees an average of 110 paid days off at 1 year of service, and 134 days off at 30 years. Private-sector averages also varied by occupational group, ranging, for example, from 117 days for technical and clerical workers with 10 years of service to 132 days for production workers with the same number of years of service.

Short-term disability payments, particularly from sickness and accident insurance, may be less than the regular rate of pay. The flow of income, however, would not necessarily be constant over the disability period. If the initial days away from work were covered by paid sick leave (at full pay), and the remainder by sickness and accident insurance (at partial pay), the initial replacement rate would be higher than that subsequently received.

In this regard, full-pay equivalent days are highest in relation to total days available in occupational groups that receive predominantly sick leave benefits, such as private-sector professional and administrative workers. The ratio of full-pay equivalent days to all available days in 1986 was 79 percent for professional and administrative workers at 20 years of service, higher than for any other group with comparable seniority. At the other extreme, the replacement rate was 50 percent for production workers, who rely more heavily on benefits from sickness and accident insurance. The private and public sectors yields two significant findings: private-sector workers have greater numbers of paid benefit days than do their public-sector counterparts, and their full-pay equivalent benefits vary more than those of public-sector employees by length of service.(6) These findings reflect both the availability and characteristics of benefit plans in the two sectors. First, private-sector workers are more likely to receive combined sick leave and sickness and accident insurance benefits, whereas government employees predominantly receive just annual sick leave benefits, commonly 12 or 13 days per year with no variation by years of service. Second, annual sick leave plans in the private sector provide greater benefits than do those in government, and the benefits often increase with employee service. In the private sector, average annual sick leave benefits in 1986 ranged from 15 days at 1 year of service to over 40 days at 25 years of service. Per-disability plans, while less common, were even more generous and also increased benefits with length of service. Under these plans, benefits averaged 52 days at 1 year, and 137 days at 25 years, of service.

The greater number of days in private-sector plans is counterbalanced by the more common provision in government plans for carrying over unused sick leave to future years. More than 9 out of 10 public-sector workers in short-term disability plans may carry forward unused sick leave benefits, while this feature is available to fewer than one out of four private-sector plan participants.

Relative importance of components

The duration of short-term disability benefits available to employees at specific service intervals is composed of sick leave days, sickness and accident insurance days, and combined benefit days. (Combined benefit days are those days on which both sick leave and sickness and accident insurance benefits are received.)

In the private sector, sick leave benefits make up about a half to two-thirds of the total days available for white-collar workers, depending upon length of service, but less than a fifth of the blue-collar total. This difference reflects the greater availability of sickness and accident insurance plans for blue-collar workers. In all three occupational groups, the importance of sick leave rises with seniority.

By contrast with the data for the private sector, public-sector figures are affected more by the large difference in the length of sick leave and that of sickness and accident insurance benefits than by variations in their incidence. Even though sickness and accident insurance plans are less common in the public sector, their large numbers of days available compared with relatively small numbers of sick leave days influence the distribution of days. Thus, sickness and accident insurance days make up nearly two-thirds of the total days available for all workers and predominate in all occupations except teaching. In both the private and public sectors, combined days, available to only a small percentage of workers, were a minor component of total days available. FOOTNOTES (1)The most recent of these reports is Employee Benefits in Medium and Large Firms, 1986, Bulletin 2281, Bureau of Labor Statistics, 1987. (2)Data are in Employee Benefits in State and Local Governments, 1987, Bulletin 2309, Bureau of Labor Statistics, 1988. (3)For additional information on short-term disability benefits, see William J. Wiatrowski, "Employee income protection against short-term disabilities," Monthly Labor Review, February 1985, pp. 32-38. (4)Income replacement for employees disabled for longer periods--generally inexcess of 6 months or 1 year--is often available through employer-sponsored long-term disability insurance or disability provisions of defined benefit pension plans. See Diane Hill, "Employer-sponsored long-term disability insurance," Monthly Labor Review, July 1987, pp. 16-22, and Donald Bell and William Wiatrowski, "Disability benefits for employees in private pension plans," Monthly Labor Review, August 1982, pp. 36-40. (5)Data are reported for full-time employees and for three broad occupationalgroupings constituting this total. In the survey of medium and large private firms, employees are classified as professional and administrative, technical and clerical, or production. (The first two groups are considered white-collar, the last blue-collar, employees.) State and local government workers are classified as teachers, police and firefighters, and all other employees (those not falling into the first two groups). (6)A detailed comparison of benefits offered to private- and public-sector employees is available in a series of articles published in the December 1988 Monthly Labor Review. See William J. Wiatrowski, "Comparing employee benefits in the public and private sectors," pp. 3-8; Allan P. Blostin, Thomas P. Burke, and Lora M. Lovejoy, "Disability and insurance plans in the public and private sectors," pp. 9-17; and Lora Mills Lovejoy, "The comparative value of pensions in the public and private sectors," pp. 18-26. James N. Houff and William J. Wiatrowski are labor economists in the Division of Occupational Pay and Employee Benefit Levels, Bureau of Labor Statistics.
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Author:Houff, James N.; Wiatrowski, William J.
Publication:Monthly Labor Review
Date:Jun 1, 1989
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