The Science of Aging Well: How Your Beliefs Affect Your Health
One of the most important reasons for workers to buy disability insurance is, of course, income replacement. When a policyholder is sick or injured and becomes unable to work their disability insurance will cover a percentage of their monthly income, allowing them to pay their everyday expenses until they recover.
But disability insurance plans generally include other policy provisions that may be even more important for workers, and these other elements may be particularly important to workers at different ages.
That’s in part because we face different challenges and changing milestones as we age. Income replacement is obviously essential however old we are, and the other policy provisions can be helpful across the lifespan, but the relative value of different services associated with a disability insurance policy may change as we age.
The Impact of Disability on Employment and Income
Being disabled has a negative impact on employment, starting with the fact that the unemployment rate among people with disabilities is roughly twice that of those without, even adjusting for the lower labor force participation rate among people whose disabilities make working impractical. Further, full-time workers who are disabled make an average of 15% less than those without disabilities in the same positions; however, when accounting for the fact that people with disabilities are more likely to work part-time and in lower wage occupations, the average person with a disability makes just 66 cents for every dollar made by a worker without a disability.
Not surprisingly, people with disabilities have less wealth than their nondisabled peers and have a poverty rate that’s more than twice that of others. This is exacerbated by the fact that people with disabilities have substantially higher living costs than people who aren’t disabled.
Generation Z and Income Replacement
In many ways, Gen Z workers have the most to gain from a disability insurance policy. The youngest generation in the workforce, born between 1997 and 2012[i], Gen Z workers have their whole careers ahead and a serious disability lasting months or years can easily derail their entire life, especially if it’s permanent.
Since they’re just starting out in their work, Gen Z employees typically have less money saved and are only beginning to climb the ladder toward greater responsibility and higher income. They’re much more likely than their older peers to be among the 37% of Americans who would not be able to cover a $400 emergency expense and being out of work for any significant amount of time may have an outsized impact on their career path and retirement readiness.
In the case of permanent disability, long-term disability insurance can provide a secure source of income for decades, even up until they reach retirement age, making the return on investment immense in those cases.
The importance of income replacement is not lost on Gen Z workers, who are more focused on financial well-being than Millennials were at their age, prioritizing saving for the long term and being able to cope with financial emergencies. According to recent research by The Standard, they’re also looking for help to improve their financial literacy, especially when it comes to retirement options, so they may be particularly open to education about the financial benefits of disability insurance.
On the other hand, younger workers may be more prone to minimizing the likelihood of experiencing a disability, both because of the immaturity of their frontal lobes (which only finish developing around age 25 for women and age 30 for men) and because of humans’ tendency to underestimate the likelihood of adversity in what psychologists call optimism bias. In essence, we believe bad things are more likely to happen to others than to ourselves, and as a result, we may not be adequately prepared when we face misfortune.
To counter their minimization, younger workers may require education about the reality of serious illness and disability:
- The BlueCross BlueShield Association reports that younger Americans are significantly less healthy than their older counterparts were at the same age, and both Millennials and Gen Z are now in the age range when health typically declines.
- Gallup has found that key health metrics have declined since the onset of the pandemic.
- The CDA estimates that more than one in four 20-year-olds will be disabled for at least a year before they retire.
The commonsense solution is disability insurance, but only 40% of American workers have short-term and just 35% have long-term disability insurance. These percentages are lowest among the bottom socioeconomic quarter of the population and increase with income. The people who are least likely to be able to afford a disabling event are also the least likely to have insurance to help them if they experience one.
Similarly, younger workers are less likely to have disability insurance, both because they tend to be in lower paying jobs that don’t offer it and because they think it’s unnecessary given their age and their health.
Many people can get coverage at work, though, with their employer subsidizing some or all of the cost. This makes disability insurance a tremendous value, offering income replacement at a reasonable cost for the situations in which it may be most needed. In addition, disability insurance is typically less expensive for younger people and the costs remain lower over time for those who enroll when they’re younger.
Another common reason for choosing to get disability insurance is that it’s essential for anyone who needs life insurance; if you see a need for life insurance to provide for the people in your life after you die, disability insurance is just as necessary to provide for them if you’re disabled and cannot provide support at the desired level. People typically buy life insurance to provide for their families, especially when they don’t have reserve assets to support their dependents, and disability insurance can serve the same function.
Millennials and Return-to-Work Services
It’s well known that many Millennials (born between 1981 and 1996) have delayed major adult milestones such as getting married, buying a house or becoming parents, but they are aware of their responsibilities and take their finances seriously. That is likely to continue as more settle down, buy houses and become parents.
These workers still face some of the challenges as their Gen Z peers, but they may be starting to establish themselves in a career and are also at an age at which disability rates increase consistently with age.
In addition to income replacement, Millennial workers may particularly value Return-to-Work services, which are commonly used following injuries that result in a disability leave. As the name implies, RTW services are designed to get claimants back to work as soon as medically feasible after a disability resulting in leave.
These services are provided by certified or licensed professionals employed by or contracted with the disability insurer. RTW consultants can include vocational professionals, ergonomists, nurses and behavioral health professionals, among others, and frequently integrate disability services with other employer-sponsored benefits to maximize the likelihood of a claimant returning to work. RTW consultants complete ergonomic and other types of assessments to clarify the claimant’s limitations and restrictions and to identify options for effective accommodations. They may recommend ergonomic equipment and help the claimants negotiate with their employer and their provider(s) to find solutions that are acceptable to all stakeholders, continuing to collaborate with the claimant until they have achieved their maximum expected level of functioning.
In my experience, many claimants and their employers are unaware of the existence of RTW help and as a result, these services tend to be underutilized. Even when a person is aware of the services they may not realize they could benefit from them, believing that there’s nothing that could help them, when the fact is that effective accommodations exist for almost every kind of limitation or restriction and new accommodations are being developed all the time.
Most disability claimants who are offered RTW services accept them, with 84% of people referred to the program I work with agreeing to participate.[ii] The average cost per referral was $549 and the average claim cost savings were $1,636, representing a gross return on investment of 298%. Further, claimants avoided an average of 15 disability days for each referral. Eighty percent (80%) of participants successfully returned to work and 82% of successful participants had not filed a subsequent disability claim for a similar condition within 24 months of returning to work.
It should be noted that the claim cost savings include only the savings of the payments made to the claimant; there is evidence that the indirect costs of disability leaves are greater than the direct costs, with one study estimating that indirect costs — including replacement labor costs (temporary workers, overtime), net lost productivity value and administrative costs — were twice the direct costs.
The results were even better with claimants with multiple disabling conditions, who generally present with complicated medical profiles: 98% of those claimants referred for RTW services agreed to participate and 95% successfully returned to their jobs. The average cost per referral was higher, at $933, but so was the average claim cost savings, at $3,657, for a gross ROI of 392%.
RTW services also integrate with other common disability insurance features, especially Rehabilitation Plan provisions, Reasonable Accommodation Expense benefits, and Return-to-Work Incentives.
Rehabilitation Plan provisions provide vocational professionals to assist claimants with strategies to maximize their ability to recover following a disability and return to work as soon as medically feasible. These services include identifying barriers to returning to work and developing ways to overcome them. The vocational professional may coordinate with the claimant, their treating provider and the employer to negotiate changes to facilitate the return to work, such as work hardening or conditioning, job restructuring, temporary reassignment or scheduling changes. In cases in which the disability prevents the claimant from returning to their previous job, the rehabilitation plan may identify an alternative occupation that is possible for the claimant despite continuing limitations and restrictions.
Reasonable Accommodation Expense benefits are funds available to disability claimants and their employers to provide accommodative equipment, vocational services or other types of assistance needed to stay at or return to work. These vary between different disability insurance contracts but should be at least sufficient to pay the average cost of accommodations, which may be as much as $1,925 per year. Higher RAE benefits can be helpful for people who have suffered catastrophic injuries or illnesses.
Return-to-Work Incentives allow the claimant to return to their job while continuing to receive some or all of their disability pay. Typically, these incentives decrease as the claimant increases their work hours and/or is cleared to fully return to work. These benefits are helpful because many people on disability leave are anxious about returning to the job prematurely and may avoid returning as early as medically feasible for fear they’ll lose their benefits and be stuck without income if they have a relapse. The RTW Incentive can both facilitate a gradual return to work and provide a safety net if the claimant has a recurrence of the condition that led to their disability leave in the first place.
Focusing on RTW services, Rehabilitation Plan provisions, Reasonable Accommodation Expense benefits and Return-to-Work Incentives may help Millennial workers recognize the value of disability insurance, especially as they are taking on new financial responsibilities and need to maintain momentum along their career trajectory.
Generation X and Stay-at-Work Services
Born between 1965 and 1980, Gen Xers are in their prime earning years but are also at an age where disability becomes more common. Further, they’re often the sandwich generation, with both children and older parents relying on them, so they may value disability insurance to secure their ability to provide for their families. The CDA has called disability the “most valuable workplace benefit” for Gen X. Further, people in this age range who are business owners, professionals, self-employed workers and others with specialized skills often do not have employer-sponsored benefits and may buy disability insurance to provide a safety net for themselves and their families.
In addition to income replacement and RTW services, these employees may find Stay-at-Work services particularly helpful, especially if they have chronic health conditions that may result in a disability leave. They are often at the peak of their career and earning power, so avoiding leaves may be extremely important to them.
We often mistakenly believe that most disabilities are the result of a freak accident or unusual illness, when the reality is the majority of people with a disability have a common chronic illness. According to the CDC, arthritis is the most common disabling condition in the country, but disabilities caused by back problems, heart disease, respiratory conditions and mental health and substance use disorders are also widespread. Many Gen X employees have been diagnosed with chronic medical conditions and may be at risk for going out on disability leave but Stay-at-Work services can help prevent problems leading to limitations and restrictions that become disabling.
Stay-at-Work services are even less frequently accessed than RTW support, despite their effectiveness. The idea here is simple: RTW consultants often say they could have helped a claimant before they even went out on disability leave if they had only been referred to the consultant earlier. SAW services are available before the employee goes out on leave but are essentially the same as RTW services. Whereas the disability insurance company can identify candidates for RTW services based on new claims, SAW candidates must be identified on the job, either through self-referral by the employee or through a referral by the supervisor or HR Department.
Since SAW services are generally the same as RTW services, only offered before a worker goes out on disability leave, they may be connected to Reasonable Accommodation Expense benefits, again emphasizing the importance of a benefit that’s at least enough to cover the average cost of a SAW referral. SAW services tend, in my experience, to cost more than RTW, primarily because more employees referred for them require accommodative equipment to remain on their jobs.
Virtually all employees referred for SAW services agree to participate, with a 99% acceptance rate. The average cost per referral for SAW services was $2,168 and the average claim cost savings were $3,904, along with an average of 50 disability days avoided per referral. This works out to a gross ROI of 180%. Eighty-six percent (86%) of employees referred to SAW services successfully remained on the job and 91% of those employees had not filed a subsequent disability claim within 24 months of completing their SAW case.
Again, similar results were obtained with employees with multiple disabling conditions: 100% of those employees agreed to participate in the SAW program and 98% successfully remained on the job. The average cost per referral for SAW cases was $2,734 and the average claim cost savings were $4,439, saving an average of 56 disability days for each employee referred to the program. This reflects a gross ROI of 162% on SAW services for these complex and often challenging situations.
Focusing on the availability of SAW services may enhance the value Gen X workers perceive with disability insurance.
Baby Boomers and a Renewed Focus on Income Replacement
The oldest generation in the workforce is usually the Baby Boomers, born between 1946 and 1965. They are at or near the age when they become eligible for Social Security Income and Medicare, so they may not see any need for disability insurance. They may choose to have it, though, if they particularly need income security to prepare for retirement or plan on working beyond age 65. As with Gen X workers, Boomers who are business owners, professionals, self-employed workers or others with specialized skills may see disability insurance as a way to ensure their income until retirement.
The main reasons for getting disability insurance are often the same for every generation, but there are nuances associated with the differing milestones people face at different ages. In some ways, disability insurance may be most valuable for younger workers, since long-term disability may provide income replacement all the way to retirement, but it’s a crucial aspect of financial readiness at every working age.
Helping workers understand the value of a disability insurance policy in their specific circumstances can facilitate better decision making, allowing them to select a plan that best meets their needs. This requires understanding not only the income replacement elements of such a policy, but also the income protection aspects including Return-to-Work and Stay-at-Work services, Rehabilitation Plan provisions, Reasonable Accommodation Expense benefits and Return-to-Work Incentives.
This piece is not intended as medical or legal advice. Always speak with your medical provider before initiating a diet or exercise regimen or if you have medical questions. If you have legal questions, consult with an attorney.
Dan Jolivet is the workplace possibilities practice consultant at The Standard, where he provides leadership, analysis, and consultative insights into the workplace possibilities service line. He provides specialized focus on behavioral health, stay at work, return to work, ADAAA services, health management integration, and other related employer solutions. He is a clinical psychologist licensed in Georgia and Oregon, and he has worked in behavioral health since 1980. He joined The Standard in 2016 as the Behavioral Health Director.
Prior to joining The Standard, Dan worked in managed behavioral health care organizations for 20 years in a variety of management roles and was in clinical practice as a child psychologist until 2003.
[i] There isn’t a clear consensus on the start and end dates for the various cultural generations in the United States, but the dates used are drawn from the Wikipedia article, “Generation,” https://en.wikipedia.org/wiki/Generation, accessed on 05/22/24.
[ii] Statistics on Stay-at-Work and Return-to-Work services reflect combined insured and self-insured results between January 1, 2008, and December 31, 2023, based on internal data developed by The Standard. Calculations in this piece were done by the author and reflect my perspective on the most effective ways to measure outcomes for those services.
Return-to-Work disability days saved are calculated as the difference between the anticipated duration of the claim estimated by the treating provider at the time of claim submission and the actual claim duration. Note that only the treating provider can set the return-to-work date, based on their clinical evaluation and consultation with the claimant; however, treating providers frequently move up the RTW date on the basis of improvements in the claimant’s condition and/or the availability of accommodations to allow the claimant to complete the essential functions of their job despite their limitations and restrictions. Claim cost savings are calculated based on the claim cost per day multiplied by the number of disability days saved.
Stay-at-Work disability day and claim cost savings are calculated based on the relevant STD benchmark average duration and liability per closed claim from the Integrated Benefits Institute for the associated case closure year between 2015 and 2021, along with the employee industry and ICD-10 diagnosis category. Claim durations prior to 2015 and after 2021 are calculated as the average duration from benchmark averages between 2015 and 2019 (excluding subsequent years because of the impact of the pandemic), with the associated costs adjusted based on annual wage inflation. It is estimated that 75% of successful SAW cases would have resulted in a claim without intervention, so savings are calculated as 75% of the associated benchmark averages.
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