Establishing the Need for Disability Income

Protection

(A Primer)

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

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 people’s lives• Fact: 29.2% of families have at least one disabled member.

Disability affects nearly all families at one time or another.

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.

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.

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 < age 35, there’s 1 in 3 chance of being disabled for a least 6 months during working years – National Underwriter

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

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

*Society of Actuaries; Money Magazine, April 2000

** Health Insurance Association of America, 2000

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

Categories of Disability Impairments

• Developmental

• Learning

• Physical

• Mental

• Social

• Combinations of the above

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, 2000Health Insurance Association of America, Public Opinion Strategies, 2000

Distribution of Coverage

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

STD LTD

65% 67%

16%

19%

11%

22%

Employer pays allEmployer pays all

ER and EEER and EE

Employee pays allEmployee pays all

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, 1998Chartbook on disability in the United States, 1998

Leading Causes of Short-Term Disability

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

– Source: EF Moody

Leading Causes of Long-Term Disability

• Cancer 13%• Pregnancy Complications 12%• Back 11%• Cardiovascular 9%• Mental/Depression 5%

– Source: EF Moody

3%

5%

6%

6%

8%

11%

21%

0% 5% 10% 15% 20% 25%

Diabetes

Lower extremity

impairments

Mental disorders

Respiratory disease

Arthritis

Heart disease

Back disorder

Top seven chronic conditions causing work limitations

LaPlante & Carlson, 1996LaPlante & Carlson, 1996

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

*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

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

- Spencer’s research reports on employee benefits

• Disability incidence continues to be higher for downsizing firms

Percent of populationIncrease/Decrease

Statistical Abstract of the United States, 1995, Projections of Resident Population by Age, Sex and Race: 1995-2025Statistical Abstract of the United States, 1995, Projections of Resident Population by Age, Sex and Race: 1995-2025

-15

-10

-5

0

5

10

15

20

25

30

35

40

18-24 25-34 35-44 45-54 55-64 65-74 75-84 85+

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

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

*Mental Health: A Report of the Surgeon General; American Psychological Assoc., April & Aug. 2000

** Yale University School of Medicine, 1998

Emerging Long Term Disabilities1990-1998

UNUM Study, 1990-1998UNUM Study, 1990-1998

119%

296%

197%

23%

249%

161%

0% 50% 100% 150% 200% 250% 300% 350%

Carpal Tunnel

Mental and Nervous

Back/Disk

AIDS

Muscle/Tissue

Chronic Fatigue/Epstein Barr

Percentage of IncreasePercentage of Increase

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

*Ceridian Performance Partners: When work in Private Life Collide, 1997 Study of the Changing Workforce

Respiratory System Diseases

Nervous System Diseases

Neoplasms

Circulatory System

Mental Disorders

Pregnancy complications

Normal Pregnancy

Injury/Poisoning

Musculoskeletal

LTD STD

New LTD & STD Claim Submissions

Source: JHA 2000 U.S. Group Disability Rate Study & Risk Management SurveySource: JHA 2000 U.S. Group Disability Rate Study & Risk Management Survey

% of Total Claims% of Total Claims

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

- Spencer’s research reports on employee benefits

• Disability incidence continues to be higher for downsizing firms

Mergers and Layoffs Increase Job Displacement and Disruption

American Demographics, April 1999American Demographics, April 1999

439,882

72,083

477,147

42,603

434,350

37,003

677,795

79,903

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

1995 1996 1997 1998

Total Job Cuts Merger-related Cuts

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

The Cost of Disabilities

• Disability benefits amount to about 6% of a company’s 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

*Watson Wyatt Worldwide; Wall Street Journal, Sept. 1999

** Employers’ Time off and Disability Programs, William Mercer, Inc. Marsh USA Inc. 2000

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 employee’s daily compensation.**

*UNUM Full Cost Study, 1997

**Improving Workforce Productivity Through IDM, Watson Wyatt Worldwide, 2000

*UNUM Full Cost Study, 1997

**Improving Workforce Productivity Through IDM, Watson Wyatt Worldwide, 2000

Average Direct Cost of Disability as a Percentage of Payroll

Watson Wyatt WBGH Staying @ Work Survey, 1997Watson Wyatt WBGH Staying @ Work Survey, 1997

3.2%

1.2%

2.5%

6.9%

0% 1% 2% 3% 4% 5% 6% 7% 8%

Total

Workers' Compensation

LTD

STD

Questions?