Some 47% of companies required employees to pay all or part of long-term disability insurance in 2011, up from 41% in 2007, according to a survey of close to 2,000 plans by benefits consultant Aon Hewitt. For the most part, companies are still footing the full bill for short-term disability insurance, which typically covers workers' pay for up to six months.
Why would more employers cover short-term disability than long-term?
According to the studies in the article, health-care premiums and paychecks aren't. Given the state of the economy and the financial states of many companies, costs need to be cut in order to retain profits.
ReplyDeleteAlso, knowing that covering long-term disabilities is less cost efficient for employers and noting that predictions show that more than "one in four 20-year-olds today will be disabled for more than three months at some point in their working lives," this is also another reason to cover short term rather than long term disabilities. It doesn't seem fair to the public and the companies employees; however, we're in a time of saving.
Maybe I have a more utopian view, but I disagree very much with rachel's comment that to companies it is not fair, we're in a time of saving.
ReplyDelete1. Companies have a responsibility to their employees, they are the lifeblood of the company, and therefore I do agree that to a certain extent the greatness of one is directly dependent on the other. Without a positive workforce you simply have people going through the motions. Now granted providing STDisabilty Insurance may be expensive, but think of what would happen if yoru top performer got hurt (say he sells 30% of all of your sales) So if you have 5 salesman and your Rev. is 10 million, that is a significant chunk, are you going to leave him out to dry. Further if salesman X is so good (selling 3 million dollars a year) if you don't give him something the next employer is not, he will see the door and find someone who will.
I don't personally believe that companies have a duty, but I do think that many companies only think with their bottom line. To say that we are in a time of saving, I think that we need to put pressure on the banks that got us into this mess and have them open the lines of communication. Open the steam of money that they are borrowing at approx. 0%, and stop scamming people with ballon and APR house finances.
There is a larger supply of workers than demanded, so employers are able to effectively reduce their pay without much backlash. Employers may also believe that potential employees will overlook this aspect of their pocketbooks.
ReplyDeleteNot only has long-term care been an area which most companies try to ignore in the past (41% of companies put all or some of this cost on employees in 2007), but its an area that must be approached cautiously by employers in our current health care environment. Health care costs are not only rising exponentially, but the future of health care is largely unknown after President Obama's health care bill was signed into law. Any employer with more than 50 employees will see their overall healthcare costs jump dramatically unless the bill is repealed (something else that is unknown). Individuals will begin to purchase government sponsored insurance and health care on new 'exchanges.' What exactly this will mean for employees and how it will affect a business's bottom line is entirely known.
ReplyDeleteIn order to shield themselves from these risks, employers are beginning to shift compensation/benefits away from health care. This is not because companies do not care about the long term well being of their people, but they have been forced to approach the topic as pessimistically as possible.
It is unfortunate that the current administration has created this 'health care scare' at the same time our nation is quickly realizing social security needs an overhaul. Not only are employees losing long-term care from their benefits package, these same individuals will likely be the ones to see a drastically reduced amount of social security income when they retire compared to retirees today.
Covering long-term disability insurance appears much riskier for an employer than solely providing short-term disability insurance. However, the frequency with which each of these insurance policies is used by employees has a lot to do with which would be more costly to an employer overall.
ReplyDeleteAs mentioned above and in the article, "Social Security data indicate that more than one in four 20-year-olds today will be disabled for more than three months at some point in their working lives." This doesn't necessarily fall into the "long-term" category, but it is incredibly alarming.
Given this, it seems that, regardless of future employer behavior and coverage levels, employees must seriously consider investing in long-term disability insurance (especially if they are risk-averse or prone to health-related issues). Employers are trying to minimize risk (and liability) on their end as well, which is likely why we see the gradual decrease in their providing coverage.
It is an incentive, in addition to their paycheck, when the employer pays for short term disability. I would think that if you are working for someone and you get hurt, they should definitley take care of you to show they appreciate all the work you did for them. I understand they can't pay for insurance forever and that is why the employee needs to pay for the longterm disability insurance.
ReplyDeleteBecause of a influx amount of workers supplied than demanded, the employers can reduce their pay without any repercussions. I believe this is an added incentive, however when you work for someone, they should take care of you when you get hurt.
ReplyDeleteI think its unreasonable to assume that employers will voluntarily hinge the future profitability and success of their company on a compensation mechanism such as long term disability that has such a high variability in payments and costs. Especially given the current economic constraints many companies find themselves facing,long term disability payments can create a huge risk for companies and their future liquidity.
ReplyDeleteIn times of economic strain, companies choose to cut cost starting from the parts that would be most easily ignored so they can still get away with not having to bear much consequence. However, people may underestimate the significance of this Fringe Benefit, thus creating negative externalities.
ReplyDeleteCompanies can reduce their costs by not covering long-term disability insurance to its employees. I guess the companies are only covering short-term disability insurance just because they still need to have some incentives that could attract workers to their companies. This could happen only when the supply of the workers is greater than the demand of the workers.
ReplyDeleteAs it has been pointed out by many here, long term disability is far too risky for any company right now. Factors that make it a risky decision are the new health care legislation and health risk for employees.
ReplyDeleteI also feel like most reasonable people would accept the decrease in net pay in exchange for the disability coverage, especially if they are single. The average time of disability was surprisingly long. After hearing that, it makes disability seem like a smart place for both employees to invest, and employers to cut back on costs.
It's useful to think of this as whether the workers prefer cash wages or long-term disability. Remember from class that there is a tradeoff-- if companies offer the benefit, their workers won't get as high raises. That's true even if the company is altruistic and is willing to pay workers more than the market wage. If the company is altruistic, it will offer a more valuable total compensation package, but it still has to decide whether workers would benefit more from extra cash or from disability insurance.
ReplyDeleteThis is test.
ReplyDeleteI guess I would think of it on a very simple level. In the short term you know more about your employee’s health than you do in the long term. An employee may become injured at any point in time and there will always be risk involved with employee health and safety. However, as people become older they become riskier and I assume more expensive to insure.
ReplyDeleteI think the cost of long term disability insurance is extremely expensive because the further we go into the future, the more uncertain things are, and the harder it is to calculate an individual's potential earnings.
ReplyDeleteAlso, companies might fear that if they supply long term disability it might incentivize workers to purposefully have accidents in order to receive the life long disability claim. However, if the worker is paying out of pocket it is his money.
A short term disability requires a small amount of payment from the company rather than recurring payments over a period of many years to the employee. Long term insurance is usually more costly and adds uncertainty with a higher amount of risk. For employees it is a stronger incentive to get guaranteed monetary benefits rather than an option of disability insurance benefits which they may not even need or utilize.
ReplyDeleteA lot of this has to do with the state of the economy. Another possible explanation could be the fact that employers do not know who they are hiring. This adverse selection problem would cause employers to give short term benefits because they are not sure about the proneness of becoming disabled. As the employee progresses, however, long term benefits may be deemed unnecessary.
ReplyDeleteA lot of this has to do with the state of the economy. Another possible explanation could be the fact that employers do not know who they are hiring. This adverse selection problem would cause employers to give short term benefits because they are not sure about the proneness of becoming disabled. As the employee progresses, however, long term benefits may be deemed unnecessary.
ReplyDelete