Rethink The Future: The New Normal In Absence And Disability Management

Transcription

1 Rethink The Future: The New Normal In Absence And Disability Management Alex Dumont, Assistant Vice President, Product Marketing 2010 Standard Insurance Company

2 The New Normal Interest rate is the lowest in 200 years Healthcare costs 3 times what it did in Kaiser /HRET survey The Great Recession wiped out 15 years of net worth from the middle class -Federal Reserves Changes in Family Finances from % increase in SSDI applications - SSDI data By 2025, there will be 4 generations in the workforce - US Census Bureau 1 in 5 employees are caregivers to a person over age 50 - Executive Office of The President Council of Economic Advisers Standard Insurance Company

3 Key Drivers Of Future Trends Economy Employees have less money to spend on benefits. Interest rates are lower impacting saving vs. spending. Compressed corporate budgets as consumer spending is muted. Demographics Top heavy structures will change leadership, management and team dynamics. Benefits costs will change significantly. Benefits needs for each generation differ.. Healthcare Healthcare costs will continue to outpace inflation, despite reform. Healthcare vs. ancillary benefits vs. savings. Relevance of disability insurance Standard Insurance Company

4 Family Net Worth Average family: Back to 1995 level Employment: Back to 2005 level Home Prices: Back to 2002 level Economy: Surpassed prerecessionary level Stock Market: Back to 2007 level The Great Recession wiped out 15 years of net worth from the middle class Standard Insurance Company Source: Federal reserves Changes in Family Finances from

5 Family Net Worth Family net worth ($ 000 s) $ percentile percentile ($46K in annual income) ($72K in annual income) $200 $150 $100 $50 $216 $177 $184 $151 $115 $108 $60 $66 $72 $78 $83 $92 $66 $129 $0 Average earnings 1992 $40.4k 1995 $43.5k 1998 $44.6k 2001 $48.9k 2004 $49.8k 2007 $49.6k 2010 $45.8k Standard Insurance Company Source: Federal reserves Changes in Family Finances from

6 The Great Recession Significant Contraction And Job Loss Past Recessions Duration (Months) Peak Unemployment GDP Decline Jobs Lost (1,000) % -1.7% -2, % -2.6% -1, % -3.7% -2, % -1.6% -1, % -0.6% % -3.2% -2, % -2.2% -1, % -2.7% -2, % -1.4% -1, % -0.3% -2, % -5.1% -8,750 Average % -2.3% -2,463 The most severe recession experienced in 60 years, with more jobs lost than in previous four recessions combined Standard Source: Insurance Bureau of Labor Company Statistics - Reported unemployment; Aggregate contiguous periods of negative nonfarm payrolls.

7 Demographics: U.S. Population Greatest Generation Silent Generation Baby Boomers Men Women 2010 Standard Insurance Company 2 3 Source: US Census Bureau 4 5

8 Demographics: U.S. Population Baby Boomers Generation X Generation Y Men Women 2010 Standard Insurance Company 2 Source: US Census Bureau 3 4

9 Demographics: U.S. Population Baby Boomers Generation X Generation Y AO Men Women 2010 Standard Insurance Company 2 Source: US Census Bureau 3 4

10 Trend #1: Baby Boomers Will Stay At Work Longer Impacts Significantly higher healthcare costs. Higher disability risk. Better retention of intellectual capital lower training costs and turnover. Higher salaries, cost structure and possibility of lower productivity high impact on service industry. Top heavy slower career progression for generation Y and less supply of talent when baby boomers ultimately retire Standard Insurance Company

11 Healthcare Cost For Families $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $5,840 $6,438 $7,056 $8,003 $9,069 $9,950 $10,880 $11,481 $12,105 $12,679 $13,375 $13,770 $15,073 $15,073 $4,000 $2,000 $- Significant growth in healthcare costs with greater cost sharing. 11 Source: The Kaiser Family Foundation and Health Research 2010 Standard Insurance Company

12 How Long Will Savings Last In Retirement? Net Assets ($ 000 s) $300 $250 $200 $150 $100 $50 $275 $227 $179 Retiree in 2001 (average net worth = $227k) Retiree in 2012, assets funded to age 73 (average net worth = $179k) Retiree in 2012, assets funded to age 77 (average net worth = $350k) $- $(50) Retirees today will only have assets to fund retirement until age 73 vs. retirees in 2001 with sufficient assets to fund retirement until age 77. The average baby boomer will have to work at least 4 years longer. 12 Assumption: Monthly expenses of $2k, 2% inflation, current interest rate, excludes Social Security 2010 Standard Insurance Company

13 Impact On Healthcare Costs Age Individual Family $7,711 $11, $9,276 $13, $14,237 $21, $22,704 $33,515 Baby boomers working longer will put additional strain on healthcare costs Standard Insurance Company Source: Rates filed with State of Oregon for small groups

14 Trend #1: Baby Boomers Will Stay At Work Longer Impacts Significantly higher healthcare costs. Higher disability risk. Better retention of intellectual capital lower training costs and turnover. Higher salaries, cost structure and possibility of lower productivity high impact on service industry. Top heavy slower career progression for generation Y and less supply of talent when baby boomers ultimately retire. Solutions/Implications Return to work and stay at work initiatives become key programs that enable baby boomers to be productive and help reduce healthcare costs. Wellness programs are key in reducing healthcare costs Standard Insurance Company

15 Trend #2: The Sandwiched Generation Doing More With Less Impacts Doing more with less (salary increases have significantly lagged behind inflation). Fewer upward mobility/ promotional opportunities due to top heavy structures. Growth in number of employees with caring responsibilities. Time and flexibility becomes more valuable than before Standard Insurance Company

16 Finances Of Generations Family net worth ($ 000 s) $200 $150 $100 $95 $165 Age (average earnings = $47k) Age (average earnings = $51k) $118 $50 $42 $ Generation X are more impacted by the Great Recession and cost increases. 16 Source: Federal reserves Changes in Family Finances from Standard Insurance Company

17 FMLA Utilization FMLA utilization rate 20.0% Other 15.0% Maternity Own 10.0% Family 5.0% 7.9% 7.2% 8.6% 10.6% 11.9% 0.0% 3.2% Under % % % % Over 54 The Sandwiched Generation is more likely to utilize FMLA/ leave programs Standard Insurance Company Source: The Standard claims analytics research

18 Trend #2: The Sandwiched Generation Doing More With Less Impacts Solutions/Implications Doing more with less (salary increases have significantly lagged behind inflation). Fewer upward mobility/ promotional opportunities due to top heavy structures. Growth in number of employees with caring responsibilities. Time and flexibility becomes more valuable than before. FMLA and leave utilization will increase significantly (due to need and values). Flexibility will evolve to be a very important employee benefit. Concierge type services will be highly valued. Job rotations will be more prevalent Standard Insurance Company

19 Trend #3: Increased Disability Incidence Impacts Higher disability incidence due to the economy. Impacts Workplace stress has a direct impact on disability and healthcare costs. Significant increases in musculoskeletal claims. Decreases in interest rate will continue to increase disability costs Standard Insurance Company

20 Impact of Workplace Stress LTD Incidence High Growth > 10% Moderate Growth 2% to 10% Stagnant -2% to 2% Moderate Loss -7% to -2% High Loss < -7% Standard Insurance Company Customers exhibiting moderate job growth (2-10%) have the lowest LTD incidence. Source: The Standard claims analytics research

21 Increase By Diagnosis % increase in awards ( ) 50% 40% 47% Increase in awards between % 27% 20% 10% 11% 18% 10% 26% 20% 0% Cancer Heart Injuries Mental Musculoskeletal Nervous System Respiratory Significant increase in Musculoskeletal claims in the past 5 years; currently makes up 32% of all SSDI claims Standard Insurance Company Source: SSDI data

22 Trend #3: Increased Disability Incidence Impacts Higher disability incidence due to the economy. Workplace stress has a direct impact on disability and healthcare costs. Significant increases in musculoskeletal claims. Decreases in interest rate will continue to increase disability costs. Solutions/Implications Investments in early intervention, return to work and stay at work will be key. Long term healthcare and Disability cost implications should be considered during workforce planning. Conversion of ASO to fully insured plans as disability costs will increase due to aging population and interest rate Standard Insurance Company

23 Trend #4: Unintended Consequences Impacts Cost shifting to disability voluntary plans increases healthcare and productivity cost. Enrollment levels are likely to be low; especially given values and economics facing generations X, Y and AO. Savings in total costs will be short term and temporary, with longer term and permanent higher healthcare costs Standard Insurance Company

24 Cost Shifting In Employee Benefits HC Employee Portion HC Employee Portion 20,000 15,000 4,129 4,377 4,377 10,000 5,000 10,944 11,600 11,600 0 Employer paid LTD Total employer cost Increase 2011 $300 $11, $300 $11, % 2012 (Cost Shift) $300 $11, % $300 savings per employee Standard Insurance Company Cost shifting of healthcare inflation by switching from employer paid LTD to voluntary LTD plans.

25 Healthcare Cost For Family # Of Employees The majority of healthcare costs result from a minority of the employees Costs 300 Employees $6, Employees $ Employees $ Employees $18, Employees $54, Employees $203, Employees $440,000 10% of employees (100 employees from 1000 life company) cost 70% of healthcare. 0.5% of employees (5 employees in a 1000 life company) go out on disability Standard Insurance Company

26 Trend #4: Unintended Consequences Impacts Solutions/Implications Cost shifting to disability voluntary plans increases healthcare and productivity cost. Enrollment levels are likely to be low; especially given values and economics facing generations X, Y and AO. Savings in total costs will be short term and temporary, with longer term and permanent higher healthcare costs. Convert voluntary disability plans to employer paid plans. Pursue voluntary plans only if enrollment will high. Build active communication strategies about the need for Disability during benefits orientation or open enrollment Standard Insurance Company

27 The New Normal Key trends due to economy, demographics and healthcare Trend #1: Baby boomers will stay at work longer Trend #2: Sandwiched generation will demand higher flexibility Trend #3: Increased disability incidence due to economy Trend #4: Unintended consequences of increased healthcare costs from cost shifting to voluntary disability plans Standard Insurance Company Key Implications Return-to-work, stay-at-work and wellness programs become key to enabling baby boomers to be productive and control healthcare costs. Demand for FMLA usage and flexibility will continue to increase. Staffing levels will significantly impact disability/ healthcare costs. Disability insurance will become highly relevant in a world of increasing healthcare costs.

28 Questions? 2010 Standard Insurance Company