Establishing the Need for Disability Income Protection (A Primer)

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Establishing the Need for Disability Income
Protection (A Primer)
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Course Objectives

• To provide an understanding of the employees
  need for disability insurance
• Provide you statistics on disability that you can
  use to better understand the need and provide to
  the employer groups you work with
• To review demographic and economic realities of
  disability planning in the workplace

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Fact vs Reality

• Myth People with disabilities are a small
  segment of the US population.
• Fact People with disabilities are the largest
  single minority group in the nation
• Myth Disability is an unusual, pathological
  condition
• Fact Disability is experienced by almost
  everyone, particularly as they age
• Myth Disability affects other peoples lives
• Fact 29.2 of families have at least one
  disabled member. Disability affects nearly all
  families at one time or another.

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Facts vs Reality (cont.)

• Myth Disabilities begin at birth or early
  childhood
• Fact Only 1/5 (21) acquire their disability
  before age 20 more than ½ (53) have onset after
  age 40.
• Myth Disability is purely a medical problem
  treated by doctors and specialists
• Fact Disability is largely a social phenomenon
  that should be addressed by the entire community
  with a focus on enabling people to live
  independent lives.

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What is the Need?

• The core definition of disability insurance is
  the financial protection for employees unable to
  work due to an accident or illness.
• There is still a great deal of need for
  disability insurance benefits.
• Disability insurance comes in a variety of forms
  individual, group, franchise, etc. That is the
  subject of a future presentation.

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The Probability of Disability

• Every 1.5 seconds someone in the U.S. becomes
  disabled by injury
• The National Safety Council, Injury Facts
  2001
• Annually, nearly 4M suffer disabling OTJ injuries
• 30 of people age 35-65 will suffer disability
  for at least 90 days
• HIAA
• If lt age 35, theres 1 in 3 chance of being
  disabled for a least 6 months during working
  years
• National Underwriter

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The Probability of Disability

• At age 42, you are four times more likely to be
  seriously disabled than you are to die during
  your working years
• 25 year old has 58 probability of becoming
  disabled for 90 days or longer at some point in
  their working years
• - Society of Actuaries

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The Need for Disability Coverage

• Between the ages of 35 and 65, you have a 50-50
  chance of being able to work for more than three
  months
• During the course of your career, you are 3.5
  times more likely to be injured and need
  disability coverage than you are to die and need
  life insurance

Society of Actuaries Money Magazine, April
2000 Health Insurance Association of America,
2000
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Definition of Disability

• Section 504 of the Rehabilitation Act of 1973 and
  Americans with Disabilities Act of 1990
• A physical or mental impairment that
  substantially limits one/more major life
  activities
• What constitutes substantial limitation?
• An intangible the will to work

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Categories of Disability Impairments

• Developmental
• Learning
• Physical
• Mental
• Social
• Combinations of the above

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The Current Market Position

• In a survey of employees age 25-60
• 29 of companies with 11 to 100 employees have
  disability coverage
• vs.
• 54 that have coverage with employers groups of
  501-1,000 employees.

Health Insurance Association of America, Public
Opinion Strategies, 2000
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Distribution of Coverage
Employer pays all
67
65
11
16
ER and EE
Employee pays all
22
19

• Cambridge Group 1998 Study Choice Benefits
  Presentation, UnumProvident, 2000

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The Need for Disability Coverage

• 16.2 million working people have a conditions
  which causes a work limitation
• That equals 10.5 of the population between the
  ages of 18-64

Chartbook on disability in the United States, 1998
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Leading Causes of Short-Term Disability

• Pregnancy (normal) 20
• Pregnancy (complications) 9
• Injuries (excluding back) 9
• Back 8
• Digestive/Intestinal 8
• Source EF Moody

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Leading Causes of Long-Term Disability

• Cancer 13
• Pregnancy Complications 12
• Back 11
• Cardiovascular 9
• Mental/Depression 5
• Source EF Moody

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Top seven chronic conditions causing work
limitations
LaPlante Carlson, 1996
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Changes in Population

• In 2008, 40 of the labor force will be age 45
  and older compared to 33 in 1998. This is an
  increase of almost 17 million workers.
• The median age of the workforce in 1980 was 34.
  By 2005 this will increase to 41.
• The number of Baby Boomers will decrease from 79
  million in 2000 to 19 million by 2046.

Bureau of Labor Statistics, Monthly Labor Review
Online, July 2000 Census Bureau, USA Today,
July 2000 National Council on Compensation
Insurance Risk Insurance, Aug. 2000
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Demographic Trends in Disability

• Disability in adult population (ages 18 to 44) is
  increasing.
• Between the years 1990 and 2000 16 increase in
  adults with a disability mental
  impairments/asthma.
• The Social Security Administration predicts 37
  increase in incidence of disability over the next
  10 years due to the aging baby boomer generation
• - Spencers research reports on employee
  benefits
• Disability incidence continues to be higher for
  downsizing firms

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Percent of populationIncrease/Decrease
Statistical Abstract of the United States, 1995,
Projections of Resident Population by Age, Sex
and Race 1995-2025
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Advances in Medicine

• Conditions that used to be fatal may now cause
  extended disabilities and thus increase costs
• Examples Hypertension, Heart Disease, Diabetes
• There has been a shift in the nature of
  disabilities and new disabilities are on the
  rise
• Examples AIDS, Carpal Tunnel, Hepatitis C

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Merging Disabilities

• Mental disorders collectively account for more
  than 15 of the overall burden of disease.
• Major depression is predicted to be the single
  leading cause of disability in the world by
  2020.
• Back pain afflicts approximately 31 million
  Americans and is the number one cause of activity
  limitation in young adults.

Mental Health A Report of the Surgeon General
American Psychological Assoc., April Aug.
2000 Yale University School of Medicine, 1998
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Emerging Long Term Disabilities1990-1998
Percentage of Increase
UNUM Study, 1990-1998
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Other Notable Changes

• Due to economic downturns, the savings rate in
  the US has declined
• The number of mergers and layoffs has increased
• Full-time workers are beginning to take on
  part-time jobs
• 42 of full-time workers expect to provide elder
  care within the next 5 years, 1 in 4 already do
• There has been a decrease in available public
  assistance

Ceridian Performance Partners When work in
Private Life Collide, 1997 Study of the Changing
Workforce
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New LTD STD Claim Submissions
of Total Claims
Source JHA 2000 U.S. Group Disability Rate Study
Risk Management Survey
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Demographic Trends in Disability

• Disability in adult population (ages 18 to 44) is
  increasing.
• Between the years 1990 and 2000 16 increase in
  adults with a disability mental
  impairments/asthma.
• The Social Security Administration predicts 37
  increase in incidence of disability over the next
  10 years due to the aging baby boomer generation
• - Spencers research reports on employee
  benefits
• Disability incidence continues to be higher for
  downsizing firms

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Mergers and Layoffs Increase Job Displacement
and Disruption
American Demographics, April 1999
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Market Effect of the Challenges

• Increase in benefit utilization
• Increase in the number of claims filed on minor
  injuries due to worker perceptions in the
  workplace
• Disability durations and expenses will increase

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The Cost of Disabilities

• Disability benefits amount to about 6 of a
  companys payroll overtime and replacement
  workers account for nearly 6 more.
• The direct cost of all time-off and disability
  benefits totaled 14.3 of payroll in 1999. For an
  employer with 5,000 employees earning an average
  of 40,000 a year, 14 of pay amounts to 5,600
  per employee or 28 million.

Watson Wyatt Worldwide Wall Street Journal,
Sept. 1999 Employers Time off and Disability
Programs, William Mercer, Inc. Marsh USA Inc. 2000
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The Hidden Cost of Disabilities

• Disability management costs (including claims
  management, EAPs, safety and wellness and
  return-to-work programs) equal 352 per employee
  and 13 of total disability costs.
• In addition, disabilities account for daily lost
  productivity which is 150 of the employees
  daily compensation.

UNUM Full Cost Study, 1997 Improving Workforce
Productivity Through IDM, Watson Wyatt Worldwide,
2000
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Average Direct Cost of Disability as a Percentage
of Payroll
Watson Wyatt WBGH Staying _at_ Work Survey, 1997
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Questions?