The Patient Protection and Affordable Care Act (ACA) continues to make headlines, cause concern and exhaust resources. At a recent employee benefits conference, there were 35 general sessions and workshops dedicated to the topic of health care and the ACA. Only one focused on disability, and that session’s objective was to explore how ACA would impact disability plans. Somewhat symbolically, the conference’s only disability-related workshop was scheduled for the very last session of the very last day-typically when many conference attendees have already headed for the airport.
There is no question the ACA is already impacting how and whether working Americans’ incomes are protected from a disabling illness or injury. Without a deliberate effort by insurance carriers, distributors and employers, the end result could be even fewer protected incomes and more workers experiencing disabilities without a source of income to support themselves and their families. This also means fewer available resources to help return disabled workers to productive employment-a very important but often overlooked benefit of private disability insurance programs. Certainly, this would be an unintended and undesirable consequence for employees, employers and American society.
The 47 million Americans with no private health insurance were a major motivator of the push to win approval of ACA. At the same time, about two-thirds of the work force, roughly 100 million working Americans, have no private disability insurance. And after experiencing a disabling illness or injury, a wage earner is just as likely to suffer a severe financial setback from losing his income as from incurring big medical bills.
Income Needs to Be Protected
Income is almost every American worker’s most valuable financial resource-employees, advisors (agents, brokers, benefit consultants, financial planners) and human resource benefit professionals unanimously agreed in the Council for Disability Awareness’ Disability Divide Research series.
Using the Council’s Earnable Income Quotient (EIQ) (www.whatsmyeiq.org) calculator, the estimated lifetime earnings for a 35-year-old worker currently earning $46,0001 per year exceeds $2 million. That is more than eight times the median price of U.S. homes sold in August 20132, and 27 times the average balance in a U.S. worker’s 401(k) account.3
Just about every working American needs his income to survive financially. Because wage earners almost always depend on a continuing income stream, protecting their incomes is a necessary step toward financial security.
The ACA does not address income protection issues and does not tackle the large number of working Americans who have no private disability insurance. The legislation does not help to reduce the critical need for protecting the incomes of working Americans from the effect of a disabling illness or injury. And because voluntary insurance programs have become more popular, American workers are taking on additional financial and decision-making responsibilities relating to their benefit programs. This means that the need for income protection will likely be greater in a post-ACA world.
The ACA is accelerating a trend toward more voluntary benefit plans, more employee choice and more employee responsibility. Non-health insurance benefit programs are being caught in the ACA’s turbulent backwash. More resources are being diverted to focus on health care issues, which means there is less of a focus on other types of benefits, in particular, disability insurance. According to CDA’s 2013 Long Term Disability Claim Review, the number of employees insured by group LTD plans increased just 1 percent in 2012-down about 6 percent since 2008.
The number of employers offering group LTD plans was flat in 2012, following three consecutive years of decline. Anecdotally, 2013 prospect activity and sales of new disability insurance benefit programs have fallen below expectations as employer and distributor attention has been riveted on health plans and making sure they can be in ACA compliance. Many of the new disability benefit programs being sold in 2013 are voluntary, partly because many employers don’t want to commit to any additional benefit costs with the uncertainty of where health care is headed. This means that employees still need to decide whether to opt in and pay the premium.
Five factors driving the “voluntarization” of benefit programs include:
1. Many employees’ preference to get their benefits at the worksite.
2. Employers’ desire to stabilize or reduce their benefit (mostly health care) budgets but maintain a robust benefits program.
3. Carriers and distributors have increased their marketing focus on voluntary plans in response to employer demand.
4. New and better technology is available to support the sale and administration of voluntary benefit programs, making mass customization possible (e.g., private exchanges).
5. There is a dwindling number of insurance agents available to meet with individuals one-on-one to discuss protection needs.
Historically, most disability plans were chosen and paid for by the employer and all eligible employees were automatically enrolled. Even today, most employees covered by group long term disability insurance are in employer-paid plans. But that is slowly changing. As more employers adopt voluntary programs, it is noteworthy that typically only 40 to 50 percent of the employees sign up for that voluntary disability benefit-potentially leaving half or more employees unprotected.
Many employers that currently offer disability benefit programs have put them on autopilot in order to focus on ACA compliance. But, at least so far, employers don’t seem to be terminating disability plans, as some predicted would occur, but few are adding new plans.
Most Underestimate Their Risk of Disability
The Council for Disability Awareness’ Disability Divide Research series, conducted with employees, financial advisors and human resource benefit professionals, revealed that employees underestimate their odds of experiencing a disability that will prevent them from working for an extended period of time.
Although the Social Security Administration reports that about one in four 20-year-olds entering the work force today will experience a long term disability during their working career, most wage earners are in denial that it could ever happen to them.
At this intersection of the employees’ underestimation of their disability risk and the trend toward more income protection plans offered on a voluntary basis lies a critical educational challenge.
Many workers’ incomes are not protected today, and many others are protected only because their employers choose to provide and pay for long term disability insurance programs. Some have protection, but not enough, which can lead to a false sense of security.
Their advisors-agents, brokers, benefit consultants and human resource professionals-are responsible for helping keep a focus on income protection because disabilities will not stop happening just because everyone is worried about complying with the ACA. As relentlessly registered by CDA’s America’s Disability Counter (www.disabilitycounter.org), a working age American becomes disabled every seven seconds.
In unpublished data from CDA’s Disability Divide (advisor research), just 10 percent of the surveyed individual advisors thought their clients fully understood or knew the key points about the disability insurance plans offered by their employers.
In the employer version of the Disability Divide research report, fewer than half of the human resource benefits experts surveyed thought their employees fully understood or knew the key points about their companies’ disability insurance plans. And only 26 percent of those same human resources professionals thought their employees were adequately prepared to withstand the financial impact of a disability. Somewhat ironically, those same benefit experts also overwhelmingly identified themselves as the key source of their employees’ information about their disability risk and disability insurance benefits.
Education Is Key
As the responsibility for benefit decisions shifts to employees, information and resources are needed so that they can make informed, fiscally-sound choices. In particular, many employees have a limited understanding of disability and disability insurance, so educating employees about their disability risk and the consequences of disability is very important to help make income protection an essential and obvious risk management choice. Many studies demonstrate that when employees understand their benefits, they appreciate them more, they have higher job satisfaction, remain with their employers longer and are more productive.
As employers, advisors and American workers continue to navigate uncharted waters ahead, one thing is clear: Everyone will benefit from protecting incomes from the impact of a disabling illness or injury.
Footnotes:
1. Department of Labor, Bureau of Labor Statistics, the average American worker’s pay in August of 2013.
2. U.S. Department of Housing and Urban Development, September 25, 2013.
3. Fidelity Investments, June 2013. www.fidelity.com/inside-fidelity/employer-services/fidelity-reports-record-gains-for-401-k-savers.
