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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 people’s 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 < age 35, there’s 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
*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, 2000Health Insurance Association of America, Public Opinion Strategies, 2000
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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
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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, 1998Chartbook 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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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
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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
*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
- Spencer’s 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: 1995-2025Statistical 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+
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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
*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
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
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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
*Ceridian Performance Partners: When work in Private Life Collide, 1997 Study of the Changing Workforce
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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
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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
- Spencer’s 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 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
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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 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
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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 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
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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
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Questions?