Another Attempt to Provide Short-Term Disability Insurance for Federal Employees

A bill has been reintroduced to give federal employees an option to purchase short-term disability insurance.

Another Attempt to Provide Short-Term Disability Insurance for Federal Employees

Yet another legislative effort is being made to provide federal employees with the option to purchase short-term disability insurance.

Congresswoman Eleanor Holmes Norton (D-DC) recently reintroduced the Federal Employee Short-Term Disability Insurance Act (H.R. 6932) which would give federal employees an option to purchase a short-term disability insurance plan through the federal government.

This is at least the third time that Norton has introduced the bill, the last attempt being in 2019.

It would allow federal employees to purchase a short-term disability plan for up to one year to replace a portion of lost income due to a non-work-related injury, illness or pregnancy. Here’s the catch though: federal employees would be responsible for paying 100% of the cost of the premiums. Norton says the benefit to the federal workforce would be that the federal government could obtain group rates that would likely be cheaper than open market rates.

She said in a statement, “There is every reason to allow our federal employees to take advantage of the federal government’s purchasing power to obtain the most reasonable price if they choose to purchase short-term disability coverage on their own, at no cost to the federal government.”

The bill has failed to gain any traction the last times it was introduced, and it may not be any different this time, so what other options do federal employees have to pay their expenses in the event of lost wages for a short period of time without short-term disability insurance?

Many financial advisors recommend having an emergency fund with savings to cover household expenses for a short period of time (usually at least 3 months but up to as much as 1 or 2 years) when the unexpected happens. An emergency fund is, therefore, a way of self-insuring through short-term financial hardships such as a job loss, injury, illness, major car repair, etc. Having such savings for emergencies would take the place of short-term disability insurance.

Some financial advisors even go so far as to recommend against buying short-term disability insurance. Popular personal finance expert Dave Ramsey, for instance, says it is generally not a good deal and is unnecessary if one has a suitable emergency fund. His website states:

Short-term disability insurance is exactly that: short. Payments only last for a few months to a year. The elimination period is normally around two weeks—so you can get your payout faster than with long-term coverage. But when it comes to cost, short-term premiums are around the same (but usually more expensive) than long-term premiums. 

Basically, unless your employer is offering short-term coverage free of charge to you, don’t get it. You can put together your own short-term disability coverage by saving 3–6 months of expenses in an emergency fund! If you get sick or injured and have to take time off work for a few months, your savings can fill in the gaps until you get back on your feet.

Obvious examples of times an emergency fund might be needed would be unexpected life events, be it a pandemic, illness, transmission failing on a car, or one that is unique to federal employees: a partial government shutdown. In the latter case, although federal employees are made whole with back pay once a shutdown comes to an end, it can still potentially cause disruptions to their regular paychecks while the shutdown is ongoing.

Norton issued the following statement along with the introduction of the legislation:

March 3, 2022

Today, I introduce the Federal Employee Short-Term Disability Insurance Act of 2022, which would help provide financial relief for federal employees who have a short-term injury or disability, become pregnant or develop a pregnancy-related illness. This bill would offer federal employees short-term disability insurance at no cost to the federal government. Employees would be responsible for 100 percent of the premiums and be able to receive disability insurance benefits for up to one year, which would replace a portion of their lost income due to a non-work-related injury or illness or pregnancy. This bill is more important now than ever with the prevalence of so-called “Long COVID.”

I decided to investigate how we could provide short-term disability insurance for federal employees after learning that many of them already buy short-term disability insurance as individuals in the private market at high individual rates. Although federal employees have good health insurance, federal health benefits do not replace lost income if employees are unable to work. Moreover, while federal employees may have available sick or annual leave days, they may not have enough such days to pay the bills if they have to be out of work for an extended period, such as following surgery. Although there are long-term disability options for federal employees who become permanently disabled, federal employees do not qualify for such benefits until they have worked for the federal government for at least 18 months. My bill does no more than put federal employees in the same position as many of their private-sector counterparts, who often have access to disability insurance through an employer at group rates, an option unavailable to federal employees. This bill would not allow participating insurance companies to exclude persons based on preexisting conditions. Because of the federal government’s purchasing power, this bill would provide these benefits at a more competitive rate than is available for employees purchasing as individuals, as many do. Under this bill, the Director of the Office of Personnel Management would contract with private carriers to provide this coverage, essentially providing the equivalent of group coverage available to workers in the private sector.

According to the Social Security Administration, a 20-year-old worker has a one-in-four chance of becoming disabled by retirement age. The majority of disabilities are not caused by major accidents, but by injuries or illnesses, such as back injuries or cancer, according to the Council for Disability Awareness. There is every reason to allow our federal employees to take advantage of the federal government’s purchasing power to obtain the most reasonable price if they choose to purchase short-term disability coverage on their own, at no cost to the federal government.

I strongly urge my colleagues to support this bill.

About the Author

Ian Smith is one of the co-founders of FedSmith.com. He enjoys writing about current topics that affect the federal workforce.