Modest slowdown in premium growth distinguishes second-quarter financial results for MPL specialty insurers
We look at the financial results for medical professional liability (MPL) insurers for the second quarter of 2022.
Disability benefits are currently mandated in nine U.S. states plus the District of Columbia, either through paid family and medical leave (PFML) legislation or through standalone disability legislation. Several other states are moving toward adopting PFML programs of their own. Although the program designs vary by state, they all provide benefits to eligible employees who take time off from work to treat serious health conditions. These benefits are very similar to the short-term disability (STD) benefits that many employers offer their employees either through fully insured or self-insured methods. The similarities between PFML and STD benefits can create challenges in administering the benefits concurrently. This article discusses some of the key considerations for employers in states with mandated PFML benefits.
There are many variations in state-mandated PFML benefits, and their structures can look different from STD benefit structures. In many cases, PFML benefits are tiered to provide higher income replacement to lower-wage workers. For example, the Washington state PFML benefit replaces 90% of income for low-wage workers up to approximately $50,000 per year, then the replacement ratio decreases with increasing wages. In the graph in Figure 1, the red curve represents PFML income replacement ratios based on the Washington state PFML benefit design (similar patterns exist in other states whose programs feature tiered benefits). For comparison, the green curve represents STD income replacement ratios based on 60% income replacement up to $2,500 per week (a relatively standard STD benefit design).
Figure 2 shows an illustrative example of the differences in benefits for two employees in different wage brackets.
|Low-wage employee||Higher-wage employee|
|Salary||$40,000 ($770/week)||$150,000 ($2,885/week)|
|State-mandated PFML||$697/week (90% of income)||$1,242/week (43% of income)|
|Short-term disability||$462/week (60% of income)||$1,731/week (60% of income)|
Because STD and state-mandated benefits overlap for part or all of the STD claim duration, employers with large proportions of low-wage workers may be reluctant to continue offering STD coverage, because the state program could be perceived as a better option. On the other hand, because the gap between STD and state-mandated benefits is significant for higher-wage employees, some employers may perceive the need to continue to provide STD benefits. The decision to continue STD coverage depends largely on the extent to which STD and state-mandated benefits overlap.
Employers who choose to provide STD and state-mandated benefits concurrently must also decide how to best administer and coordinate the benefits, which can be challenging because state-mandated benefits are different in every state and overlap with STD benefits in different ways. The employer has the following options for providing income replacement benefits:
Many employers have become increasingly dispersed across different states, a dynamic that may have been accelerated by remote work habits during the COVID-19 pandemic. An employer that has employees in multiple states must ensure that each employee receives the benefit mandated in the state where they work. This can be an administrative burden for employers with a large national footprint. Disability insurers and benefit administrators have developed administrative platforms to assist employers that choose to outsource the administration. The employer’s decision to outsource is often motivated by the desire to simplify administration through a centralized and methodical framework. Other important considerations include compliance, case management, and risk. For example, it can be very challenging for multinational employers to keep up with the various compliance requirements emerging at the federal, state, and local levels.
The following are other important considerations for employers located in states with mandated PFML benefits. Many of these can be addressed through outsourcing.
The rise in state-mandated PFML benefits poses administrative, compliance, and plan design challenges to employers. It also provides employers with the opportunity to restructure and offer more robust benefits to employees. By approaching these challenges as more than a compliance need, employers have the opportunity to rethink and redesign their leave programs in a manner that will be valued by employees without placing an excessive burden on the company’s benefits staff.