People rarely think about disability the same way they think about health care. But without coverage, both can have a similarly devastating impact on a person’s health, income or livelihood.
So with all the extra attention being paid to health care reform as the Patient Protection and Affordable Care Act (PPACA) goes into effect, it’s more important than ever for brokers to encourage their clients to take a closer look at all of their benefits — especially disability coverage.
PPACA affects the group of 47 million Americans who have no private health insurance. At the same time, about two-thirds of the workforce, roughly 100 million working Americans, has no private disability insurance. Yet, arguably, it’s just as likely to suffer a severe financial setback from losing one’s income as it is to incur large medical expenses.
There is no question that PPACA is already affecting the income-protection landscape. Without a concerted effort by all stakeholders, the end result could be even fewer protected incomes. More workers experiencing disabilities could find themselves without a source of income to support their households and no available resources to help return them to productive employment.
According to the Council for Disability Awareness’ Disability Divide Research, employees, advisors and HR professionals agree that income is almost every American worker’s most valuable financial resource.
Using the CDA’s earnable income quotient calculator, the estimated lifetime earnings for a 35-year-old worker currently earning $46,000 per year exceeds $2 million. That is more than eight times the median price of U.S. homes sold in August 2013, and 27 times the average balance in a U.S. worker’s 401(k) account. Virtually every working American needs income to survive financially. If income is most important, certainly it follows that protecting income is a necessary step toward financial security.
The voluntary benefits trend
PPACA is accelerating a trend toward more voluntary benefit plans, more employee choice, and more employee responsibility.
Meanwhile, other non-health-insurance benefit programs are being caught in PPACA’s backwash. With more resources being diverted to focus on health care issues, there’s less focus on other types of benefits — in particular, disability insurance programs.
According to the CDA’s 2013 Long-Term Disability Claim Review, the number of employees insured by group LTD plans increased just 1 percent in 2012. And that’s down about 6 percent since 2008. The number of employers offering group LTD plans was flat in 2012, following three consecutive years of decline.
Anecdotally, 2013 prospect activity and sales of new disability insurance benefit programs have fallen below expectations, as employer and distributor attention has been riveted on health plans and PPACA compliance.
Many of the new disability benefit programs being sold are voluntary, partly because employers don’t want to commit to any additional benefit costs given the uncertainty of health care reform impacts. This means employees still need to decide whether to opt in and pay the premium.
Other factors driving this “voluntarization” of benefit programs include:
- Employers’ desire to stabilize or reduce their benefit (mostly health care) budgets
- The desire on the part of employers to offer a robust benefit program within the scope of a limited benefits budget
- Many employees’ preferences to get their benefits at the worksite
- More marketing focus devoted to voluntary benefits by carriers and distributors, in response to employer needs
- Availability of new and better technology to support the sale and administration of voluntary benefit programs, making mass customization possible (Health care private exchanges are just one example)
- Fewer and fewer insurance agents who work with individuals one-on-one to meet their protection needs
Many companies that currently have disability benefit programs have put them on autopilot in order to focus on PPACA compliance. So far, employers don’t seem to be terminating disability plans, as some predicted would occur, but few are adding new plans.
Historically, most disability plans were chosen by the employer, paid for by the employer, and all eligible employees were automatically enrolled. Most employees covered by group long-term disability insurance today are still in employer-paid plans.
But that is slowly changing. And as more employers adopt voluntary programs, it is noteworthy that typically about 40 percent to 50 percent of the employees sign up for that voluntary disability program, leaving some employees unprotected.
An underestimated risk