What happens when an employee goes on long-term disability?

Published: July 26, 2024 | by Natasha Wiebusch, Brightmine Marketing Content Manager

When an employee goes on long-term disability, HR and managers must navigate several decisions to support the employee and stay in compliance. HR teams also need to follow specific processes and procedures.

Even with processes and procedures in place, however, questions will inevitably arise. Employees may begin receiving other benefits or want to return part-time. In some cases, layoffs or changes in the business may impact the employee’s job.

In this article, we provide guidance to help you navigate common issues that arise when an employee goes on long-term disability.

What is long-term disability insurance?

Long-term disability insurance provides benefits in the form of income replacement to people who are unable to work due to a long-term injury or illness. Employees can purchase long-term disability coverage on their own or through their employer.

Long-term disability benefit amounts vary. On average, benefit amounts are 50%-80% of the claimant’s lost wages.

Short-term disability vs long-term disability

The primary difference between short-term disability and long-term disability coverage is the duration of coverage. That is, the length of time a covered person can receive benefits through their policy for their disability.

The duration of short-term disability benefits varies depending on the insurance company and the policy. However, coverage typically last anywhere from a few weeks to six months. Long-term disability benefits, on the other hand, can last anywhere between one and 10 years.

Another key difference between the two is the waiting period. A covered person can usually obtain short-term disability benefits almost immediately to cover their needs. Long-term disability claimants, however, must generally comply with a much longer waiting period.

When can an employee use long-term disability benefits?

Employees can usually use long-term disability benefits once they’ve exhausted paid sick leave and short-term disability benefits. They will also need to file a claim and meet the plan’s eligibility requirements.

Eligibility requirements

Eligibility requirements for long-term disability benefits will depend on the terms of the policy. You can expect policies to have the following basic requirements:

Documents employees need

During the claims process, claimants need to provide certain documents to their insurance provider. This includes:

• Claim form. When an employee would like to receive benefits, they must file a claim. Most often, employees will use the claim form provided by the insurance provider. The claim form will typically inform employees of other documents they must provide.
• Medical evidence of the disability. An employee claiming benefits must be able to provide evidence of the disability. In addition to the employee’s relevant medical records, they will typically need to provide an attending physician statement. This statement provides details of the disability and its impact on the employee’s ability to perform their occupation.
• Employment information. Employees who file a claim will usually need to provide proof of employment and occupation. They’ll also need to provide proof of income to allow the insurance company to determine the employee’s benefit amount.

Social Security Offset

The majority of long-term disability policies require plan members who are receiving disability benefits to apply for Social Security Disability Insurance (SSDI). If an employee begins receiving SSDI benefits, then the insurance company will typically offset their benefits by the SSDI benefit amount.

How long does long-term disability last?

The duration of benefits will depend on the long-term disability policy. These vary widely, however they’re usually anywhere from one to 10 years. Some benefits will last until retirement or until the employee is 70 years old. The insurance companies typically offer the following options: 2 years, 5 years or 10 years.

Own vs. any occupation

The duration of an employee’s benefits changes depending on the policy’s definition of disability. For example, the policy may state that plan members will receive benefits as follows:

• One year if the employee is unable to work in their own occupation.
• Five years if the employee is unable to work in any occupation.
• Five years if the employee is unable to work in their own occupation and belongs to a certain employee class. For example, an employee who is a senior manager.

Limitations for certain medical conditions

Some policies also allow for limitations on the duration of benefits for specific medical conditions. For example, a policy may allow benefits for two years for some health conditions and 10 years for others. Though this is common, some employers have stopped using them, as they do not align with their wellbeing strategy.

Job protections for employees on long-term disability

Employees on long-term disability leave can still lose their jobs because disability coverage does not offer job protection. However, employees have job protections under a variety of federal and state laws:

Do the employee’s health benefits continue?

Whether an employee’s health care benefits continue will depend on a few factors. First, a company’s internal policy will specify what happens to an employee’s health care benefits when they’re on long-term disability leave.

Whether health care benefits continue will also depend on state and federal law requirements. For example, an employer generally cannot terminate benefits when an employee is on FMLA leave. Employers with 20 or more employees will also need to comply with the Consolidated Omnibus Budget Reconciliation Act’s (COBRA) continuation of coverage requirements.

At the state level, some states require employers to continue an employee’s health care benefits while they’re on disability. States also have laws related to protected family and medical leave and “mini-COBRA” laws.

Returning to work

Returning to work after long-term disability leave can be daunting for employees. It also often creates challenges for employers. For employees, they may not be able to return to the same job or be able to carry out their usual duties. Others may need to return slowly and follow a phased return-to-work plan.

Employers should address these issues in their workplace policies. For example, a they should consider defining, in compliance with relevant law:

• How long they’ll hold and employee’s position while they’re on long-term disability.
• The company’s return-to-work policy, often called job reinstatement.

Employers should also review their policy. For example, many long-term disability policies include a return-to-work incentive. This allows employees to return to work without losing their benefits for a limited period.