Disability tab shifting to workers

By replacing a portion of workers’ income, disability insurance can provide peace of mind when employees are sidelined by a non-work-related illness, injury or condition.

It’s a staple of large, established employers’ benefits packages, especially in industries that rely heavily on employer-paid benefits to attract and retain talent.

While insurance industry experts say an aging workforce, delayed retirements and workplace pressures to do more with less are a few of the dynamics fueling employees’ need for disability insurance, rising medical costs and financial pressures posed by the health care reform law are causing employers to rethink the benefits they offer.

Today, fewer than half of the nation’s private sector employers offer disability insurance, little changed over the past 15 to 20 years, industry experts say. What has changed is who pays: Companies increasingly are shifting some or all of the expense to employees.

Industry organizations do not track the migration from 100% employer-paid coverage in the group disability marketplace to employee-paid models. But in a 2014 survey of disability insurers, the Council for Disability Awareness found that the number of employees with long-term disability coverage dropped between 2009 to 2013, despite an uptick in 2012 and 2013.

Separately, insurance and financial research association LIMRA International Inc. reported in 2012 that 43% of all private sector employers offer short-term disability insurance, but just 35% is fully paid by the employer. Forty-three percent is contributory, meaning employers and employees share in the cost, and 23% is voluntary, meaning that employees elect coverage and pay for it.

“The good news is more employers recognize that disability benefits are important to offer in the workplace,” said Carol Harnett, president of the Portland, Maine-based CDA. “But because fewer employees are covered, we know that the benefits are being offered on an employee-pay-all or voluntary basis.”

Employers are reducing their financial exposure in several ways. Some are limiting employer-paid disability coverage to about 50% of an employee’s salary, for example, and allowing employees to buy additional coverage to boost income replacement up

to 60%.

Others are shifting responsibility for the entire premium to employees. In an employee-pay-all model, the employer arranges for group coverage and guarantees a certain percentage of employees, usually 20% to 30%, will sign up. Employers must communicate the value of the benefit, because if too few employees sign up, the coverage won’t be offered.

When disability is offered as a voluntary benefit funded through payroll deductions, there’s no telling how many employees may sign up, Ms. Harnett said. Premiums are pricier than an employee-pay-all plan but still lower than what employees could get on their own, she said.

Marissa Mayfield, Philadelphia-based product development manager for Cigna Corp., said the shift to a voluntary platform from employer-paid model is occurring gradually and typically involves short-term, as opposed to long-term, disability.

If employers offer disability coverage, they tend to buy long-term coverage because of the extended financial protection it offers and the opportunity to help employees establish a responsible pathway for getting back to work, she said.

Keeping it accessible

Any time a benefit moves from employer-paid to voluntary, employee participation falls off, so the challenge for the industry is to better educate employees about the value of the benefit, she said.

Insurers, for their part, are working to make group disability products more accessible, responsive, flexible and easier to understand.

Cigna, one of the nation’s largest providers of group disability coverage, for example, participates in several private insurance exchanges and is continuing to develop its proprietary exchange, providing another avenue for distributing disability products alongside other types of insurance.

Cigna also works with employers to smooth the transition back to work through accommodations, vocational training and other assistance after an employee has been on disability. In addition, it offers programs to target potential risks and behaviors that could lead to future disability, such as lifting heavy loads and sitting for long periods of time, and provides support, such as ergonomic equipment, to help employees remain productive. Many insurers, in fact, offer return-to-work and stay-at-work programs in conjunction with their long-term disability products.

“Even when employers don’t sponsor the payment of disability insurance, they still need to get their employees back to work, and these programs become essential,” said Karen English, a partner with Spring Consulting Group L.L.C., an employee benefits and risk management consulting firm in Boston.

To ensure clarity and simplicity, Unum Group, based in Chattanooga, Tennessee, runs educational materials through its “consumerism” department. The last thing the insurer wants is for employees to throw up their hands and choose not to enroll in a disability product because they don’t understand it.

With the move toward voluntary products, insurers must talk to employees, Ms. Harnett said. “Instead of pushing out disability insurance, we have to flip the conversation and say, ‘What’s important to you (the employee)?’ ” she explained.

Customizing coverage

Hybrid products are also popping up.

In February, Unum announced a hybrid product that allows employer groups to customize the benefit, according to Kathy Plummer, Unum’s director of disability product development in Portland, Maine.

An employer may contribute a portion of the premium and allow employees to buy up to a higher level of coverage. Employers also can provide voucher-like credits that employees can use to purchase disability benefits. This allows an employer to kick in a predetermined amount toward the purchase of a voluntary plan. Employees get the credit only if they buy the coverage.

The new product also lets employers set different benefit levels for rank-and-file workers and top executives and different durations of coverage within the same product.

Though not a new concept, “that’s a level of flexibility we haven’t had in the past,” Ms. Plummer said.