Who needs disability insurance?
The Council for Disability Awareness is happy to announce the expansion of our blog to include topics of importance to employers.
Our goal is to create a discussion with human resource and business leaders. A discussion that covers all things related to the workplace and employee benefits.
One topic we will highlight more frequently is employers’ expanding focus on employee financial health and wellness.
The last several decades have changed the way employers think about and support employee financial health, but at what costs?
Employer-Paid Health Insurance: Back in the Day
Most of us have no recollection of the era when employers provided robust benefits for their workers, including pensions and employer-paid health insurance premiums. When the U.S. entered the 1980s and health insurance expenses exploded, benefits experts stepped back and realized employees were immune to the true cost of health care.
Employee Financial Health: Giving Them Skin in the Game
Five-dollar-physician visits skewed the reality of what doctors and hospitals charged insurance companies. Thus was born the concept of making employees have “skin in the game”. The belief was if consumers had to contribute more toward the actual costs, they would think carefully about overusing their health insurance benefits.
This philosophy of employee responsibility and cost-sharing drifted outward toward all employee benefits over time.
The capital-market crises in 2002 and 2008, new legislation and regulatory requirements for employer-provided pensions, plus a need in some industries to reduce benefits to compete in the global market placed the tradition of providing new employees with a traditional defined-benefit plan on the chopping block.
As a result, employee financial health suffered.
What Created the Drive for Employee Financial Health and Wellness Education?
Defined-contribution plans such as 401(k)s and 403(b)s are now the standard way employers provide workers with retirement planning.
Except the worry – and perhaps the guilt – employers have is that, despite contributions to DC plans, only 61 percent of employees say they are saving for retirement.
We see further proof of poor retirement planning by workers in a May 2017 Gallup survey. The results indicated 25 percent of millennials will rely on Social Security benefits as a major source of income during retirement. This is almost double the number who said this in 2007.
The near elimination of defined-benefit pension plans for new employees coupled with far less than 100 percent participation in DC plans created the current drive by employers for employee financial health and wellness education.
Employee Financial Preparedness
While I am a staunch advocate of making certain working adults plan for their futures, I worry about their present situation as well. Why? Far fewer consumers are financially prepared for interruptions to their incomes due to periods of disability – the most common of which are pregnancy and musculoskeletal-related absences – than they are for retirement.
The best way employees can financially prepare for periods of absence – usually temporary – is through short- and long-term disability insurance.
According to the Bureau of Labor Statistics, 40 percent of private-sector companies provided access to a STD plan and 39 percent of workers participated. And 33 percent of employers gave access to a LTD plan with 32 percent of employees participating.
So, if you offer a disability insurance plan, 97 percent of employees will participate. But, at least 60 percent of workers don’t have the option to receive this type of coverage through the workplace. This increases the risk for compromised employee financial health and wellbeing.
Are Employees Prepared?
The Federal Reserve released its Report on the Economic Well-Being of U.S. Households in 2016 in May 2017 and reported 44 percent of adults said they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money. The median time an employee is out of work due to an illness, accident or injury is six weeks.
Given the Federal Reserve data, almost half of workers couldn’t afford an unpaid absence lasting more than a week without exhausting their sick leave or paid-time off. That’s if it is even available to them.
Employee Financial Health: Stories, Not (Just) Data
But all I’ve talked with you about so far is data. And while facts are important, stories are more memorable.
A few weeks ago, a friend asked me to attend a fundraising event for Kathie (name changed). She had to stop working due to symptoms associated with a rare autoimmune disease known as Wegener’s granulomatosis. This is a difficult condition to diagnose and it took months before the physicians figured out what was wrong. The good news is that while the medical team cannot cure Kathie, she has a reasonable chance of recovery and being able to work again. The bad news is it will take months of treatment to get her there.
I didn’t know anyone at the event other than my friend. So, I found myself speaking with a lot of different people and spent time hearing stories about Kathie.
I eventually came upon the organizer of the party who turned out to be Kathie’s boss. His compassion for Kathie’s situation touched me and I told him how remarkable I thought he was. At that point, he shared the guilt he felt.
He was a small employer and he couldn’t afford to provide much in the way of benefits. His employees received their health coverage through the public exchange, or their spouse’s insurance. It was too expensive a benefit for him to offer. But, he’d met with an agent about a year ago and asked if there was something he could for his employees. The agent presented two options: term life and disability insurance. He chose the term life plan.
The employer and most of his employees were in good physical health. In fact, Kathie completed a Tough Mudder competition (which involves running through 10 miles of mud and climbing over 20 obstacles) the month before her symptoms began. He thought none of them would ever need the disability insurance policy.
The Bigger Picture
It’s my belief that we need to expand how we think about employee financial health and wellbeing. Yes, we must help people plan for the future, but not at the risk of the present.
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