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Benefits Business Eye on disability benefits Business survival may depend on adequacy of benefits By Len Strazewski Some things never change—but many probably should. Among them are employer-provided disability benefits, which need to keep up with the realities of 21st century employee needs, say disability benefits experts. Thomas J. Cox, managing consultant with Cambridge Advisory Group in King of Prussia, Pennsylvania, an employee benefits broker and consulting company, says that for 20 years or more, employers have virtually ignored the disability insurance benefits they provide—even though the needs of both their rank and file employees and their executives have changed dramatically. Cambridge Advisory, which has six offices in major cities, specializes in large employers with 500 to 5,000 employees and often is referred by smaller agents and brokers who want their bigger clients to review their benefits strategy and packages. What the consultants have discovered is that while employers obsess about their health care costs, they don’t always review the cost of lost time and lost productivity caused by disability—and the financial impact on employees. “When we survey employers, they check the box that indicates they have disability benefits, but most have not actually costed out the value of their benefits compared to the risks or separated out the risk of more highly paid executives,” he says. Many employers still offer the long-term disability (LTD) industry standard of the 1980s—replacement of 60% of salary up to a $10,000 per month limit. The coverage may still be adequate for some employees, but many executives earn more than $200,000 a year, Cox says, and would suffer dire financial consequences if disabled and earning only those limited benefits. Benefits adequacy has become an urgent concern, he says, particularly as an aging American workforce points up a shortage of skilled labor and executives. Each disabled worker will cost employers more in terms of lost productivity and valuable experience. Critical juncture The need to review disability benefits is approaching a critical juncture, according to recently released research commissioned by UNUMProvident and conducted by Harris Interactive. The pollsters surveyed more than 1,700 working adults in the United States about their disability and financial planning situation. The survey revealed that nearly two-thirds of working adults identify their homes, savings or vehicles as their most important asset, overlooking the income from their job, which totals several times the value of any other asset. The survey also indicates that, in the event of disability, about 42% of working adults would have to rely on savings to get them through an extended disabling illness or disability, rather than an employee benefit or personal disability insurance. While most respondents (97%) said they recognize the need for disability protection, only about one-third (37%) actually have coverage, and about half said that a coverage term of one year was adequate. Of those with disability insurance coverage, only 37% understood the way their benefits worked, replacing a portion of lost income and monthly expenses. Leo Tinkham, assistant vice president of disability insurance products at UNUMProvident, says employers are often unaware of the flexibility of disability products now available from insurers. “Employers have more choices in the level of income they wish to replace, the term of benefits paid as a bridge to Social Security benefits and the ancillary services that can be packaged with disability insurance,” he explains. Many disability insurance policies now include Employee Assistance Program (EAP) benefits for disabled individuals as well as Return to Work and cash management services for employers, he says. Disease management programs are also available to employers and can be particularly valuable as a way of reducing the cost of chronic illnesses. Chronic diseases now are responsible for more than 70% of health care costs, he says, and are linked to the longest terms of disability. Disability benefits can also be structured to pay benefits in more variable ways, including programs that provide benefits to individuals based on their loss of one or more Activities of Daily Living, the standard used to trigger long term care insurance. Voluntary supplemental disability coverage is also more widely available, and some insurers are waiving the traditional 25% participation requirement for workplace marketing. Voluntary disability coverages require lots of direct agent and broker marketing, including small group meetings and enrollment sessions, but they can help fill in the disability gap for executive-level employees with limited LTD coverage or rank and file employees who have not been offered LTD. New opportunities Tinkham also points out a marketing opportunity often ignored by agents and brokers—the evolving interest of female employees in financial security protection. Tinkham says UNUMProvident surveys indicate that female workers are more concerned than males about financial security, and about 90% say they generally feel insecure about their financial future. They are excellent targets for supplemental coverages, he says. Cox from Cambridge Advisory says employers can also take a more sophisticated risk management view of their benefits by examining their lost-time history and targeting benefits based on better quantitative analysis of employer and employee needs. Employers that now self-fund short-term disability (STD) may be able to learn more about their trends and needs by using a third-party administrator and case management to create better disability data. Cox says employers may also tinker with the taxability of benefits, using accounting treatments developed for executive bonus plans to create more post-tax benefits for executives within the structure of disability coverage. Other disability insurers are also providing new resources to help educate employers and their workers about disability insurance needs. Assurant Employee Benefits in Kansas City, Missouri, recently launched an online Disability Education Center, available at the Assurant home page (www.assurantemployeebenefits.com). The site explains the nature of disability risks, the range of disability income protection available from the insurer and the importance of reading and understanding critical details of a disability insurance policy. “The way the word ‘disability’ is defined in a policy, for example, can make a huge difference in the value of that policy in terms of the level of income protection it offers,” explains Mark Bohen, senior vice president of marketing and customer relations at Assurant. “The Disability Education Center helps employers become better informed consumers.” The site also features real-life stories of actual Assurant claimants who triumphed over disabling injury with the help of disability insurance coverage—helping agents and brokers communicate the reality of disability risks, according to the insurer. Bohen emphasizes the growing need for better disability coverage planning among small employers. “Small business owners are like most people in that they typically underestimate risk. They need to consider, for example, what issues an employee—or the small business itself—would face if an illness or injury kept them off the job for months or even years.” * The author |
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