The 2018 U.S. Group Disability Market Survey covers employer-paid and employee-paid short-term disability and long-term disability insurance products, and includes an analysis of premiums, cases, and covered lives from new sales and in-force business in 2017 and 2018. In total, 25 disability insurance companies contributed to the 2018 survey. Milliman’s Jennifer Fleck and Paul Correia provide more perspective in this paper.
The overall spending on life and disability benefits is significantly less than the costs for healthcare coverage. But a little focus there can often lead to real savings on these products along with greater employee satisfaction.
Benefits managers don’t have to wait until a renewal at the end of a rate guarantee to review the program’s experience. Performing reviews on an annual basis can ensure that there are no surprises.
Benefits managers should consider rate comparisons, quality of service received, and integrated leave management options as well as disability and life insurance specific considerations.
In this article, Milliman’s Jennifer Fleck discusses in more detail what employers should consider when group disability and life insurance benefits come up for renewal.
The disability trust fund is now expected to be depleted in 2032 instead of 2028. This is primarily due to the assumption of lower disability applications and other underlying assumption changes since last year.
According to projections, assuming no legislative changes, only 83% of disability income benefits would be payable after the trust fund is depleted. The projection also shows that the trust fund balance begins to fall in 2019. That means that starting next year, the total cost of the disability income program exceeds the total income on the program, including interest.
Cutting benefits could have substantial impacts to group insurers that would likely need to increase claim reserves for future benefit payments on their policies. Lower Social Security Disability Insurance (SSDI) benefits would mean lower benefit offsets and thus higher long-term disability benefit payments.
Buried within the new amendment to the tax code, the Tax Cuts and Jobs Act, is a provision to allow employers to take a tax credit for providing paid family and medical leave for their employees. The United States is the only developed nation that does not offer paid leave for employees to care for family members. This new provision is a small step to try to fill that gap.
Starting in 2018, employers can now take an additional tax credit for part of the wages that are paid to employees taking qualified leaves. However, the provision is currently set to terminate at the end of 2019, which may make some employers think twice about whether this is the right time to begin offering paid leave. This article will lay out the provisions of the new credit and provide thoughts on how employers can offer this benefit to their employees. Milliman does not provide tax advice, and the commentary provided in this article should not be construed as such. Companies are encouraged to seek tax or legal counsel before pursuing any particular tax strategy.
Who is covered?
An employer is eligible for a tax credit for eligible paid family and medical leave benefits paid to an employee who has been employed by the employer for one year or more and who earned less than 60% of the “highly compensated employee” limit under § 414(q)(1)(B) in the prior year. That means, for 2018, this credit will only apply to employees who made less than $72,000 in 2017. That doesn’t mean that an employer should exclude its higher-paid employees from this benefit, just that the benefits paid to higher-paid employees will not be eligible for the tax credit.
What types of leaves are covered?
In order to receive this tax credit, the program must cover the same types of leaves as those covered under the Family and Medical Leave Act of 1993. These leaves may be taken for the following reasons:
• Birth of a child
• Adoption or fostering of a child
• To care for a spouse, child, or parent with a serious health condition
• The employee’s own serious health condition
• A qualifying exigency arising out of the fact that a spouse, child, or parent is on (or called to be on) active duty in the armed forces
• To care for a member of the armed forces or a veteran (with service in the past five years) with a serious injury or illness who is the employee’s spouse, child, parent, or next of kin
However, if the leave is provided as vacation leave, personal leave, or medical or sick leave (other than for one of the reasons above), then the leave does not qualify for the paid family and medical leave tax credit.
What amount of benefit needs to be provided?
A benefit amount between 50% and 100% of wages must be provided for at least two weeks in order for the employer to receive the tax credit. The tax credit is only available on the first 12 weeks of benefit paid in a year. Appropriate
adjustments are made for part-time employees.
How to determine the amount of the credit?
The amount of the paid family and medical leave tax credit is a sliding scale that increases from 12.5% to 25% of the amount of benefits paid to qualifying employees. The amount varies based on the percentage of the wages that are being replaced. The applicable percentage used to determine the tax credit is 12.5% increased by 0.25% for each percentage point that the rate of payment exceeds 50%. The table in Figure 1 is an example of how the tax credit works for an employee earning $1,000 per week and various options for the percentage of wages being replaced while on leave.
Does this credit apply to employers in states that mandate paid family leave already?
This tax credit doesn’t apply to state-mandated leaves. The regulation says that any leave that is paid by a state or local government or mandated by a state or local government shall not be taken into account when determining the amount of paid family and medical leave provided by the employer. Currently California, New Jersey, New York, and Rhode Island have mandated paid family and medical leave programs in place. In addition, Massachusetts, Washington, and Washington D.C. have passed leave legislations and will have mandated programs in place in the next few years.
Considerations in deciding to offer a paid family and medical leave program
If an employer decides to begin offering paid family and medical leave to its employees, it has a few decisions to make. The first decision is whether to insure the plan with an insurance company or to self-insure the benefit. If it decides to self-insure, it then will also need to decide if it wants to administer the plan on its own or if it wants to use a third party administrator (TPA).
The decision of whether to insure or not depends on the employer’s risk tolerance and cash flow availability. Taking into account the employee demographics, an estimate of expected claims costs and expenses can help an employer make the right decision for itself.
Milliman has assisted numerous clients in evaluating whether or not to adopt a paid family and medical leave program for their employees. Claims costs, expenses, and other risk considerations are all important items to review before implementing a new program. The interaction of the new plan with an existing leave program is often an important consideration as well. For example, the way that employees transition from a short-term disability maternity claim to a new child family leave should be carefully thought through from both the employee and the employer perspectives. In our experience, it is not only the cost of the program but also the employee’s experience, which are both important considerations.
Milliman recently released the results of its 2017 U.S. Group Disability Market Survey, a comprehensive report that analyzes the short- and long-term disability (STD/LTD) market, including sales and in-force business.
In total, 25 disability insurers representing over 90% of the market contributed data to the survey, which provides analysis of premiums, cases, and covered lives in 2016 and 2017 for all participating companies. The report ranks participating companies by both STD and LTD in-force premium and new sales totals, and offers insight into current trends in the group disability market.
We’re continuing to see strong growth in the marketplace despite consolidation among U.S. group disability insurers. And while the market consolidation may have played a factor in poorer performance for some insurers in 2017 compared to previous years, overall new sales for STD and LTD markets are up by a combined 7.3%.
Survey highlights include:
• Combined STD and LTD in-force premium for participants was approximately $16.7 billion in 2017 compared with $16.0 billion in 2016.
• STD new sales premiums saw an 8.5% increase from 2016 to 2017, while LTD new sales premiums increased by 6.6%.
• Unum, Lincoln Financial Group, and Cigna retained the top three spots for new STD sales premium in 2017. Unum, The Hartford, and MetLife took the top three spots for new LTD sales premium.
• Average STD premium per life increased by 0.9% for in-force business, and by 2.0% for new sales; average LTD premium per life increased by 2.7% for in-force business and by 3.3% for new sales.
Copies of the full report are only available to participating companies. For a summary of results, click here.
The group life and disability insurance sector has been slower to adopt predictive analytics than other lines of insurance. One reason for the sector’s lag is because insurers often have limited information on who they are insuring. However, there are still many ways to incorporate predictive modeling technology to improve results. Milliman consultant Jennifer Fleck provides some perspective in her article “Group insurance ‘Project Insight’.”
Required cookies help make a website usable by enabling basic functions like page navigation and access to secure areas of the website. The website cannot function properly without these cookies.
Analytics & Performance Cookies
Analytics cookies are used to collect information about how visitors use our site. The information gathered does not identify any individual visitor and is aggregated. It includes the number of visitors to our site, the sites that referred them to our site and the pages that they visited on our site. We use this information to help operate our site more efficiently, to gather broad demographic information and to monitor the level of activity on our site. Performance cookies are used to enhance the performance and functionality of our services but are non-essential to their use. However, without these cookies, certain functionality like videos may become unavailable.
These cookies are used when you share information using a social media sharing button or “like” button on our sites or you link your account or engage with our content on or through a social networking site such as Facebook, Twitter or Google+. The social network will record that you have done this. This information may be linked to targeting/ advertising activities.