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Planning for the Unforseeable
Disability insurance: new options, better prices
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Business New Haven
3/6/2000
By: BNH
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A recent study by the Hartford Insurance Co. showed that at least one out of four people over the course of their professional careers will suffer a disability that keeps them out of work for 90 days or longer.
The type of insurance that ensures that you still receive a paycheck during such a time is called disability insurance (not the same as health insurance, which simply covers the medical bills incurred as you recover from the illness or accident).
Over the last few years, disability insurance has grown in popularity. Previously, many people wrongly assumed (probably without giving the matter a great deal of thought) that Social Security, workers comp insurance or Medicare would cover them in the event they had to be out of work for an extended period.
While Social Security does offer some income protection for those who suffer disabilities, a person filing a claim must wait a year before she or he can collect, then prorate it back six months. Also, the coverage you receive may be based on prior payments (low for younger workers), and requires a laborious process of multiple hearings.
Workers comp insurance provides coverage only if your disability is job-related - and then only for 26 weeks. Medicare provides no income protection at all; it simply covers health-care costs.
Workers have gradually begun to realize the importance of having some kind of coverage that guarantees their income in the event of a seriously disabling illness or injury. Increasingly, it is something workers look for when applying for a position. In today's tight job market, says Steve Glick, administrator for the Chamber Insurance Trust, “Better benefits packages are a carrot in attracting the best employees.”
Traditionally there have been two types of disability insurance: short-term and long-term. Short-term insurance typically provides 100-percent income coverage for 26 weeks in the event that a worker is unable to perform his or her job.
Long-term disability insurance picks up where short-term leaves off. It provides continuing income coverage, although usually at a reduced rate - 50 to 60 percent of one's salary - for a period that can range from two years to as long as up to age 65.
The long-term period may also be divided into an “own occupation” period and an “any occupation” period. During the former, the claimant receives benefits as long as he or she is unable to perform his or her original job. During the “any occupation” period, benefits only continue if the claimant is not able to return to any manner of gainful employment.
While a number of companies offered short-term disability insurance as a supplement to workers compensation, in the past few offered long-term coverage. This was more often an individual option - and an individual purchase. And not many companies with fewer than 25 employees offered any type of disability insurance at all.
Today, many more companies provide disability coverage, often including a long-term policy. Glick, however, believes that most group long-term policies are insufficient for higher-income professionals, who he says should consider supplementing them with an individual policy.
The cost of disability insurance has fallen dramatically: An average group long-term policy can cost as little as $10 per employee per month, according to a study done by the Hartford. Also, instead of the higher rates for women that used to be the norm, many companies are offering unisex rates. And many elements of plans can now be customized so as to further reduce costs.
Finally, there are a number of innovations in disability insurance policies that help to simplify implementation and make them more effective.
The most common innovation in disability insurance today is what is called “integrated” coverage. “Integrated coverage” is an umbrella term that covers three different types of “integration.”
The first is integration of short- and long-term coverage, so that the latter automatically kicks in when the former ends. The second is what is sometimes referred to as the “24-hour model,” which ties disability insurance to workers compensation.
Tim Suchecki, vice president of national sales for Cigna, explains the benefits of his company's 24-hour plan, called “Ability Returns”: “An employee doesn't have to try to make a decision about what the source of his back pain is [on the job or off the job] in order to determine which insurance company to call.”
Suchecki adds that “You can have an employee out with a valid disability and two companies [the workers comp carrier and the disability company] fighting over whose responsibility it is. Meanwhile, the employee gets no coverage.”
Among the newest and most innovative development in disability insurance are policies tied to a company's health-care coverage. Currently there are 94 vendors nationwide offering this kind of integrated insurance. Those doing so locally include Cigna and Aetna.
The marriage of the two is a logical one. “A health event often becomes a disability event,” says Aetna's Julie Brown.
The chief benefits to such a policy, aside from simplicity, are twofold. The first is that an integrated policy can help chronically ill workers, who suffer from such conditions as asthma or lower back pain, to manage their illness so that they reduce the likelihood of having to miss work for an extended period. “You can prevent a disability by catching a potential disability sooner and by applying health interventions,” explains Brown.
Under Aetna's “LifeWorks” integrated policy, information is shared via computer between physicians in the health-care program and people in the disability group. Although doctors typically aren't used to thinking about keeping a patient at work, they can be helped to do so.
The benefit described above is typically of greater interest to employers, who have a vested interest in increasing worker productivity. Another principal benefit of integrated insurance applies to both employers and employees: Combining health insurance and disability insurance makes possible advance planning for disabilities that result from elective procedures.
This benefits employees, in that it eliminates any waiting period before their disability coverage kicks in. When health and disability coverages are separate, there is typically an initial waiting period for disability, which can extend from several days to two weeks.
Involving physicians in planning for the eventual return to work - for example, in getting recommendations of special equipment that will need to be ordered - can help to reduce the disability period, meaning greater productivity for the employer.
Cigna's Suchecki reports that of employees covered by his company's integrated plan, nearly 90 percent say they are satisfied or very satisfied with the coverage. At the same time, employers that have subscribed to the integrated plan report disability reductions of from seven to 25 percent.
Qualifying for disability insurance is generally easier than is qualifying for health coverage. If a company purchases a group policy, even if it has just two or three workers, all employees are automatically covered.
Preexisting conditions matter, but only affect coverage temporarily. According to Robert Bonner, M.D., Aetna's national medical director for disability, a worker with a condition which required treatment during the three months before the start of his employment, would generally be excluded from at least long-term coverage for a disability stemming from that preexisting condition for the first year of employment. After a year, however, he would be eligible for coverage. And at many companies, the worker would receive short-term coverage for the disability despite its being tied to a preexisting condition.
Bonner also points out that if a worker changes insurance companies - either because the employer switches carriers or because the employee gets a new job - preexisting conditions will probably not be counted as such by the new company as long as the worker has had continuous coverage.
Obviously it is in the interest of insurance companies that anyone receiving disability payments return to work as rapidly as possible. Just how do disability insurance policies encourage beneficiaries to return to work? And are there conflicts of interest between the insurance company and the best interests of a patient trying to recover from an illness or injury?
First, it should be noted that most employees want to return to some kind of gainful life as soon as possible. “Studies support that for the most part employees want to go back [to work],” says Brown. Given that premise, the ways in which many currently available disability plans help to facilitate return to work should be looked on favorably by employees and employers alike.
Some coverages include what is called a transition plan, which encourages part-term employment if a person is not capable of returning to work full-time. Under a transition plan, the insured is entitled to collect the difference between the disability benefit and the amount she earns returning to work part-time.
Cigna's “Optimal Outcomes” program includes various financial incentives to hasten an employee's return to work.
Many plans cover the costs of rehabilitation services that may be necessary to help a person return to his or her former job, or, if that's not possible, provide additional education or training to enable them to find a new position.
Sometimes availing oneself of vocational services when the “own occupation” phase of benefits ends is mandatory. In other cases taking advantage of vocational services is voluntary. However, if one chooses not to make use of such services, and an assessment shows that the person is capable of earning at least 70 to 80 percent of his or her former income in some occupation, benefits may be terminated. In other words, while an insurance company can't force a worker to change careers, they can apply substantial pressure.
But most people would prefer to be working in some capacity rather than sitting home idle collecting an insurance check.
What with the lower rates and the many new options available, it behooves employers of all sizes to look into upgrading disability coverage for their workers - and for prudent job-seekers to inquire about the coverage offered by prospective employers.
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