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Rising disability claims pose a challenge to employers: 5 issues to consider

Disability claims began climbing at the beginning of the pandemic – and the slowdown is nowhere in sight.

The reasons are varied and striking. Mental health issues, one major contributor to long-term disability claims, have reached crisis proportions in Canada. In fact, by 2022, more than one-third of disability claims were related to mental health. And despite minor improvements in mental health since the lockdowns subsided, nearly 20% of Canadians are still struggling.

Employers who are watching closely are concerned, and with good reason. It will be their job to protect and support not only their employees, but also their organizations – even when those two sides may be in opposition with one another.

Weighing the factors

With benefits costs rising, organizations are feeling the pressure to be mindful of their bottom line. Whether they are offering a basic employee benefits coverage or broader, more personalized options, they need to get more bang for their buck.

Many employers have found themselves in a difficult situation. For those employees out on long-term disability (LTD), should organizations continue to support their health and dental benefits, even when it’s clear the employee won’t be returning to work? Eliminating benefits for vulnerable employees feels morally wrong — and could result in an HR complaint — but continuing coverage is an expensive proposition today.

Organizational leaders will find themselves struggling to make the choice. What works for one organization may not work for yours. There’s no single solution to this problem, but there are steps HR professionals can take to find a balance between doing what feels right and doing what’s best financially for the organization.

The way to start is clear: Develop a benefits policy that aligns with your organization’s values while helping control costs.

Building an organizational framework

When re-evaluating an existing policy or creating a new one, many organizations find it useful to start with their organizational values and mission statements. Company values should guide and support all employee policies. With that information in mind, the “right” path becomes clearer.

When it comes to building a framework for benefits coverage for employees who are on LTD, the process is no different.

5 issues to consider

Here are five issues to consider when building a framework for long-term disability benefits in Canada:

Consider contractual obligations. Begin by reviewing all benefit plan contracts, employment agreements and collective agreements to identify any existing contractual obligations for employees with long-term disability status. Consider whether there are any legal requirements that the organization is required to provide. This becomes a baseline for your policy.

Review financial obligations. Calculate the cost of any existing benefits, including pension plan contributions and insurance premiums. These costs constitute another type of baseline, noting that employees on disability often have higher claims than other employees. This may have an impact on the cost of benefits across the organization.

Consider existing precedents. Reviewing coverage means reevaluating the way something has been done before, which can be a challenge. Research current market conditions and compare it against your organization’s values. The organization may be offering coverage that’s dramatically different from its competitors – or it may be meeting the industry standard. But looking at it with fresh eyes allows for enough perspective to make a change.

Obtain organizational buy-in. The support and agreement of important organizational representatives, such as executives, HR managers and even employees, is invaluable. Consult with a variety of internal partners to ensure that everyone understands what the policy says. Whether benefit coverage for employees on LTD is continuing or not, all organizational representatives will need to support the policy.

Communicate new policies clearly. As always, policies must be clear and concise. For fairness and consistency, employers need to implement and communicate policy changes with the entire workforce, not just those on LTD. Policies should include critical details, including effective dates for the new policy and specific amounts employees will have to pay, such as premium obligations and retirement matching eligibility.

This type of policy can be challenging to draft, and organizations may need guidance. In many cases, it’s a good idea to consult with a benefits advisor and legal advisor to be sure you’re meeting all legal expectations.

Ultimately, each organization will have to determine the right course of action based on its own specific situation. But organizations that take the time to develop a formal policy will be able to successfully manage their costs and support their employees all at once, simply because expectations are clearer to everyone from the beginning.

Devon Forshner is an employee benefits professional with 15 years of experience in HR and benefits consulting. Currently serving as an associate vice-president at HUB International, a leading insurance brokerage and consulting firm, Devon leads client relationships with mid to large organizations across various industries in Canada. His expertise lies in designing, implementing, and managing employee benefits programs for organizations of all sizes, aligning them with their strategic goals.

Janine McInnis, CPHR, is associate vice-president for HUB International. A 20+ year veteran of the industry, she also has held various leadership roles with the CPHR Association in Nova Scotia.