Long-term Disability Insurance Research Articles

Canada’s varying approach to compensating disabled Reserve Force members and Veterans since 1866

LAY SUMMARY This article examines the different levels of liability Canada has assumed for disabled serving military members and Veterans from 1866 to 2020. Throughout Canada’s history, the first consideration for financial compensation has been the enrolment component of the casualty, that is, Regular, Reserve, or Special Force. Since 1883, disabled serving Regular Force members have received full pay and benefits while recovering from service-related injuries. Whether through the Militia Act, the Pension Act, long-term disability insurance, or the current Veterans Well-being Act (VWA), disabled Regular Force Veterans received financial compensation based on lost earnings. Before 1914, Canada’s military was a predominantly part-time militia, and if a member was disabled or killed due to a service-related injury or illness, lost civilian earnings and family circumstances were considered in financial compensation. From the First World War until the 1970s, serving reservists were eligible for military pay and benefits while recovering from service-related injuries. Currently, subject to an investigation clearing them of fault or malfeasance, they may apply for an allowance equivalent to military pay with no benefits. Between 1919 and 1999, the government accepted less and less liability for disabled Reserve Force Veterans until recent changes to Veterans benefits legislation incrementally improved this.

Prediction of Maternity Recovery Rate of Group Long-Term Disability Insurance Using XGBoost

To help insurers determine insurance rates incorporating maternity factors, it is crucial to understand the maternity recovery rate, which was a metric used by insurance companies to understand how much of the expenses associated with maternity care and related medical services are covered by their policies. This paper employed Extreme Gradient Boosting (XGBoost), a powerful method for handling complex data relationships and preventing overfitting, on North American Group Long-Term Disability dataset obtained from the Society of Actuaries, which listed maternity as one of its categories, to predict the maternity recovery rate. In comparison, other machine learning methods such as Gradient Boosting Machine (GBM) and Bayesian Additive Regression Tree (BART) were used, with Root Mean Squared Error (RMSE) values calculated the difference between predicted and observed maternity recovery rates. Four datasets, 3 imbalanced and 1 fairly-balanced, were created out of the original dataset to test each method’s predictive prowess. The study revealed that XGBoost performed exceptionally well on the imbalanced datasets, while BART showed slight superiority in fairly-balanced data. Furthermore, the model identified the duration, exposures, and age of participants in both predicting maternity recovery rates and the underwriting process.

BAYESIAN ADDITIVE REGRESSION TREE APPLICATION FOR PREDICTING MATERNITY RECOVERY RATE OF GROUP LONG-TERM DISABILITY INSURANCE

Bayesian Additive Regression Tree (BART) is a sum-of-trees model used to approximate classification or regression cases. The main idea of this method is to use a prior distribution to keep the tree size small and a likelihood from data to get the posterior. By fixing the tree size as small as possible, the approximation of each tree would have a little effect on the posterior, which is the sum of all output from all the trees used. Bayesian additive regression tree method will be used for predicting the maternity recovery rate of group long-term disability insurance data from the Society of Actuaries (SOA). The decision tree-based models such as Gradient Boosting Machine, Random Forest, Decision Tree, and Bayesian Additive Regression Tree model are compared to find the best model by comparing mean squared error and program runtime. After comparing some models, the Bayesian Additive Regression Tree model gives the best prediction based on smaller root mean squared error values and relatively short runtime.

Optimal long-term contracts with disability insurance under limited commitment

We study an optimal long-term labor contract that provides disability insurance benefits under two frictions: the agent cannot commit to a long-term contract and the disability shock is private information. We predict that a job with a high risk of disability should provide a higher level of salary but with a lower growth rate over time. We find that the optimal contract can be implemented under a three-account trading system in which mandatory savings can be imposed to discourage a worker from falsely claiming disability. We also investigate how the nature of disability shock has an impact on the optimal contract: a larger borrowing limit should be given to a worker with a high severity of the disability shock or a low arrival intensity. Finally, our quantitative analysis shows that the cost caused by current long-term disability insurance practice can be substantial.

Receiving Long-Term Disability or Pursuing a Legal Claim May Prevent Recovery From Chronic Dizziness.

Chronic dizziness (CD) and imbalance have multiple etiologies. CD is strongly linked with psychiatric and psychological comorbidities, thus an interdisciplinary approach, including psychopharmacological interventions, is recommended. Despite the use of this comprehensive treatment approach, the recovery of individuals with CD that pursue long-term disability (LTD) insurance or legal claims (LC) appears hampered. As such, we aimed to compare symptom recovery from CD in an interdisciplinary setting between patients receiving LTD/LC versus those who were not, and to explore the factors that may contribute to changes in symptom severity. Retrospective cohort study. Dizziness-related diagnoses were extracted from the charts of 195 adults in an outpatient interdisciplinary neurotology clinic in Toronto, Canada. Patients with baseline Dizziness Handicap Inventory (DHI) and Dizziness Catastrophizing Scale (DCS) assessments between August 2012 and July 2018 and a mean follow-up visit within approximately 10 months were included. The study participants were categorized as "LTD/LC+" (n=92) or "LTD/LC-" (n=103), referring to either receiving or pursuing LTD/LC or not, respectively. There were differences in the mean percentage changes in DHI (t[187]=3.02, P=.003) and DCS (t[179]=2.63, P=.009) scores between LTD/LC+ and LTD/LC- patients. LTD/LC+ patients showed 8.0% and 7.6% mean increases in DHI and DCS scores, respectively, whereas LTD/LC- patients showed 21.5% and 25.9% reductions in DHI and DCS scores, respectively, controlling for age, sex, and baseline illness severity. Patients receiving or pursuing LTD insurance or a legal claim did not improve from CD and dizziness catastrophizing compared to those who were not. Future studies are required to test these findings prospectively and to determine the factors that may contribute to symptom recovery, including the anxiety-aggravating effects of the LTD/LC process and the deleterious consequences of developing a sick-role while afflicted with a chronic illness. 3 Laryngoscope, 132:655-661, 2022.

Prospect theory and insurance demand: Empirical evidence on the role of loss aversion

This paper empirically tests if prospect theory's loss aversion can explain an individual's real-world insurance take-up behavior. Using American Life Panel data, this paper shows that loss-averse individuals have a significantly lower ownership rate of private long-term care insurance and supplemental disability insurance than other sample populations. The results are consistent with the prospect theory, which predicts that loss-aversion may decrease insurance demand if an individual's reference points are “the status quo wealth level when they do not engage in insurance contracts.” This paper also provides suggestive evidence that reference points are important in determining the relationship between loss-aversion and insurance ownership by showing that the negative association is not observed in the take-up of auto insurance, which is one of the most widely held insurance products and often regarded as a basic necessity.

How Demographic Change Will Drive Benefits Design

This paper examines the implications of an aging labor force and its changing composition for worker demand for employer-sponsored benefits. We estimate age- and gender-specific probabilities of participation among workers offered 401(k) plans, health insurance, and short- and long-term disability insurance using data from the Survey of Employee Benefits Supplement to the April 1993 Current Population Survey. We find that older women at all tenure levels, and older men in new jobs, are more likely than middle-aged employees (ages 35-44) to hold balances in 401(k) plans. For both men and women, older workers' demand for employer-sponsored health insurance is substantially stronger than that of middle-aged workers in plans that offer retiree insurance. Finally, men ages 45-54 are more likely than their middle-age counterparts to elect short-term disability insurance, while men nearing retirement are less likely to opt for long-term disability coverage. Based on these findings, we predict that the increasing proportion of women in the labor force, and an aging labor force overall, will increase demand for savings vehicles such as 401k plans and for health insurance with provision for retiree insurance. Demand is also likely to increase for short-term disability coverage, but to decrease for long-term disability.

Optimal Insurance Contracts with Limited Commitment and Unobservable Disability

We study a continuous-time model of an optimal long-term labor contract with a randomly arriving disability shock under two frictions: the agent cannot commit to a long-term contract and can falsely claim disability. We provide the explicit solution and analyze the optimal contract by using an optimal stopping approach. We show that the optimal contract can be implemented under a three-account trading system, which has different features from systems in the literature that are generated under only one of the two frictions. By using the three-account system, we investigate how the arrival intensity of the disability shock and the level of disability severity have an impact on the optimal contract. Finally, we also perform a quantitative analysis on the firm’s cost from providing inefficient contracts caused by the current long-term disability insurance practice.

Using Predictive Analytics for Early Identification of Short-Term Disability Claimants Who Exhaust Their Benefits.

Purpose Early interventions can help short-term disability insurance (STDI) claimants return to work following onset of an off-the-job medical condition. Accurately targeting such interventions involves identifying claimants who would, without intervention, exhaust STDI benefits and transition to longer-term support. We identify factors that predict STDI exhaustion and transfer to long-term disability insurance (LTDI). We also explore whether waiting for some claims to resolve without intervention improves targeting efficiency. Methods We use a large database of STDI claims from private employer-sponsored disability insurance programs in the United States to predict which claims will exhaust STDI or transition to LTDI. We use a split sample approach, conducting logistic regressions on half of our data and generating predictions for the other half. We assess predictive accuracy using ROC curve analysis, repeating on successive subsamples, omitting claims that resolve within 2, 4, and 6weeks. Results Age, primary diagnosis, and employer industry were associated with the two outcomes. Rapid attrition of short-duration claims from the sample means that waiting can substantially increase the efficiency of targeting efforts. Overall accuracy of classification increases from 63.2% at week 0to 82.9% at week 6 for exhausting STDI benefits, and from 63.7 to 83.0% for LTDI transfer. Conclusions Waiting even a few weeks can substantially increase the accuracy of early intervention targeting by allowing claims that will resolve without further intervention to do so. Predictive modeling further narrows the target population based on claim characteristics, reducing intervention costs. Before adopting a waiting strategy, however, it is important to consider potential trade-offs involved in delaying the start of any intervention.

Régime général des accidents du travail et maladies professionnelles. Autres droits issus du code de la Sécurité sociale. Contentieux général et technique

Applicable to employees and to other beneficiaries, legislation on occupational accidents and diseases is complex, especially because the definitions of “consolidation” and “prior state” differ from those applicable in common law. In this paper, we detail the compensation for occupational accidents and illnesses in order to clarify the place of mental disorders in this system. Then, after recalling the notions of long-term disability and long-term sickness insurance, we specify the general and technical litigations.

Moral Hazard and Advantageous Selection in Private Disability Insurance

We analyze asymmetric information in private long-term disability insurance. Using the elimination period as a measure of coverage, we examine the correlation between risk and coverage. With a unique dataset including both group and individual insurance, we are able to disentangle moral hazard and selection in individual insurance by using group insurance as a control group.Our results provide evidence of moral hazard and advantageous selection in the individual private long-term disability insurance market. Furthermore, we can identify residential location as a source of advantageous selection. Thus, we provide guidelines for policymakers and insurers on the presence of asymmetric information in disability insurance and on future attempts to reduce it.

An analysis of private long-term disability insurance access, cost, and trends

An analysis of private long-term disability insurance access, cost, and trends

Transitioning From Medicaid Disability Coverage to Long-Term Medicare Coverage: The Case of People Living With HIV/AIDS in California.

Medicaid can serve as a bridge to Medicare coverage for the long-term disabled with sufficient covered work experience. We perform multinomial logistic regression on 2007-2010 Medicare and Medicaid claims data to examine transitions to Medicare for people living with HIV/AIDS (PLWHA) in California who had Medicaid coverage in 2007. We find only 16% had obtained Medicare coverage by 2010. African-Americans, women, individuals with schizophrenia diagnoses, alcohol or substance abuse disorders, and any physical comorbidity were significantly less likely than others to obtain Medicare (p < 0.001). This study contributes new information on the impact of eligibility requirements for Medicare long-term disability insurance for PLWHA. About one-third of PLWHA under age 65 are covered by Medicaid. Many PLWHA get stuck in Medicaid because their disability prevents them from obtaining the additional employment experience needed to qualify for Medicare.

Beyond the Genetic Information Nondiscrimination Act: ethical and economic implications of the exclusion of disability, long-term care and life insurance.

The Genetic Information Nondiscrimination Act (GINA) was intended to protect individuals in the USA from discrimination based on their genetic data, but does not apply to life, long-term care or disability insurance. Patient advocates and ethicists have argued that GINA does not go far enough. Others express concerns for the viability of insurance companies if millions of potential customers know more than professional actuaries. Here we discuss the exclusion of certain insurance types from GINA. We explore the ethical and economic implications of this distinction, and potential paths forward. We suggest that because long-term care and disability insurance can be essential for well-being, there is no good reason to place them in a class with life insurance and therefore beyond GINA's reach.

Social Insurance and Health

This chapter reviews the existing empirical evidence on how social insurance affects health. Social insurance encompasses programs primarily designed to insure against health risks, such as health insurance, sick leave insurance, accident insurance, long-term care insurance and disability insurance; and programs that insure against other risks, such as unemployment insurance, pension insurance and country-specific social insurance. These insurance systems exist in almost all developed countries around the world. This chapter discusses the state-of-the art evidence on each of these social insurance systems, briefly reviews the empirical methods for identifying causal effects, and examines possible limitations to these methods. The findings reveal robust and rich evidence on first-stage behavioral responses (moral hazard) to changes in insurance coverage. Surprisingly, evidence on how changes in coverage impact beneficiaries' health is scant and inconclusive. This lack of identified causal health effects is directly related to limitations on how human health is typically measured, limitations on the empirical approaches and a paucity of administrative panel data spanning long-time horizons. Future research must be conducted to fill these gaps. Of particular importance is evidence on how these social insurance systems interact and affect human health over the lifecycle and in the long-run.

Estimating the Value of Public Insurance Using Complementary Private Insurance

The welfare associated with public insurance is often difficult to quantify. Relative to private insurance, a fundamental difficulty is that public insurance is typically compulsory, so the demand for coverage is unobserved and thus cannot be used to analyze welfare. However, in many public insurance settings, individuals can purchase private insurance to supplement their public coverage. In this paper, we outline an approach to use data and variation from private complementary insurance to quantify welfare associated with several counterfactuals related to compulsory public insurance. Using administrative data from one large firm on employee long-term disability insurance, we then apply this approach empirically to quantify the value of disability insurance among this population. We use premium variation among the employer-provided disability policies to quantify the surplus that would be generated by increasing the replacement rate of disability insurance for our sample population ― a counterfactual that is within the set of insurance contracts observed in this setting. In addition, we estimate a lower bound on the surplus generated by public disability insurance in this context. Our findings suggest that public disability insurance generates substantial surplus for this population, and there may be gains to increasing the generosity of coverage in this context.

Moral Hazard and Advantageous Selection in Private Disability Insurance

We analyze asymmetric information in private long-term disability insurance. Using the elimination period as a measure of coverage, we examine the correlation between risk and coverage. With a unique dataset including both group and individual insurance, we are able to disentangle moral hazard and selection in individual insurance by using group insurance as a control group.Our results provide evidence of moral hazard and advantageous selection in the individual private long-term disability insurance market. Furthermore, we can identify residential location as a source of advantageous selection. Thus, we provide guidelines for policymakers and insurers on the presence of asymmetric information in disability insurance and on future attempts to reduce it.

Improving Employeess Life and Disability Insurance Benefit Decisions: Results of an Employer Survey

The group benefits landscape is changing dramatically. The menu of available options has expanded, employers are paying for fewer benefits, and the responsibility for selecting the right benefit package has been increasingly left to the employee. However, very little is known about how individuals select their insurance benefits packages, if their selections are optimal for their circumstances, or what employers can do to encourage them to select the optimal benefit package. In this changing landscape, it is important to determine identify: (1) What are current employer practices and their resulting take-up and coverage patterns?; (2) Which practices influence employees’ selections?; and (3) What can employers do to make their employees’ selections closer to their optimal choices? The current study is the third in a series conducted by the Center for Retirement Research (CRR), in partnership with Prudential Financial Inc., to examine these questions. The first study utilizes in-depth interviews to find that, despite the similarities between life and long-term disability insurance products, decision processes vary dramatically (Coe and Belbase 2012). Individuals understand the need for life insurance, but they have a hard time determining how much insurance is necessary. The need for disability insurance is even less clear – disability incidence and the insurance product are not well understood and prone to behavioral biases – and it is infrequently purchased. The second study uses an online experiment to identify behavioral-economics-based interventions that affect life and disability insurance participation and coverage levels (Coe, Belbase, and Wu 2013). The results suggest that simple, personally relevant information, provided at the time of enrollment, can nudge individuals to overcome behavioral impediments and elect more optimal life and disability insurance coverage. Unlike the first two studies, which focused on the employee’s decision, the present study examines group benefits from the employer’s perspective. Data on employer practices, benefit information, and aggregate employee characteristics are obtained through a firm-level survey conducted by the Society for Human Resource Management. Survey results are used to describe the landscape of employer practices with respect to supplementary life and disability insurance and to investigate correlations between employer practices (such as cross-advertising group benefits with health insurance) and employee take-up.

How Do People Decide on Life Insurance and Long-Term Disability Insurance Coverage?

The group benefits landscape is changing dramatically. The menu of available options has grown; employers are paying for fewer benefits; and the responsibility for selecting the benefit package has been increasingly left to the employee. However, unlike in the pension world, very little is known about how individuals select their benefits packages, if their selections are optimal for their situations, or what employers can do to encourage the optimal benefit package selection. In this changing benefit landscape, it is important to determine three things: (1) What are current employer practices and their resulting take-up and coverage patterns?; (2) Which practices influence employees’ selections?; and (3) What can employers do to make the employees’ selections closer to the employees’ optimal choices?This first analysis allows us to peer into the black box of employee decision-making and identify what behavioral finance concepts are at play in the group benefits arena. Using information from 24 in-depth telephone interviews, we gain important insight into how employees determine whether to buy supplemental life and supplemental long-term disability insurance, how they decide how much to buy, what they liked and understood from their employer’s presentation, and what features might make these insurance benefits more appealing to the individual.

Disability: A Threat to Long-TermFinancial Security Is Growing More Seriousin a World of Increasing Individual Responsibility

Disability poses a serious threat to the financial security of disabled persons both before and after retirement. Most Americans grossly underestimate their vulnerability to disability, and do not appreciate the impact it can have on their well-being when retired. Fewer than one in three American workers are covered by employer-sponsored longterm disability (LTD) insurance. The decline of the defined benefit pension plan has made matters worse. While defined benefit plans often included some disability protection and were coordinated with LTD coverage, defined contribution (DC) plans generally include no provision to protect retirement security in the event of disability. This article explains several problems related to disability protection that arise with DC plans and long-term financial security. It proposes both public policy reforms aimed at increasing the coverage and adequacy of disability insurance as well as steps that employers and financial planners could take to improve coverage and adequacy for their employees and clients.