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Disability Insurer Fires Data at Budget Hawks

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Federal budget deficit cutters should understand that the tax deduction for employer-sponsored disability insurance is more than just another tax expenditure, a top disability insurer says.

Unum Group Corp., Chattanooga, Tenn. (NYSE:UNM), is defending the tax rules that now apply to group disability insurance by releasing results from an economic analysis made by CRA International Inc., Boston.

U.S. employers spend about $10 billion on disability insurance premiums per year to cover 40 million workers, and insurers pay group disability benefits to about 500,000 workers each year.

The coverage produces about $4.5 billion in direct savings for the government and taxpayers each year, and it produces about $590 billion in total economic welfare for the employees, or about $15,000 in welfare per covered worker, Unum says.

The CRA analysis shows that “the workplace is the most effective avenue for access to affordable coverage,” Unum says. “These benefits provide undeniable and concrete value to the government as well as the individuals they help protect.”

Unum released the analysis at a workplace benefits and financial security conference in Washington, at the Newseum.

Unum notes that about 1 in 3 workers will be disabled for at least 6 months during earning years.
Social Security offers a public disability insurance program, but qualifying for those benefits can take years.

Group disability insurers can provide a continuous stream of income for disabled workers who will eventually qualify for Social Security disability benefits, and it sharply reduces the likelihood that workers who become disabled will need public assistance, Unum says.

Only 32% of U.S. workers now have long-term disability (LTD) coverage, and the country would be better off if that percentage increased, Unum says.

For at least a decade, budget analysts in the Bush and Obama administrations have suggested that providing a tax exclusion, tax deduction or other special tax provision for employers that offer employee benefits is a “tax expenditure,” or an example of spending government money by reducing the amount of money taken in rather than increasing the amount paid out.

Tax expenditures are getting more attention this week as Obama administration officials negotiate with House Republicans in an effort to make a deal on cutting the budget and persuading House Republicans to vote to increase a statutory limit on the national debt. Rating agencies have suggested that failure to lift the cap by Aug. 2 could lead to the U.S. government defaulting on some debt payments and threaten the country’s AAA credit rating.

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