Insurance Lack Can Turn Disability into Disaster : New Needs for ‘Income Replacement’ Policies Come at a Time When Fewer Workers Have Coverage
Long-term disability insurance is something many workers can’t foresee needing. But with the rise of AIDS and the advent of another modern-day affliction--repetitive strain injuries--some workers have found that they can’t survive without it.
The new need for the policies, which help replace lost income due to illness or injury, comes as competition among insurers is holding prices down. But because of modest payouts, most policies enable disabled workers to do little more than survive. Moreover, the workers who most need coverage--those with the least economic cushion and some of the rougher jobs--are often those who can’t afford it.
Commonly referred to as “income replacement” plans, long-term disability policies have been around for years.
But the policies now are covering circumstances unforeseen a few years ago, particularly the epidemic of acquired immune deficiency syndrome and the rapid rise of strain injuries caused by repetitive motions on the job.
‘Most Important Asset’
Long-term disability policies are designed to replace part of the salaries of workers afflicted with sicknesses or injuries for more than a month, and sometimes for years or even the rest of their lives. The usual policy provides either 50% or 60% of a worker’s regular salary--enough, insurers say, to help people get by without providing an incentive to stay out of work unnecessarily.
Some insurers argue that disability policies are as important as health insurance.
“Your ability to earn income is your most important asset,” said Joseph J. Milana III, an agent for Guardian Life Insurance Co. in Lake Success, N.Y. “Major medical (insurance) assures your physicians will be paid, but while you’re out, who’s paying you?”
According to the National Association of Insurance Commissioners, one out of two 30-year-olds today will be disabled for three months or more before they reach age 65. But only 20% of the total U.S. work force is covered either by a private or corporate disability plan, according to an estimate by Daniel Thomas, assistant director of the Health Insurance Assn. of America, a trade group.
For years, Thomas said, the prime candidates for long-term disability insurance were white-collar professionals in low-risk occupations--those who could easily afford the premiums but were unlikely to present claims, such as doctors and executives.
Recently, insurers have become more aggressive in marketing disability policies to lower-level workers, according to Doug Carey, a partner in the New York office of Hewitt Associates, a benefits consulting company. But workers who most need the coverage are usually those who can’t afford it and don’t have it unless their companies pick up the expense, Carey said.
Decline in Coverage
According to the U.S. Bureau of Labor Statistics, the percentage of blue-collar workers covered by long-term disability policies at large companies declined from 40% to 29% during the past 10 years.
Many large companies get long-term disability policies for employees at group rates, typically between 0.5% and 1% of an employee’s salary.
While some companies pay part or all of those premiums, others offer group policies under which employees pay the full cost. The advantage of employees’ paying is that any benefits received are tax free--not so, experts say, when the company picks up the tab.
Group disability policies are generally less expensive than privately purchased ones, but employees can’t keep them if they leave their company. Besides being “portable,” private policies usually can be adapted to meet individual needs, experts say. Premiums vary according to a job’s risk rating.
Even people who have the insurance can encounter problems getting paid when they become disabled.
Court Battle
A Brooklyn, N.Y., pharmacist discovered the shortcomings of his disability coverage last year. He was earning more than $100,000 annually from two thriving drugstores he owned. But after years of twisting safety caps from pharmaceutical bottles--between 200 and 300 a day, he estimates--the pharmacist was struck with carpal tunnel syndrome, a debilitating injury to the nerves and tendons in his left wrist.
The pharmacist, who is “totally left-handed,” found it impossible to work, but thought he was adequately covered by two long-term disability policies.
He was wrong. One disability policy began paying out $2,400 a month, but the other insurance company--asserting that he was seen carrying packages and was therefore not disabled--challenged his claim, and the case is pending in court.
In addition, the state Workers’ Compensation Board required a hearing last month to prove that the injury was work related before paying any benefits. The hearing was postponed when the doctor for the insurance company holding the workers’ comprehensive policy didn’t show up. And the first insurance company recently requested another medical review of the pharmacist’s condition.
“With five kids, I’ve exhausted all my funds,” said the 47-year-old pharmacist, who requested anonymity. “There’s a lot about this coverage you don’t know until it happens--then you become an expert.”
The key issue in picking a policy and getting benefits is how insurers define “total disability,” said John Nail, regional vice president for UNUM, a Portland, Maine-based company that handles about a third of the nation’s $1.5-billion long-term-disability market.
Competitive Rates
In the best policies, total disability isn’t defined as inability to do any work, but as an illness or injury that prevents employees from carrying out the “material and substantial duties” of their occupations, Nail said.
So far, the surge in AIDS and repetitive-strain injury cases has not resulted in higher premiums, said John Walbridge, vice president of Hay Group, a New York-based human-resources consulting firm. “Rates for the group disability market have remained pretty competitive,” Walbridge said. “It’s one of the few stable benefits.”
Part of the reason for the rate stability is competition caused by the entrance of many new insurers into the long-term disability market, UNUM’s Nail said.
“Ten years ago, there were probably four or five serious players,” Nail said. “Now there are 15 or 20 regular providers and 40 to 50 occasional ones.”
