GRMF19-02: Short-term Disability Utilization: Evidence from Wisconsin Public Employees

Employer-provided disability coverage offers employees a way to insure against short-term spells of disability that prevent work, as well as a way to supplement long-term disability in the case of a health shock. Using administrative data from the State of Wisconsin, this study estimates employee enrollment into optional supplemental coverage for income continuation. We find that the majority, but not all, employees enroll, and that enrollment is sensitive to the employee’s share of the premium. Women, middle age workers and higher income workers are all more likely to enroll in coverage. We also show interactions between disability insurance and accumulated sick leave, which substitutes for short-term coverage. Short-term benefit claims are common for women for maternal health for a short period, but for men and all workers with certain conditions, short-term benefits often extend into long-term coverage. Among those employees who end up on long-term disability, the income continuation insurance helps them replace more of their pre-disability income. However, there is a high degree of heterogeneity in the enrollment and use of short-term coverage, and there is some evidence employees may not fully understand coverage elimination periods.