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Researchers Measure Disability Plan Elimination Period Effects

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Doubling a private long-term disability (LTD) insurance plan’s elimination period to 180 days, from 90 days, might cut the likelihood that workers will file claims in half, but it could the average duration of the claims that do come in.

Three economists have published those conclusions in in a working paper posted by the National Bureau of Economic Research.

The team that wrote the paper includes David Autor and Jonathan Gruber of the Massachusetts Institute of Technology (MIT) and Mark Duggan, a researcher at the University of Pennsylvania.

Gruber is known for advising Mitt Romney on health policy in Massachusetts and for helping the Obama administration defend the proposals that led to the passage of the Patient Protection and Affordable Care Act of 2010 (PPACA).

The researchers say they looked at the private LTD market to try to understand why claims at private LTD plans are lower than at the public Social Security Disability Insurance (SSDI) program and why private LTD return-to-work rates are higher.

The researchers conducted their study by using wage and claims data collected from 2000 to 2006 by a large U.S. private LTD provider. The researchers ended up with access to about 8 million quarterly employment observations from about 10,000 separate employers.

The researchers looked at questions such as how changing the percentage of income that an LTD policy replaces correlates with the likelihood that insured workers will file claims.

The researchers found that a 10% increase in the income replacement ratio might correlate with a 6% increase in the likelihood that a covered worker will file an LTD claim.

The researchers also looked at the effects of LTD policy elimination periods — the gap in time between the day a covered worker becomes disabled and the day the worker can collect LTD benefits.

Many employers use self-funded programs, short-term disability insurance  or no program at all for workers who miss work due to disability for 90 or fewer days.

The researchers found that 34% of the employers in their sample had a 180-day LTD elimination period and 63% had a 90-day LTD elimination period.

A 180-day LTD elimination period can “censor”  LTD claims that would have lasted just 90 to 179 days, the researchers say.

A 180-day elimination period also can deter workers from filing LTD claims for disabilities that would last slightly longer than the elimination period, such as impairments that seem likely to last just 270 days, the researchers say.

In the real world, 60% of the reduction in claims incidence due to a long elimination period was due to censoring of very short claims, and 40% was due to workers skipping claims for disabilities with expected durations just slightly longer than the elimination periods,  the researchers say.

The researchers concluded that long private LTD elimination periods do nothing to keep away the kinds of severely disabled workers who also qualify for SSDI benefits.

The workers who failed to file claims because of long exclusion periods seem to be the same workers who would have had a good chance to return to work within 5 years even if they had filed LTD claims, the researchers say.

“This is consistent with the expectation that deterrence should primarily affect claims for less severe disabilities,” the researchers say. “For acute disabilities where labor force withdrawal is non-elective, deterrence should not (and does not appear to) play a role.”

Although the claims incidence at plans with long elimination periods is lower, the long-elimination-period plans get more claims for impairments expected to last 5 quarters or longer, the researchers say.


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