Something New!
It’s old news that Employers are competing for top talent. It’s also old news that a strong benefits program is a good tool to better position an employer in securing or retaining that talented employee. Old news, but both very true.
Let’s be honest, everyone is talking about the same “new” wellness program, initiative, or benefit that virtually everyone else is adding. Boring!
To stand out from the pack, it’s time to talk about something new! Here are five affordable new ideas for you:
1. Protection for student loan debt, in the event of a disability. Does your disability insurance plan provide an additional benefit specifically aimed at helping employees pay student debt when disabled? Disability insurance plans, such as Group LTD, do not provide full income replacement when disabled, making it difficult to pay off student loan debt in the event of a disability. This feature resonates would resonate with most employees and be a crucial feature for occupations that carry heavy student loan debt, such as physicians.
2. Employer-paid Critical Illness Protection for your Executives and valued employees, with amounts up to $100,000 per occurrence. Critical Illnesses such as heart attack, stroke, or even cancer, are some of the leading causes of disability, and can lead to substantial out-of-pocket medical expenses. The traditional critical illness plans offered on a “voluntary” basis typically only provide $10,000 - $30,000 of coverage, depending on the size of the employer. These voluntary plans with small coverage amounts don’t appeal to the highly compensated. However, a plan with $100,000 of benefit, would appeal.
3. Removal of the 24-month Mental, Nervous, Drug and Alcohol (MNDA) limitation from Group LTD and Supplemental IDI plans. Most Group LTD and Supplemental IDI plans limit benefits payments to a maximum of 24-months duration for disabilities caused by mental health conditions (depression, anxiety, bi-polar, schizophrenia as examples), or drug and alcohol related conditions. However, a disability caused by “any other condition” would be eligible to receive benefits payments to age 65 or age 67. Mental health conditions are becoming increasingly prevalent in the US with 1 in 5 adults in the US experiences mental illness in any given year, according to the National Institute of Mental Health. Mental health conditions can significantly affect an individual’s ability to work.
Healthcare professionals and Attorneys are two segments of the workforce particularly at risk for mental health-related disability, including Drug and Alcohol abuse. A study by the American Medical Association (AMA) found that nearly 1 in 3 physicians experience symptoms of burnout and clinical depression. Drug and Alcohol abuse is the top cause of disability claims in the Healthcare and Law Firm segments, accounting for over 17% of claims in these respected industries, according to Unum’s benchmarking data.
With the rising prevalence of mental health conditions, it is more important than ever for Employers to provide Group LTD and Supplemental IDI cover that covers mental, nervous, drug and alcohol (MNDA) related conditions like “any other disability” with full benefit duration protection.
4. Long-Term Care Insurance coverage is the newest “old” hot button. During the mid-1990s thru 2010, the long-term care insurance industry was booming, with the introduction of the Kennedy-Kassebaum federal LTC legislation of 1996. Employers were offering this benefit back then, as the cutting-edge benefit. Insurance carriers, however, underpriced the policies, which led to virtually every major carrier leaving the market due to financial losses. Policies that were sold remained in place, and still honored as required.
The need for long-term care coverage didn’t decrease; but rather has significantly increased since then. Long-term care is the type of care required when an individual is unable to perform 2 of 6 Activities of Daily Living, also known as ADLs (bathing, dressing, transferring, eating, toileting, continence); or suffers from severe cognitive impairment (Alzheimer’s; dementia). Over 50% of Americans will need long-term care services in their lifetime; and 40% of those that need care will do so before age 65. America is aging, and the need for long-term care services will only increase.
Why is long-term care insurance important? The cost of care can easily create financial hardship, if not financially devastate a household.
The cost of care isn’t covered by medical insurance. Medicaid will pay for care but requires that the recipient be essentially impoverished. Medicare will only pay for a short duration and under limited circumstances (3 consecutive days of hospitalization required, followed by long-term care provided in a facility. That leaves the cost of care up to the individual needing care, and leaves savings accounts, investments, retirement savings, and assets such as the home, exposed. Considering the average monthly cost of care in a facility in the Northeast, reaching $12,000/month, and the average claim exceeding 2.5 years, an individual can easily spend $360,000 out-of-pocket on long-term care services in the absence of having a long-term care policy.
To address the long-term care “crisis” and the financial burden being placed on Medicaid as a result, states are introducing “long-term care payroll tax” legislation. Washington State was the first state to enact legislation, effective July 1, 2023, and 19 other states are in the process of exploring, designing, or introducing legislation. The legislation taxes residents who do not own private long-term care coverage. In Washington’s case, the payroll tax is .58/$100. For a person earning $100,000, he/she would pay $580 annual payroll tax. In return, Washington will provide $36,000 of lifetime benefits; insufficient enough to cover the exposure, would be an understatement.
Washington State’s legislation provided an exemption from the payroll tax to residents that own long-term care coverage prior to the legislation’s original intended effective date (November 1, 2021) and filed the appropriate application for exception prior to the deadline. This was a limited time provision, which is no longer available. Today’s long-term care hybrid policies as described below, provide stronger benefits and often at a lower cost compared to the payroll tax.
The good news is that new, more affordable long-term care hybrid insurance protection is available today. Hybrid plans leverage a life insurance policy chassis, with a long-term care benefit feature. These plans provide long-term care benefits; and in the event the long-term care benefit is not needed, will still pay the death benefit. Coverage is offered on a voluntary basis, with guaranteed issue, and is payroll deducted.
With Employers in impacted states being responsible for administering the payroll tax, a long-term care insurance program will be well received by employees as an alternative to the payroll tax, if 1990 – 2010 was any indication of how popular this benefit was.
5. 75% Income Protection of Total Compensation, in the event of a long-term disability (LTD). Most Group LTD plans intend to replace 60% of base salary only. Sixty percent is a superficial percentage adopted by actuaries, insurance companies, employers, and employee benefit consultants years ago.
The original idea behind 60% replacement was to minimize the LTD plan risk by removing any “financial incentive” to file a disability claim. It also minimizes the likelihood of malingering (staying on claim once recovered). The logic does make sense.
But considering that most Americans live paycheck to paycheck when working, a 40% pay cut when disabled is frightening. And it gets worse….
Add to the 40% pay cut, several other common deficiencies in Group LTD plans, and a disabled employee expecting to see 60% of income replaced by the LTD, might only see 20% to 30% replacement. Here’s why:
· Employers typically pay the premium for the Group LTD. While this is great, this results in the benefit being taxed as income, at time of claim. Essentially, an employee expecting to receive 60%, after taxes, would receive 43% assuming a 28% tax bracket.
· Group LTD plans have benefit maximums, capping the monthly amount payable. Highly compensated employees, including Executives, Physicians, Attorneys, or Investment Bankers, might only receive 10-30% replacement due to the plan maximum. This is before taxes being taken out.
· Bonus compensation is not covered by Group LTD plans, 78% of the time. Bonus compensation is becoming a growing part of the American workers compensation package. Protecting bonus compensation in the event of a disability, should be a priority for every Employee Benefit Consultant and Human Resource Benefit Professional.
Are you still not convinced that the Group LTD 60% target replacement threshold provides insufficient protection? The benchmarking data, or peer analysis, is convincing. Over 50% of Fortune 500 Companies, and 68 of the largest law firms (AM Top 100) offer Supplemental Disability Insurance plans, layered on top of the LTD. These plans can provide 75% income protection, protect bonus compensation, increase the monthly benefit maximum, and can be employer-paid, or employee paid.
In the benefits world, the large employers tend to be the “pioneers” and early adopters. Insurance companies first introduce new benefits, technology platforms, or initiatives to employers with over 2,000 employees. With the strong and growing presence of Supplemental Plans in the larger employer space, this benefit offering is becoming a new and popular benefit in mid to small employer space as well.
Navis Benefits Group, LLC is a specialty benefit firm, partnering with employee benefit consultants and employers, to design, market, install, and administer new, creative, and exciting benefit programs. We help employee benefit firm focus on what they do best – health insurance – by serving as their outsourced, turn-key specialty benefits partner.
