Why It’s More Critical Than Ever to Support Mental Health and How Insurers Can Help
Editor’s Note: It’s springtime and that means it’s the season for talking about income protection and products like disability insurance that help you protect what’s one of your greatest assets – your income. And that’s what The Council for Disability Awareness president Carol Harnett did recently in a podcast with her colleague and friend, Fred Schott.
You can listen to the entire podcast here.
How Many Americans Do – And Don’t – Have Disability Insurance?
[2:33] In a 2018 study Fred sought to estimate how many working Americans did — and didn’t — have disability coverage.
The bottom line: “I estimated about 51 million working Americans — around a third of the civilian labor force — didn’t have any disability coverage (either short- or long-term disability).” And the chief economist at the American Council of Life Insurers, Andrew Melnyk, validated that number (even though he followed a different methodology).
How Do Working Americans Get Disability Insurance?
Employers are The Key Source
[4:19] Fred does a deeper dive on the data sources he looked at and gives an overview of the different ways working adults in the United States can get disability coverage.
“The 50,000-foot view is that biggest route for people to get disability coverage (about 85 percent of people who have it) is through their employer. For that group, there’s a 90/10 split between cases where the employer pays all or part of the premium versus when the employee pays for it all” – usually through supplemental or voluntary employee benefits.
“As for the remainder of those with coverage, just under half of them get it through an association or affinity group, which is a professional association, college alumni association, or affinity groups like the AAA auto clubs. But the majority of people [who get disability insurance outside the workplace secure] it via individual coverage that their financial advisor helps them obtain.”
[9:36] Carol talks about how she would advise employees to think about employer-provided benefits.
“I think health insurance is the most important benefit you can select . . . Then insuring your income through disability insurance is the next biggest player underneath the employee benefits umbrella. And your retirement planning is critically important; in many ways, it’s another form of income insurance that pays out once you’re no longer working.
“I saw a post on LinkedIn recently where a consultant and their consulting house presented the “Sweet Sixteen” of benefits — a kind of internal battle to determine which product they thought was most important. And the winner of their ”Final Four” championship was long-term disability insurance. They rated it as the single most important benefit – both whether an employer provided that coverage by paying the premium, or whether the employee chose the benefit through a voluntary offering (meaning that you’re paying the premium).”
How Does Ownership of Disability Insurance Differ by Income Level?
Let’s Not Overlook the Income Protection and Financial Wellness Needs of Low-and Moderate-Income Households
[11:50] Fred walks us through the difference between the lowest and highest wage earners in terms of how many of them have disability coverage. He cites data from the most recent Bureau of Labor Statistics Employee Benefits Survey (follow this link and check out the numbers in the Participation column on Table 17 for civilian workers).
“For people in the lowest 10 percent average wage category (the lowest decile), only 10 percent have short-term disability coverage; and for those in the lowest 25% category (the lowest quartile), only 19 percent have STD coverage. But for those in the highest wage quartile, 56 percent have that coverage, and 64 percent of those in the highest decile have it.
“As for long-term disability, only 5 percent of people in the lowest wage decile and 10 percent in the lowest quartile have it. But on the other hand, 58 percent of the highest quartile and 64 percent of the highest decile that have LTD.
“There’s a big disconnect here.”
[16:43] Fred and Carol discuss a 2019 consumer survey commissioned by The CDA that found a similar disconnect between lower- and higher-earners. Fred wrote about these findings in The CDA blog.
What Types of Illnesses and Injuries Put Employees Out of Work?
The Leading Causes of Short- and Long-Term Disability
[18:30] The discussion turns to what kinds of health conditions most commonly keep people out of work[i]. But first, Fred offers a caveat:
“Two years ago, the landscape changed — dramatically. The industry is sorting through that now and trying to apportion everything into the appropriate bucket. The numbers I’m going to cite are pre-pandemic numbers, although my sense is that a lot of the underlying patterns will remain the same, once you factor out Covid.”
[20:49] Fred noted that pre-pandemic, the rate of occupational disability (covered by workers compensation) was only 1 percent while short-term disability due to non-occupational causes ran around 5 percent. And the most common reasons for short-term disability? You might be surprised . . .
“Short-term disability (typically covers employees for three to six months or less) for non-occupational reasons:
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- The number one reason has been pregnancy, although that’s been drifting downward over the past ten years to less than one in four, due to declining birth rates.
- The next most common: musculoskeletal disorders — things like back, spine, hip, and shoulder problems. About one in five short-term disabilities are a result of that. And in most cases that’s usually the result of some kind of a surgery or other medical procedure to treat the underlying musculoskeletal condition. A classic example: somebody’s got hip arthritis, and they need a hip replacement.”
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[22:52] The nature of the work you do makes a difference in what kinds of conditions can keep you out of work and for how long:
Fred: “Last year I had hip replacement surgery. I was able to get back to work fairly quickly on a part-time basis — within two weeks. It helped that I did the kind of work that could be done remotely and didn’t require a lot of physical exertion. But if I had been, say, a warehouse worker or a factory worker, I would have been out a minimum of six to eight weeks.”
[23:44] Back to the most common causes of short-term disability:
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- Fractures, dislocations, sprains and strains — accidental injuries, in general — account for just a bit more than 10 percent of claims.
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Fred: “And then there’s another category that over the years has been growing, and that’s mental health. And that’s not just because it’s becoming more of an issue societally, but also because – if there’s work that requires a lot of cognitive and mental focus – then it’s a more prominent disabling condition. But still, less than 10 percent of all short-term disabilities have mental health as the primary reason.”
[24:37] And what about long-term (three to six months or longer) disabilities?
Fred:
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- “Far and away the most common reason — approaching almost three in ten — is musculoskeletal.
- “And then the next category, coming in at about 15 percent, is cancer.
- “And behind those two, you have the recoveries from heart attack, stroke, neurological disorders.”
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[25:24] Fred riffs on the long-term odds of experiencing a disability before reaching normal retirement age and dying (without being disabled) before then.
Your Odds of Dying versus Becoming Disabled During Your Working Years
Death: 8% Risk
Disability: 25% Risk
“There’s a statistic that’s thrown out quite frequently, based on Social Security’s actuarial analysis, that if you’re starting out in the workforce you have a one-in-four chance of becoming disabled before you reach normal retirement age. But what’s interesting (and what most people don’t pay much attention to) is that those same studies find that only 8 percent of people starting out work can expect to die before they reach normal retirement age — and not become disabled in the process.[ii]
“People buy a whole lot more life insurance than disability insurance, right? Yet the kind of scenario they follow when they do that — they think they might die before age 67 but not become disabled — the odds of that are less than 10%!”
The Big Takeaways
[26:37] Carol and Fred summarize the key points of their discussion:
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- Disability insurance is really important, yet a lot of people who work don’t have it.
- If you bought just life insurance and don’t have disability coverage, you’ve been misreading the odds. Remember: 25 percent of workers will become disabled before normal retirement age, but only 8 percent will die before then without becoming disabled.
- You can purchase disability insurance on your own or through advisors and associations, and not just at the workplace.
- But it’s particularly important for employers to provide support for the lowest-wage earners in obtaining disability coverage — even if it’s a partial payment of the insurance premium. Disability insurance is not a luxury good!
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You can listen to the entire podcast here.
[i] Data sources: Integrated Benefits Institute, Health and Productivity Benchmarking 2019 (released September 2020), Short-Term Disability and Long-Term Disability, All Employers. Condition-specific results. https://files.ibiweb.org/uploads/general/Sample-Reports.zip Data is pre-pandemic and is the most recent as of March 31, 2022.
[ii] Social Security Administration, Disability and Death Probability Tables for Insured Workers Born in 2001
https://www.ssa.gov/oact/NOTES/ran6/an2021-6.pdf Table A; compare Column 1 (Probability of S Disability Before NRA) and Column 2 (Probability of Death And Never Disabled Before NRA)
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