DISABILITY INSURANCE: A WIN-WIN FOR EMPLOYERS AND EMPLOYEES
The latest news from the business front is the so-called “war for talent” — a pitched battle among employers to recruit and retain the best and the brightest. But what happens if this talent becomes disabled and is no longer able to work?
Companies tend to downplay this risk, as do employees themselves. But, the latest figures from the Social Security Administration (SSA) indicates that more than one in four workers currently in their 20s will become disabled before they reach 67 years of age. That’s a whole lot of people; in 2013, more than 8.9 million Americans received disability payments from the SSA. Unfortunately, the amount they pocketed was an average $1,132 per month, or $13,584 per year. That’s the equivalent of working a full-time job for $6.53 an hour.
Not only is this a financial, physical and psychological strain on those who become disabled and their families, it can deprive a business of valuable talent. Many companies are finding that a potential solution to both problems is offering disability income protection insurance, supported by a return-to-work program, as a key employee benefit.
More employers appear to be doing just that. “Our most recent review of long-term disability claims among the working population indicated that more than 214,000 employers now offer LTD insurance,” says Carol Harnett, president of the nonprofit Council for Disability Awareness (CDA). “This represents a slight increase in volume for the second year in a row.”
Good news, except for the fact that 68 percent of the private sector workforce still have no long-term disability insurance protection, according to SSA. Does it make sense for more than three-quarters of employees to be dependent on the government’s well-intentioned but meager financial assistance in the event of a disabling injury or illness?
Not for society and not for business. “This is something that can cause significant financial setbacks for companies because of lost or reduced productivity,” says Elizabeth Incze, vice president of group insurance product development at Aetna. “And it takes a toll on the financial and emotional well-being of employees.”
When workers are covered by employer-provided group disability insurance, the policy provides the employee with a percentage of the income he or she previously received. It can also support employers’ desire to get the disabled person back to work quickly and safely.
There are two types of disability income protection insurance — short-term and long-term. Long-term disability insurance generally pays between 50 percent and 70 percent of the employee’s salary over a defined period of time or until the individual reaches a specified age such as 67 years old. LTD insurance kicks in after a waiting period elapses (usually three to six months after the employee first left the workplace). That’s why short-term disability insurance plays an important role. STD generally provides coverage for 13 to 26 weeks after a waiting period of approximately 7 to 30 days.
Depending on the insurance provider, the policies may have different terms and conditions. Some disability insurance policies, for instance, provide benefits only if the employee is unable to work in his or her current profession. But the cost of the insurance, when provided on a group basis by an employer, is “the bargain of the century,” Harnett says. “A group long-term disability policy costs $250 a year, on average.”
Purchasing the insurance on one’s own is more expensive, as the coverage is underwritten based on the buyer’s particular risk profile. When sold on a group basis to an employer, however, the law of large numbers prevails. As the sample size of covered employees grows, the risk-adjusted premium gets closer to the average of the whole population, e.g., 60-year-old Betty’s heart condition is offset by 22-year-old Burt’s fitness.
Not that all group employer plans carry the same average premium. “The cost varies depending on the particular company’s employee demographics, the type of work employees conduct and past loss experience if it has had a group plan for a period of time,” Incze explains. “If workers are sitting at a desk all day versus lifting heavy items, the premium is reflective of these differences.”
Although CDA’s survey indicates more companies are offering disability insurance as an employee benefit, fewer employees are taking advantage of the opportunity. “The overall number of insured employees declined 1.5 percent to 32.1 million in 2013 from the prior year, which is troubling,” Harnett says.
One reason for the decrease, she believes, is the trend toward employers offering the insurance on a voluntary basis. Eligible employees simply decline to participate. Another is the tendency among employees to think they will not be able to work for a period of time due to an illness, injury or after the birth of a child.
“Sixty percent of employees believe they have a 2 percent or lower chance of becoming disabled and unable to work three or more months. Forty-four percent say they have about a 1 percent chance,” Harnett says, pulling statistics from another CDA survey. “That’s a significant difference from the odds a 20-year-old today has of slightly better than a one-in-four chance of becoming disabled before he or she retires.”
This disconnect extends to the misconception among many employees that workers’ compensation insurance will provide payments to them when they can no longer work. This is only the case if the person is injured or becomes ill at the worksite.
Employers finding value in disability insurance as an employee benefit must undertake proper due diligence to ensure optimum coverage and services at cost-effective rates. An insurance carrier’s financial stability is a key consideration, as is its ability to provide absence management services that are focused on putting disabled workers back in the workforce quickly on a partial (and hoped-for full-time) basis.
“Employers should expect account management support from the insurer,” says Incze. “You should also look for a company that understands that a disabling event can be very traumatic for the employee, whether it’s an accident or something progressive. Empathy is just as important as the policy’s coverages and cost.”
Harnett concurs. “So many Americans today are living from day to day, the last thing they need is to have their paycheck disappear because they are unable to work,” she says. “Disability insurance provides peace of mind to people during difficult times.”
Russ Banham is a veteran business journalist and author. His new book, Higher, a history of Boeing, will be in bookstores in December.
Disability Insurance: A Win-Win for Employers and Employees
