Short-Term VS. Long-Term Disability with COBRA

Voluntary benefits are increasingly important to employees as they focus on their physical, mental, social, and financial health. As a result, many employers are expanding their voluntary benefits offerings to address employees’ needs and to improve their recruiting and retention efforts.

Among voluntary benefits offered to employees are disability benefits, which can provide guaranteed income or job protection to employees who are unable to work due to serious illness or injury. The most common disability benefits are short-term disability (STD) and long- term disability (LTD) insurance. However, the differences between STD and LTD benefits and other laws, such as the Consolidated Omnibus Reconciliation Act (COBRA), can be complicated and difficult for employers to understand.

This article provides a general overview of STD, LTD, and COBRA and explores how both types of disability insurance differ from COBRA.

What are STD and LTD?

STD and LTD insurance are the most common forms of disability benefits.

Short-Term Disability Insurance

STD insurance replaces all or a portion of an employee’s income due to a temporary disability. Under STD plans, employees receive a percentage of their income, typically 40% to 70% of their base pay.  In addition, an employer can allow its employees to supplement their STD benefits with paid sick leave or other benefits. An STD insurance policy is paid either fully or partially by the employer, and, according to the U.S. Bureau of Labor Statistics, the median length of STD insurance coverage is 26 weeks.

To qualify for STD benefits, an employee files a claim under their employer’s STD insurance policy. The employee must prove that their illness or injury qualifies as a disability under the plan’s terms. STD insurance generally requires employees to wait for a short period— generally, seven days—before they start receiving benefits to discourage abuse.  In addition, employees can often use their paid-time-off benefits to cover shorter absences than those covered by STD insurance. While STD insurance plans do not guarantee job protection, employees may be entitled to it through their employers’ policies or under state and federal laws, such as the Family and Medical Leave Act.

Employers offer STD insurance because it helps employees remain financially stable while recovering from an illness or injury, allowing them to stay productive and focused when they’re physically able to return to work. Since the income employees receive under STD insurance is paid by insurance companies, employers have the financial resources and flexibility to hire temporary or contract workers to fill workforce gaps without experiencing high labor costs. In states that don’t require employers to participate in disability income plans, employers can offer full, partial or noncontributor STD insurance plans.

Long-Term Disability Insurance

LTD insurance provides employees with income for long-term illnesses and injuries. Employees generally receive 60% to 80% of their base pay; however, some employers’ LTD plans offer more limited income replacement benefits. Like STD, employees receive income benefits until they can return to work or have exhausted policy limits. LTD insurance requirements tend to be more rigorous than STD insurance because benefits are paid for a much longer period of time.  Workers must demonstrate they are unable to perform any job, not just the job they were working before the illness or injury.

An employer will generally offer both LTD and STD insurance.  This way when an employee exhausts their STD benefits, LTD benefits continue to provide the employee with income. As with STD insurance, LTD does not provide workers with job protection. Employees who become permanently disabled may continue to receive LTD benefits through their retirement date or until they’re eligible for Social Security disability benefits.

What is COBRA?

COBRA allows individuals to continue their group health plan coverage in certain situations. COBRA requires group health plans maintained by private-sector employers with at least 20 employees to offer continuation coverage to covered employees and dependents when coverage would otherwise be lost due to certain specific events. These events include the following:

  • Death
  • Termination of employment
  • Reduction in employment hours below the plan’s eligibility requirements
  • Divorce or legal separation
  • Medicare eligible
  • Child’s loss of dependent status under the plan’s rules

COBRA sets rules for how and when continuation coverage must be offered, how employees and their families may elect continuation coverage, and when continuation coverage may be terminated. Employers may require individuals to pay for COBRA coverage. Group health coverage for COBRA participants is usually more expensive than coverage for active employees because many employers pay a portion of the premium for active employees.

COBRA continuation applies to plans that qualify as group health plans as defined by the Employee Retirement Income Security Act (ERISA). Under ERISA, a group health plan must be a plan, fund or program that is established or maintained by an employer and has the purpose of providing medical care. Health insurance plans, self-funded health plans, health maintenance organizations and prescription drug plans generally meet ERISA’s criteria for a group health plan. Medical care is defined as care for the diagnosis, cure, mitigation, treatment or prevention of disease and any other undertaking affecting any structure or function of the body.

The Differences Between STD and LTD and COBRA

STD and LTD benefits generally provide income replacement for employees who are forced to take a leave of absence from work due to an injury or illness.  STD and LTD insurance do not provide medical care. As a result, STD and LTD insurance are not considered group health plans and are not subject to COBRA.  An employer is not required to permit a terminated employee to buy into its STD or LTD insurance plan.


STD and LTD benefits can provide sick and injured employees with financial stability and peace of mind when they’re unable to work. Understanding how these types of disability insurance differ from COBRA can help employers stay compliant and ensure employees have the benefits they need and desire.

Reach out to RMC Group for more information on voluntary benefits at 239-298-8210 or [email protected].

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as professional advice. © 2023 Zywave, Inc. All rights reserved.