Upfront: Disability Benefits Offer a Safe Haven

Employees in today's insecure economy -- particularly those in the hard-hit manufacturing sector -- are increasingly finding stable incomes in disability benefits.

A survey of nearly 500 employers conducted by Marsh Inc. and Mercer Human Resource Consulting reveals that one-third of companies have seen short-term disability incidence rates increase over the past two years, and 22 percent have experienced a rise in the use of long-term disability. Only 8 percent of survey respondents reported a decrease in the use of each type of plan. In addition, almost half of respondents said that employees' use of family medical leave has increased, while only 1 percent reported a decrease.

That's significant because in 2002, the total cost of time-off and disability benefits averaged 14.9 percent of payroll, substantially higher than the 13.1 percent of payroll that the average health-benefit program cost. Most of the time-off and disability figure (a total of 10.5 percent of payroll) was generated by scheduled time off, in the form of vacation and holidays. However, unscheduled absences -- including sick leave, short-term disability, long-term disability and workers' compensation -- totaled 4.4 percent of payroll.

Stress and depression are responsible for more disability costs than any other health condition. Obesity, an aging workforce, and the breakdown of social and community institutions all increase the frequency of employee stress and depression, but Dr. William Craig, senior vice president of Marsh Inc. in Chicago, says that vulnerability to job loss can also raise workers' stress levels and lead them to receive disability benefits.

To manage disability costs, companies are doing the following:

1. Integrating short- and long-term disability coverage with one third-party administrator or insurance carrier.

2. Using a single, centralized intake process for reporting occupational and nonoccupational claims.

3. Implementing consistent occupational and nonoccupational return-to-work programs.

4. Discontinuing medical coverage to employees on long-term disability.