Special Report: Life, Disability & the Pursuit of Benefits
With health care and retirement taking priority in company benefit budgets, group life and disability plans are slowly shrinking from employer offerings.
With health care and retirement taking priority in company benefit budgets, group life and disability plans are slowly shrinking from employer offerings at a time when America’s workforce is aging and disability claims are increasing.
“As benefit budgets have been stretched, employers have tended to trim” disability and life insurance, said Bob Patience, vice president of voluntary products at Prudential Financial Inc. “Health care is always the 800-pound gorilla that drives a lot of decision-making.”
While health care as well as retirement savings are getting the bulk of the attention, employers wanting to hedge rising health care costs may want to consider shifting their focus to disability insurance as well as group life insurance.
In general, disability insurance, both long- and short-term, is a financial backstop for employees who get injured and aren’t able to work. Life insurance is a type of policy that gives a safety net to a family when a worker dies.
Last year, only 40 percent of private company workers had access to short-term disability and 33 percent had access to long-term disability, according to the U.S. Bureau of Labor Statistics’ National Compensation Survey. Only 57 percent of private company workers had access to life insurance plans.
It’s a problem because shifting dynamics in the U.S. workforce are creating a scenario where disability insurance is going to become quite necessary, said Alex Dumont, vice president of product marketing for The Standard, which offers life and disability insurance.
Accommodating Employees With Disabilities
As the workforce ages and people working with some kind of disability are on the rise, companies will need to be more savvy in making accommodations for certain workers, according to a white paper from The Standard.
Nearly a quarter of employers don’t know how to handle disability absences and how to make adjustments when a person with a disability comes back to work, the Portland, Oregon-based financial services provider found. Plus, only 37 percent of companies surveyed have worked with a disability insurance carrier to come up with solutions.
Companies that don’t know how to make reasonable changes when an employee with a disability returns to work may face lawsuits or trouble with the U.S. Equal Employment Opportunity Commission, the white paper states.
In 2008, the Americans with Disabilities Act Amendments Act changed the way companies focus on disabilities. Instead of determining whether a worker’s condition fit the original definition of a disability in the Americans with Disabilities Act, employers now need to make reasonable adjustments to support workers with disabilities when they return to their jobs.
“The law has a very complicated web of regulations that make it difficult for many employers to navigate,” said Alex Dumont, assistant vice president of product marketing at The Standard.
In its white paper, “Accommodate, Don’t Terminate: Best Employer Practices for ADAAA Compliance,” The Standard outlines five mistakes employers need to avoid:
• Strictly enforcing policies.
• Thinking adjustments will be expensive.
• Not looking for creative solutions.
• Devaluing the benefits of an older workforce.
• Not getting help.
First, the Great Recession set a number of workers back financially; to recoup losses, many are staying on the job longer than anticipated. By 2020, the Bureau of Labor Statistics estimates that five generations of Americans will be working, with a quarter being baby boomers ages 55 and up.
An older workforce increases the chances of higher health care costs as well as lost working time because of illnesses and disability leave. Today, more than 37 million Americans have what is considered a disability, and about half are between the working ages of 18 to 64, U.S. Census Bureau figures show.
In today’s workplace, nonmedical benefits like disability insurance “play a really important role in keeping health care costs down,” Dumont said. “The longer employees delay retirement and need to stay in the workforce, the strain is going to increase [health care] costs to the employer and employee more than ever before.”
There are a lot of misconceptions about disability insurance — whether it’s needed, how much is needed and the expense. One thing is clear: When it is offered, employees participate.
When disability insurance is offered in the workplace, 98 percent of private industry workers take advantage of short-term disability and 96 percent enroll in long-term disability, the 2013 National Compensation Survey numbers show.
Employers typically pay $10 to $30 per worker each month for disability insurance, according to the Consumer Federation of America. Nearly two-thirds of workers surveyed in a 2013 study by the Washington, D.C., consumer group said they would pay the monthly premiums for protection.
Group disability in particular “is one kind of insurance that offers very good value to the employer as well as the employee,” said Stephen Brobeck, executive director for the Consumer Federation of America. “Clearly, more employers would offer it if they understood how inexpensive it is and that employees would happily pay the premium.”
Group life faces a similar dilemma: Because of the changing workforce, the perceived need for life insurance isn’t high, experts say. Years ago, families without life insurance suffered financially when the sole breadwinner died. Today, when most families have two income earners, and when modern medicine is extending human life, people don’t think this kind of insurance is as necessary, experts say.
A 2013 New York Life Insurance Co. survey showed nearly 80 percent of 1,000 people ages 25 and up believe they don’t have enough life insurance.
“The prevalence of life insurance isn’t what it used to be,” Prudential’s Patience said.
Thirty percent of households have no insurance at all, according to LIMRA, an association of insurance and financial services companies that used to be known as the Life Insurance Marketing and Research Association.
Many workers say they have other financial priorities. About two-thirds, or 67 percent, of consumers participating in a LIMRA study said they were most worried about having enough money for a comfortable retirement. The vast majority, or 86 percent, believe life insurance is too expensive, and only 8 percent say they plan to purchase life insurance next year.
“A declining percentage of employers are offering group life. As an industry, we have not done well in communicating the value of the product,” said Anita Potter, LIMRA assistant vice president, insurance research-employee benefits.
But even though many consumers don’t make life insurance a priority, they certainly are signing up for it at work. About 97 percent of private workers who were offered life insurance last year participated, the National Compensation Survey showed.
“Life insurance still ranks high among employees as a benefit,” said John West, director of product marketing at The Standard. “It isn’t a sexy product, so we need to reinforce its need so it doesn’t get lost.”
Employers who offer life insurance see it as another strategy to drive loyalty from workers, said James Reid, senior vice president of group products for MetLife. About 56 percent of workers say they are more willing to stay at a company when they are happy with the range of benefits offered, MetLife’s 2013 study of employee benefit trends showed.
“From an employer perspective, it is a critical product solution that they want to bear for their employees and dependents,” Reid said. “Our customers feel life insurance is still a very valuable part” of a benefit portfolio.
Patience said it’s important that workers get life insurance information at certain life stages, like getting married, having a child or getting a new job. For younger generations, online life-insurance calculators can be a quick and easy way for workers to understand how much life insurance would be needed.
“People will act if it is easy for them to understand and are presented with relevant information,” Patience said. “Once they have to fish it out for themselves, they aren’t likely to act.”
With life insurance comprising only 1 to 3 percent of benefit budgets, it’s important for companies to carve out that small portion to balance offerings, The Standard’s Dumont said.
“There is a lot of education that needs to be done, so employers don’t get so distracted from a health care perspective that they lose site of the other benefits that are out there,” she said.