Employer-provided short-term, long-term disability benefits at record highs

Employers are quietly providing income protection for a lot more workers.

The percentage of U.S. workers with access to employer-provided long-term disability benefits increased to 38% this year, up from 36% in 2023, and up from 33%, according to new federal Bureau of Labor Statistics employer survey data.

Access to short-term disability benefits has increased to 45%, up from 43% a year earlier and up from 40% 10 years earlier.

How the Bureau of Labor Statistics compiles disability benefits statistics has changed over the years, but U.S. worker access to both short-term and long-term disability benefits appears to be at record highs.

“Group short-term and long-term disability insurance markets are experiencing increased demand and awareness, particularly in the wake of the COVID-19 pandemic,” Mike Estep, president of group insurance at Prudential Financial, said in an interview.

Sales of new plans have been strong, persistency of the plans already in place is strong, and claim trends have been positive, Estep said.

The backdrop: Disability plans protect workers’ most important financial asset: their ability to earn a paycheck.

Related: Why disability insurance matters to caregivers in the workplace

But, traditionally, disability insurers have faced marketing challenges.

Many workers and even employers believe that the Social Security disability insurance program is more generous than it actually is or that workers’ compensation will cover most cases of disability.

State insurance regulators classify disability insurance, but insurers have typically sold it through their life insurance agents or specialized teams that handle a wide range of group benefits, and the product’s status as a product somewhere between life insurance and health insurance may have contributed to its relatively low profile.

The current sales drivers: In addition to a strong labor market, factors contributing to increased group disability access have included employer interest in mental health benefits and state paid-leave laws, Estep said.

Employers want to “create a culture that prioritizes well-being and inclusivity, as well as ensuring compliance and operational efficiency,” Estep said.

Interest rates: Interest rates are much higher now than they were during the “lower for longer” period in the 2010s.

Disability insurers use earnings on bond portfolios to support long-term disability benefits, and that means higher rates can help insurers offer better long-term disability prices.

“But the relationship between the macroeconomic environment and group insurance pricing is not straightforward,” Estep said. “Given that we are generally pricing for multi-year rate guarantees, we need to consider prospective economic conditions.”

An insurer has to consider employment rates and inflation, along with interest rates, when pricing coverage, Estep said.

COVID: One source of uncertainty about future group disability benefits is the COVID pandemic. “The pandemic led to increased cases of mental health conditions due to heightened stress and anxiety,” Estep said.

Many people postponed non-emergency medical procedures and regular check-ups during the early years of the pandemic. “This may have led to worsening health conditions, which could result in a greater need for disability claims as individuals now face those health issues,” Estep said. “The long-term effects of the pandemic on group disability claims are still being evaluated.”