REPOST: The elephant in the waiting-room

Social Security Disability Insurance (DI) may be government-subsidised health insurance, but a politicized system can sometimes prevent citizen access. This article from The Economist sheds light on the work a disability lawyer has done to help injured workers obtain relief and assistance from DI in Indiana.

Image source: The Economist

THOMAS SCULLY has a busy law office in Lake County, Indiana. He mainly practices disability law, with good reason. Lake County is home to steel mills. Workers have aching backs and hands warped by machinery. Mr Scully helps them win Social Security Disability Insurance (DI), which provides cash and, after two years, access to Medicare, government-subsidised health insurance meant mainly for the elderly. DI is not supposed to be a safety net for the jobless. “I tell clients”, Mr Scully explains, “disability insurance is not unemployment insurance.” But they should be forgiven for being confused.

Politicians like to deride expensive programmes. DI may be the least discussed and most muddled. The programme is severely strained. The number of awards has spiked in the downturn, rising 28% since 2007. This surge follows decades of growth. DI accounted for about 10% of Social Security spending in 1989 but 18% by 2009. This is not because beneficiaries are bending any rules; the real problem is that the rules are a mess.

Congress created DI in 1956. Since then physical labour has become less common, while medical technology has advanced. One might have thought that DI rolls would shrink, but the opposite has occurred. Even compared with the Social Security Administration's other costly programme for the disabled, DI is huge. Supplemental Security Income (SSI), which gives help to the very poor, doled out $43 billion to adults and children in 2010, up 124% since 1990. DI gave $110 billion to disabled workers, up almost 420%.

The reasons for this are debated. States have an incentive to keep their welfare rolls low, so they may be pushing workers towards the federally funded SSI and DI programmes, argues Nancy Shor of the National Organisation of Social Security Claimants' Representatives, a lawyers' group. But unlike SSI, DI is not a substitute for welfare; DI requires beneficiaries to have worked for five of the past ten years.

Ageing would seem another obvious explanation, as those aged 50-64 account for almost 60% of DI awards. But the rolls grew quickly even when the share of 50- to 64-year-olds was steady, according to David Autor of the Massachusetts Institute of Technology and Mark Duggan of the University of Maryland. Obesity does not seem to be the main cause either. Beneficiaries claiming problems such as diabetes and heart disease comprised a sliver of the awards in 2009.

A more likely culprit is the programme's structure. Messrs Autor and Duggan show that DI awards have become more attractive to those struggling in the labour market. Those awards, meanwhile, have become more accessible. In 1984 Congress made it easier for DI applicants to claim mental illness and musculoskeletal disorders such as back pain—both inherently subjective ailments. In 2009 these two conditions accounted for 22% and 31% of DI awards, respectively, about double their share in 1981. Even if an applicant does not meet DI's basic medical requirements, he may eventually win payments for other reasons. DI's rules, for example, allow an older worker unlikely to retrain to get benefits instead. Persistent applicants can seek the help of lawyers. Of those who appeal their case to a judge, almost 90% are successful.

Given DI's design, it should come as little surprise that enrolment jumps during recessions. Till von Wachter of Columbia University offers three explanations. First, impaired workers may be among the first to be sacked. After they are laid off, they may find that they qualify for DI, as is the case for many of Mr Scully's clients. Second, DI's criteria explicitly include economic factors, such as the ability to retrain. Third, those desperate for cash may use more subjective criteria, such as mental illness and “bad back”, to try to win benefits. Many will fail, but they can appeal.

The Social Security Administration has tried to fix some of these problems. The “ticket to work” programme, for example, is intended to help DI and SSI beneficiaries get jobs. But as of November 2010, just 2.4% of those offered job help actually received it (let alone found work). A newer pilot also encourages those on the rolls to find jobs. Such programmes seemed doom to fail, trying to convince beneficiaries that they can find work after they have spent years arguing otherwise. More effective, says Richard Burkhauser of Cornell University and the conservative American Enterprise Institute, employers should be given incentives to accommodate workers at the onset of their disability. A separate plan by Messrs Autor and Duggan, for the centre-left Hamilton Project, calls for all employers to offer disability insurance.

A solution is needed, and soon. The DI trust fund is expected to dry up in 2018, 22 years before the trust fund for Social Security retirees does. Nevertheless, budget hawks have flown over the issue. Barack Obama's deficit panel said proposals to reform DI would be “critical” but were “beyond the scope of this commission.” Last year Paul Ryan, a Republican congressman, presented a bold plan for reforming entitlements. Of DI, the plan said simply: “disability benefits will see no change.”

After working for Merrill Lynch and AG Edwards, Ted Stearns now serves as the CEO of a California-based insurance company, eDisabilityQuotes Inc. Read about how he helps provide access to disability insurance on this website.

REPOST: Making Decisions around Disability Insurance

Insurance is a mandatory offering in most employment contracts, but industries that deal in manual labor and bio-technology have to increase the incentives to win top talent. This Forbes article talks about which industries need to consider adding disability insurance as part of its benefits package.

Disability Insurance is considered to be a “must have” for employers to be competitive in today’s market when it comes to attracting top talent. Highly compensated employees in fast-growing industries such as technology, bio-tech, etc., want to be offered disability insurance as part of a comprehensive health/benefits package. There are five key decisions an employer needs to consider when planning for disability insurance:

• Offering a contributory or a non-contributory plan. Disability insurance is taxed no matter which type of plan you choose. The decision is whether the employer pays the tax on the premium (contributory) or if the employee pays the tax on the benefit (non-contributory). Most plans pay somewhere around 60 percent of income when an employee goes out on disability… if the employer does NOT pay taxes on premium, than the employee will pay taxes on the claim. This results in an employee netting only 40-45 percent of income, even if the ‘benefit’ is listed at 60 percent. When an employee is out on disability that can be too huge of a hit. However, if the employer pays taxes on the premiums, the employee will receive the full 60 percent while out on leave. Therefore, a contributory plan is much more attractive to the employee, so that they can receive as much income as possible when they are not able to work.
• What percentage to cover. Most carriers offer disability insurance at three different percentage points. At the low end, short-term disability and long-term disability are covered at 50 percent; in the middle, there’s a 60 percent option; and at the high end, plans cover 66 2/3 percent of income. Employers should establish what they’ll cover during the planning process.
• Own vs. any occupation. When writing plan contracts, employers need to establish if plan will cover  the employee to return to their current job (own) or a broader spectrum of any job. Many high-wage earners in specialty fields will want their plans to be written as own occupation. Think of a surgeon whose hands are injured in a car accident. Under an own occupation plan, he/she would be covered until they can return to work as a surgeon. Under an any occupation plan, he/she would stop receiving disability as soon as he/she could return to work in any position.
• What the term ‘earnings’ means. Does that mean just salary? Or does it include bonuses? Commissions? All W-2 income? What about K-1 earnings? Clearly spell out what ‘earnings’ is going to cover so that expectations are clear on what percentage the benefits claim will be based on.
• What the monthly maximum will be. Most disability claims pay out a determined percentage of earnings up to a monthly maximum. For example: 60 percent of earnings up to $5,000 maximum per month. Employers should make an effort to have that monthly maximum cover as many employees as possible. If a company has a large number of high-wage earners, but a low cap, there’s the potential of an employee receiving less than the benefit offer, which may not provide enough coverage for that employee while out on leave. For example, if an employee earns $110,000, but the company has a 60 percent of salary benefit up to a $5,000 monthly maximum payout, then the employee in our example is only receiving 55 percent of their salary due to the cap. Employers should try to avoid this.

Once these decisions are made, the next step for employers is to select a funding method. This is more advanced topic for another day, so I’ll address that in a future post.

Ted Stearns, founder and CEO of eDisabilityQuotes, assists customers by helping them understand and gain access to disability insurance.  Follow this Twitter account for tips and developments in the industry.

How much disability insurance do you need?

Image source: buyshorttermdisabilityinsurance.com

Ideally, if one can get covered for between 60 to 80 percent of current income minus taxes, the better.

Unlike life insurance, disability insurance is availed when the policyholder is still alive, but suffers injury and the loss of income that comes with it. This is supposed to cover income loss in the event of unexpected injury that resulted in incapacity for employment, and could last anywhere between a number of months to a lifetime.

Essentially, it is a precaution against an injury that may cause considerable or permanent disability. It allows principals and their dependents to regain part of the income. While most Americans have opted to ignore disability insurance due to the rather tricky cost-to-benefit analysis involved, most opinions on the matter, from that of Michele Lerner of Bankrate.com to the American Academy of Orthopaedic Surgeons, agree that disability insurance is nonetheless important. Disability insurance can get expensive, and finding the right rate and coverage for projected needs is an important part of getting the most from it.


Image source: insurancebuck.com

Gauging the extent of coverage is the hard part. For the employed, employers may offer some form of employee insurance covering the principal and dependents in the event of disabilities incurred on the job. However, government and work assistance are the common forms of employer-granted buffers, which are not always enough to sustain affected employees and their dependents during long-term injuries. Hence, after a survey of investments and possible income sources, it is wise to get quoted for disability insurance.

Currently the eDisability Quotes CEO, Ted Stearns has spent much of his career learning the ins and outs of financial services. Visit this website for more information on him and his company’s services.


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