The disability insurance and employee benefits industries are facing unprecedented change, influenced by the implementation of the Affordable Care Act (ACA), rising health care costs, evolving technology, and ongoing uncertainty about the economy. In the recently released 2014 Long Term Disability Claims Review, the Council for Disability Awareness (CDA) reported that the number of employers offering long term disability insurance plans increased in 2013, albeit slightly, for the second year in a row. But the number of employees covered by disability insurance actually declined, which is an apparent disconnect.
Each year since 2005, CDA has gathered detailed claims data from participating disability insurance companies for purposes of analysis and education. The companies that contribute data insure more than 30 million wage earners and represent roughly 75 percent of the insured group and individual disability markets. The 2014 review summarizes quantitative and qualitative long term disability insurance claims data from 2009 to 2013 and identifies emerging and continuing trends. The report also includes an analysis of worker disability data from the Social Security Disability Insurance (SSDI) program. The full report, as well as a library of charts and graphs, can be downloaded at www.disabilitycanhappen.org/research.
Other findings reported in the 2014 Claims Review include:
• As the workforce ages, the average age of new long term disability claimants is also increasing, but about 41 percent of approved long term disability claims in 2013 were for employees in their forties or younger.
• Women have more disability claims than men, but the claims for men increased relative to women’s claims in 2013.
• Even though the number of new and ongoing long term disability claims decreased in 2013, payments to claimants increased to $9.8 billion.
• Musculoskeletal disorders continue to be the leading cause of disability claims; cancer is the number two cause of new claims. Cancer claims also increased in 2013.
• More workers were receiving Social Security Disability Insurance (SSDI) payments in 2013 than in the prior year, but new SSDI applications and awards decreased in 2013.
• The average SSDI benefit amount at the end of 2013 was $1,146; $1,271 for men and $1,011 for women.
One important use of the Claims Review is to help everyone involved—brokers, employers and employees—understand the actual, real-life causes of disability claims. The Disability Divide Research Reports, which have been published by CDA over the past several years, identify one key misconception that impacts the pervasive attitude among most employees that “disability won’t happen to me.” Most wage earners equate “disability” with “catastrophic accidents.” For example: Every year the claim study demonstrates that only about 10 percent of new disability claims are caused by accidents, yet employees and brokers both rank serious accidents as the most likely cause of disability. Further evidence of this “catastrophic perception” is apparent from answers to a follow-up question: Nearly one-third of the respondents said someone with a disability would never return to work, and more than two-thirds said that the person would miss at least one year of work.
Because of this misconception, many wage earners are not considering or concerned about some of the very common disorders that are most likely to cause someone to miss work for an extended period of time—such as back pain, cancer, heart disease, mental disorders or pregnancies. Even though we know that roughly one in four (25 percent) employees entering the work force today will experience a long term disability at some point in their working careers, nearly two-thirds of Disability Divide respondents predict their odds of experiencing a disability to be either one or two in 100—just one or two percent!
The actual claim results and other information from the Claims Review can arm brokers to help employers and employees overcome their incorrect beliefs and to inform the best risk decisions.
Employee benefit brokers in the past couple of years have been pushed to the brink in their efforts to understand the ACA, help clients process the law and sort through options, and then help them comply. Because more focus on medical insurance has resulted in less focus on disability and other benefits, the ACA’s implementation may already be having an adverse effect on how and whether working Americans’ incomes are protected from a disabling illness or injury.
Given the focus on medical plans over the past couple of years, many brokers and employers opted to postpone action on other benefits—disability benefit plans in particular. Some indications point to disability plan sales on the rise once again. What’s driving this? Pent up demand and more attention being paid in the post-ACA implementation world for one thing. An improving economy is also helping, since some industries are finding themselves competing for employees once again, and benefits continue to serve as a means to attract and retain employees. But worries persist over future health care costs, and many businesses remain concerned about the sustainability of the economic recovery.
World events and Washington gridlock contribute to an overall lack of confidence among many business leaders. These combined ingredients mean many of the new disability benefits being sold today are voluntary plans, which has its benefits: Brokers have a positive idea to discuss with their clients, employees get a new benefit, and employers are not committing to higher fixed costs by signing on.
But there is a potential downside to this trend. At the core, voluntary programs involve employee choice and employee cost. Because of this, some employees will not choose to be covered. In fact, today’s typical voluntary disability take-up rate is in the 40 percent range. That means 60 percent of otherwise eligible employees could go without coverage. This may very well explain why disability insurers reported more employers offering plans, but fewer employees with disability coverage in 2013. These 2013 numbers are not yet conclusive, but whether a trend emerges in the next year or two bears careful watching. In light of this, brokers will play a critical role in making sure employee incomes are protected.
Voluntary products represent an enormous opportunity for brokers, but with this opportunity comes an important responsibility. CDA’s research demonstrates that employees and employers alike recognize that the ability to earn an income is a wage earner’s most valuable financial resource. Yet only about a third of America’s civilian work force has any form of private disability insurance. As more brokers sell voluntary plans, and more employers sponsor them, the responsibility for benefit decisions shifts to employees. In essence, the disability risk is being shifted to the employee. From whom will they receive the advice, information and resources to make informed risk management decisions?
There are significant ancillary benefits to educating employees about their disability risk and the importance of income protection. Many studies have demonstrated that when employees understand their benefits, they appreciate them more. They also have higher job satisfaction, remain with their employers longer, and are more productive. When an employee becomes disabled, having insurance not only means a monthly benefit with which to pay the bills, it also means resources to help get that employee back to work—a very important outcome for the employee and the employer. For society as a whole, everyone benefits when incomes are protected from the impact of a disabling illness or injury.
The effort to reform America’s health care system has drastically changed the benefits landscape. In particular, the broker’s role is evolving to that of a trusted advisor and consultant. What could be more important than helping employees protect what is most valuable to them?
About The Council for Disability Awareness
The Council for Disability Awareness (CDA) is a nonprofit organization dedicated to educating the American public about the risk and consequences of experiencing an income-interrupting illness or injury. The CDA engages in research, communications and educational activities that provide information and helpful resources to wage earners, employers, financial advisors, consultants and others who are concerned about the personal and financial impact a disability can have on wage earners and their families. Visit them at www.disabilitycanhappen.org.
Carol Harnett is the new president of the Council for Disability Awareness. Harnett is an employee benefits consultant specializing in health care and absence, as well as a speaker, writer and trend spotter in the fields of general employee benefits, health and productivity management, and value-based health. She is the benefits columnist for Human Resource Executive and the co-host of the CoHealth Checkup radio show.
Harnett was a vice president and the national disability and life practice leader at The Hartford, and director of resource and rehabilitation services at Prudential Financial.
