Many of you
are currently working or will go on to work
as Disability Management professionals for a workplace insurance
organization. Whether you work as a Case
Manager for workers’ compensation system,
a client services representative for a transport-accident personal-injury
insurance, a claims administrator for a non-occupational disability insurance
plan, or a return-to-work specialist for a third-party administrator, you will
face the disability insurance “trust gap”.
You know the
primary concerns of your clients; after health and care needs, “How will I
support myself (and my family)?” is the priority.
Injury,
illness, and disability have significant costs and impacts on earnings. According
to recent media report, "More than half of Canadians $200 away or less from not
being able to pay all of their bills" [see CTV News, More than half of Canadians $200 away or less from not being able to pay all of their bills, at https://www.ctvnews.ca/business/more-than-half-of-canadians-200-away-or-less-from-not-being-able-to-pay-all-of-their-bills-1.6473939 ] .
Without the financial protections of work-related, group, and
non-occupational disability insurance, many would quickly reach insolvency.
Complicating
interactions are pervasive attitudes and beliefs about insurance. Whether it’s property, casualty, disability,
motor vehicle or workers’ compensation, trust in insurance is low. Skepticism and misconceptions about insurance
are pervasive. Getting beyond this
starting point will always be a challenge for those who play a role in the
process. We’ll get to what you can do
later. For now, let’s examine why the
disability insurance trust gap exists in the first place.
Lack of Trust
in Insurance
Most people
participating in the workforce have some sense that disability insurance plans
are necessary and valuable. Most
understand the basic idea of insurance; in exchange for a specified premium,
the insurer assumes the financial risk associated with certain (rare but costly)
defined events. Most working people
trust in the premise of disability insurance, but doubt the promise
that insurers actually pay in the event of a qualifying loss.
The trust
gap is not unique to the disability insurance sector. According to one recent report, less than 30% of people surveyed had a
positive opinion of the insurance industry, with 53% having had a negative
experience. [See Peter Littlejohns, New survey
from The Geneva Association shows underinsurance is fuelled by mistrust, NS
Insurance, 26 June 2019 available at https://www.nsinsurance.com/analysis/the-geneva-association-survey/ ]
This level
of trust in insurance is reflective of the broader financial services
sector. The percent trust in the
financial services sectors (57) has repeatedly trailed the trust index listing
of fifteen industries, well behind other sectors including healthcare (67), education (70), and technology (78). [See 2019 EDELMAN TRUST BAROMETER Global Report
available at https://www.edelman.com/sites/g/files/aatuss191/files/2019-02/2019_Edelman_Trust_Barometer_Global_Report.pdf ]
The
challenge of insuring disability
Disability
insurance plans are big—an attribute rarely associated with trust. “Big
tobacco”, “big government”, and “big oil” are almost pejorative terms echoing
generalized distrust of big institutions.
Disability insurance
plans must be big, at least big enough to accurately assess the risk of and actuarily
determine the costs of covering rare, costly events. Each of us faces the risk of a disabling
injury, condition, or disease; quantifying and insuring risk is only possible when
those individual risks are pooled across larger groups or population. That ability to quantify risk and price the
cost of coverage is the important “value add” of all disability insurance.
Being big does
carry real challenges. Monopolistic disability insurance providers
(particularly national, jurisdictional, and state social insurance plans) lack
competitive pressures of free market models.
Even where the provision of disability insurance is competitive, the
market is dominated by a few, very large insurers. The economies of scale and efficiency of being
big do not eliminate the risk of market failures; without objective,
transparent disclosure and oversight, the perception of distance and
unresponsiveness tends to accumulate over time.
A “Big” institution
of any sort is often painted as uncaring, impersonal, and even dehumanizing. Public social insurance plans like US Social
Security Disability Insurance (SSDI) and Canada Pension Plan Disability (CPP-D)
are often singled out in this regard [For example, see American Progress, How
Dehumanizing Administrative Burdens Harm Disabled People, 5 December 2022
available at https://www.americanprogress.org/article/how-dehumanizing-administrative-burdens-harm-disabled-people/ ].
As noted,
disability insurance plans and programs must be large to be actuarially viable.
When disability insurance plans are working as designed, funds to cover losses
and administration will be there when they are needed. And that’s exactly what
happens, most of the time. Disability
insurers collect a lot of money and earn a lot of return on investments, but
nearly all those funds collected and gains earned are paid out in entitlements, benefits, and
administration.
Those big
dollar amounts often make headlines.
Unfunded liabilities or surpluses attract public scrutiny and media criticism.
Outrage at necessary increases in premiums or demands for refunds to insurance
payers or increased to beneficiaries often dominate the public discourse. Current and future beneficiaries worry about
sustainability of the disability payments on which they depend. Some of this lack of trust is rooted in a
lack of understanding of disability insurance financing.
Big public
and private disability insurers tend to be financially stable over time. Periods of excess claim costs, lower premium
income, and inadequate investment revenue can result in occasional imbalances—where
the funds on hand are not sufficient to meet needs. Unfunded liability and surplus positions may
persist for some time but tend to return to a balanced, sustainable level over the
long run.
As an
industry, property and casualty insurance is profitable for shareholders
(private insurance) or financially balanced for stakeholders (public, mutual,
state funds). The disability insurance
line of workers’ compensation insurance in the US, for example, has had eight
years of underwriting profitability. [see Donna Glenn (chief actuary), State
of the Line Report, NCCI Insights, 18
May 2023 available at https://www.ncci.com/Articles/Pages/Insights-AIS2023-SOTL.aspx ]
Denial
rates in Disability Insurance reinforce
low trust perception
Apprehensions
about disability insurance are often reinforced by press reports accentuating
insurer errors, social media stories amplifying egregious cases, and disability
lawyers asserting disability insurers deny benefits just to maximize profits.
Behind the
hyperbole and exaggeration, legitimate concerns underpin insurance apprehensions.
Initial applications for disability are not always accepted. The “acceptance” and “denial” rates vary with
the disability insurance type; however, criticisms tend to be categorical,
citing or implying high denial rates across all disability insurance plans (including
workers’ compensation, social insurance, group and individual plans, and transportation
accident disability insurance).
To be
clear, the denial rates for initial applications for many disability insurance types
are high. US
Social Security Disability Insurance (SSDI) applications from workers are often
denied. The final award rate for SSDI
averaged just 31% (2010-2019) [See Social Security Administration, Annual Statistical Report on the Social
Security Disability Insurance Program, 2020, Chart 11 at https://www.ssa.gov/policy/docs/statcomps/di_asr/2020/ ]
Canada
Pension Plan Disability (CPP-D) has a similarly low acceptance rate with the
national average was 43 percent for the 2014–15 fiscal year. [See Auditor
General for Canada, Report 6—Canada Pension Plan Disability Program,
2015, available at https://www.oag-bvg.gc.ca/internet/English/parl_oag_201602_06_e_41063.html]
Workers’
compensation denial rates are not consistently defined, similarly calculated,
or widely reported. Oregon reports its
jurisdiction’s workers' compensation “Disabling Claim Denial Rate” at 10%
(2022), down steadily from a high of 18.8% (1992). [See Oregon Department of
Consumer and Business Services, Workers’ Compensation System, Workers’ Compensation
Claims Administration table available at https://www.oregon.gov/dcbs/reports/compensation/pages/wc-claims.aspx]
WorkSafeBC
reports a different but related statistic based on claims “Disallowed” as a
proportion of claims reported. At
6.3%(2022) this measure sits near the low end of a ten-year range that has been
as high as 8.7%(2015). [See WorkSafeBC, 2022 Ten-year summary of consolidated
financial statements — Smoothed or funding basis, available at https://www.worksafebc.com/en/resources/about-us/annual-report-statistics/2022-annual-report/2022-ten-year-summary-consolidated-financial-statements ]
Research
has shown a relationship between denial rates and claims-filing behavior in
workers’ compensation cases. Higher denial rates were found to be associated
with lower claim-filing rates for some injuries. This was particularly true for
back injuries where the relationship was statistically strong and significant. [see Jeff Biddle, Do High Claim-Denial Rates
Discourage Claiming? Evidence from Workers Compensation Insurance, The Journal
of Risk and Insurance, Vol. 68, No. 4 (Dec., 2001), pp. 631-658]
Reasons for
denials
Insurers
must make certain they live up to their specific side of the insurance promise. Coverage is for specified perils only. Disability Insurers must be certain every
applicant meets qualifying and coverage criteria before determining
entitlement. In the case of workers’
compensation, for example, the applicant must be an insured worker within the
definition of the law or policy in force; because workers’ compensation
insurance covers work-related injury and disease, the nexus between work and
the harm leading to disability must be established. If these criteria are met, the workers’
compensation insurer can then assess the extent of the loss, if any, and
compensate the loss accordingly.
It would be
incorrect to simply view denied claims as either a reflection of heartless
bureaucracies or a reasonable outcome of attempts by social insurance or
workers’ compensation to guard against fraud, abuse or misuse. The most common reasons for claims being
rejected, denied or disallowed relate to issues of coverage, qualification and
eligibility.
Insurers do deny some claims wrongly. Errors are made; we know that cases are overturned on appeal due to errors in law or judgement. We also know that decisions take time; we also know that long delays are harmful. Headlines about disability insurance denials are often sensational but the reasons are not always clearly explained; media reports often omit key facts or over-simplify the issues while privacy rules prevent full-throated clarification by insurers explaining their actions.
The
language of insurance
The trust
gap is even reinforced by insurance terminology. The technical language of disability insurance
itself perpetuates negative perceptions. While “claimant” is a neutral term to
insurers, in common parlance it has a negative connotation. “Claimant” implies a
person has a contestable position and an onus to substantiate their
“claim”. It’s not just cynicism. In everyday interactions, we learn to treat
those “making a claim” with caution and
their “claim” with skepticism.
In everyday
conversations, we typically ask a person
making a claim to provide some evidence.
In disability terms, that ask is really an onus—typically placed on the
disabled applicant. That legal-sounding
language is inherent in all disability insurance types.
All
disability insurance demand evidence to consider in any application for
benefits. For insurance where causation
is important, the standard of proof may
be as low. For many workers’
compensation systems, the “work-relatedness”
need only meet the “balance of probabilities” standard; others require a
higher standard such as work having been the “predominant cause”.
For most
group-LTD and social insurance, the question is less focused on “causation” and more on “disability”.
The onus for providing proof of disability typically rests with the
applicant but is often mediated by the healthcare profession. Questions of access to healthcare and the
challenges of timely diagnosis and treatment are major barriers that can impede
access to disability benefits. Failure
to provide required evidence may result in applications for benefits being
suspended or denied.
Why do disability
insurers insist on applications to other disability insurers?
“Why bother
claiming benefits from X when they will just reduce what I get from Y?” Many disabled employees face this
question. The existence of multiple and
sometimes overlapping disability insurance types drives the apparent high
denial rates in social insurance and likely in some workers’ compensation
systems as well.
The largest
group LTD insurer in the US is Cigna. The
Group Long Term Disability application form [500469 Rev. 11/14 available at https://www.cigna.com/static/www-cigna-com/docs/individuals-families/5004692.pdf ] for benefits includes the following:
Have you applied for Social Security Benefits? Yes No
If yes, please attach a copy of your Social Security notice for you and your dependents or a copy of your Social Security Denial. If you have not applied, please do so as soon as possible.
Cigna also
asks if the applicant is receiving or eligible for workers’ compensation, veterans’
benefits, no fault auto and other benefit plans. In many cases, an affirmative response may
reduce the amount payable under the group LTD coverage.
Where the
benefits from a social insurance plan or workers’ compensation payment “offset”
group LTD benefits, there is no advantage to the worker to claim both and no
incentive to appeal a negative decision.
There is, however, a very clear advantage to the insurer if some other
insurer is the “first payer”. Where
there is some stacking (partial integration or offsetting) of benefits, there
is a clear financial incentive for disability insurance to press applicants to pursue
coverage from all possible insurers.
Insurance principles generally preclude a person from being better off financially
on disability insurance benefits than if working.
What can be
done about this trust gap?
The reality
of the disability insurance trust gap makes the job of case managers and other
disability management professionals more difficult. The attitudes and beliefs applicants bring with
them may not be easily ameliorated; how benefit and rehabilitation people
interact on an individual basis can overcome the trust deficit. That’s the focus of Part 2.
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