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

Rethink The Future: The New Normal In Absence And Disability Management Alex Dumont, Assistant Vice President, Product Marketing. The New Normal. Interest rate is the lowest in 200 years. The Great Recession wiped out 15 years of net worth from the middle class

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

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  1. Rethink The Future: The New Normal In Absence And DisabilityManagement Alex Dumont, Assistant Vice President, ProductMarketing

  2. The NewNormal Interest rate is the lowest in 200years The Great Recession wiped out 15 years of net worth from the middleclass -Federal Reserves “Changes in Family Finances from2007-2010” Healthcare costs 3 times what it did in1999 - Kaiser /HRETsurvey By 2025, there will be 4 generations in the workforce - US CensusBureau 38% increase in SSDIapplications - SSDIdata 1 in 5 employees are caregivers to a person over age50 - Executive Office of The President Council of EconomicAdvisers 2

  3. Key Drivers Of FutureTrends Demographics Economy Healthcare Top heavy structures will change leadership, management and team dynamics. Healthcare costs will continue to outpace inflation, despitereform. Employees have less money to spend on benefits. Interest rates are lower – impacting saving vs. spending. Healthcare vs. ancillary benefits vs.savings. Benefits costs will change significantly. Compressed corporate budgets as consumer spending ismuted. Relevance of disability insurance. Benefits needs for each generation differ.. 2

  4. Family NetWorth Average family: Back to 1995level HomePrices: Back to 2002level Employment: Backto 2005level StockMarket: Back to 2007level Economy: Surpassed pre- recessionary level The Great Recession wiped out 15 years of net worth from the middleclass. Source: Federal reserves “Changes in Family Finances from2007-2010” 4

  5. Family NetWorth Family networth ($000’s) 40-59.9 percentile ($46K in annualincome) 60-79.9 percentile ($72K in annualincome) $250 $216 $200 $184 $177 $151 $150 $115 $108 $129 $100 $92 $60 $66 $72 $78 $83 $50 $66 $0 1992 $40.4k 1995 $43.5k Averageearnings 1998 $44.6k 2001 $48.9k 2004 $49.8k 2007 $49.6k 2010 $45.8k Source: Federal reserves “Changes in Family Finances from2007-2010” 4

  6. The Great Recession– Significant Contraction And JobLoss The most severe recession experienced in 60 years, with more jobs lost than in previous four recessionscombined. Source: Bureau of Labor Statistics - Reported unemployment; Aggregate contiguous periods of negative nonfarmpayrolls. 6

  7. Demographics: U.S. Population -1980 85+ 80-84 75-80 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 26-29 20-24 15-19 10-14 5-9 0-4 Greatest Generation Silent Generation Baby Boomers 0 1 2 3 4 Men Women 5 Source: US CensusBureau 7

  8. Demographics: U.S. Population -2010 85+ 80-84 75-80 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 26-29 20-24 15-19 10-14 5-9 0-4 Baby Boomers GenerationX GenerationY 0 1 2 3 Men Women 4 Source: US CensusBureau 7

  9. Demographics: U.S. Population -2025 85+ 80-84 75-80 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 Baby Boomers GenerationX GenerationY 5-9 0-4 AO 0 1 2 3 Men Women 4 Source: US CensusBureau 9

  10. Trend#1: Baby Boomers Will Stay At WorkLonger Impacts • Significantly higher healthcarecosts. • Higher disabilityrisk. • Better retention of intellectual capital – lower training costs andturnover. • Higher salaries, cost structure and possibility of lower productivity – high impact on serviceindustry. • Top heavy – slower career progression for generation Y and less supply of talent when baby boomers ultimatelyretire. 10

  11. Healthcare Cost ForFamilies $15,073 $16,000 $13,770 $13,375 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $- $12,679 $12,105 $11,481 $15,073 $10,880 $9,950 $9,069 $8,003 $7,056 $6,438 $5,840 Significant growth in healthcare costs with greater costsharing. Source: The Kaiser Family Foundation and HealthResearch 11

  12. How Long Will Savings Last InRetirement? NetAssets ($000’s) $300 $275 $250 $227 $200 $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) $150 $100 $50 $- $(50) • 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 • Retirees today will only have assets to fund retirement until age 73vs. • retirees in 2001 with sufficient assets to fund retirement until age77. • The average baby boomer will have to work at least 4 yearslonger. Assumption: Monthly expenses of $2k, 2% inflation, current interest rate, excludes SocialSecurity 12

  13. Impact On HealthcareCosts Baby boomers working longer will put additional strain on healthcarecosts. Source: Rates filed with State of Oregon for smallgroups 13

  14. Trend#1: Baby Boomers Will Stay At WorkLonger Impacts Solutions/Implications • Significantly higher healthcarecosts. • Higher disabilityrisk. • Better retention of intellectual capital – lower training costs and turnover. • Higher salaries, cost structure and possibility of lower productivity – high impact on serviceindustry. • Top heavy – slower career progression for generation Y and less supply of talent when baby boomers ultimatelyretire. • 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.

  15. Trend #2: The Sandwiched Generation Doing More WithLess Impacts • Doing more with less (salary increases have significantly lagged behindinflation). • Fewer upward mobility/ promotional opportunities due to top heavystructures. • Growth in number of employees with caring responsibilities. • Time and flexibility becomes more valuable thanbefore.

  16. Finances OfGenerations Family networth ($000’s) Age 35-44 (average earnings = $47k) Age 45-54 (average earnings =$51k) $200 $165 $150 $95 $118 $100 $50 $42 $- 2001 2004 2007 2010 Generation X are more impacted by the Great Recession and costincreases. Source: Federal reserves “Changes in Family Finances from2007-2010” 16

  17. FMLAUtilization FMLA utilizationrate 20.0% Other Maternity Own Family 15.0% 10.0% 7.9% 7.2% 8.6% 10.6% 5.0% 11.9% 3.2% 4.9% 0.0% 3.4% 2.2% 1.8% Under25 25 -34 35 -44 45 -54 Over54 The Sandwiched Generation is more likely to utilize FMLA/ leaveprograms. Source: The Standard claims analyticsresearch 17

  18. Trend #2: The Sandwiched Generation Doing More WithLess Solutions/Implications Impacts • Doing more with less (salary increases have significantly lagged behindinflation). • Fewer upward mobility/ promotional opportunities due to top heavy structures. • Growth in number of employees with caringresponsibilities. • Time and flexibility becomes more valuable thanbefore. • FMLA and leave utilization will increase significantly (due to need and values). • Flexibility will evolve to be a very important employeebenefit. • Concierge type services will be highly valued. • Job rotations will be moreprevalent.

  19. Trend #3: Increased DisabilityIncidence Impacts • Higher disability incidence due to the economy. • Workplace stress has a direct impact on disability and healthcarecosts. • Significant increases in musculoskeletal claims. • Decreases in interest rate will continue to increase disabilitycosts.

  20. Impact of WorkplaceStress LTD Incidence HighGrowth Moderate Growth Stagnant Moderate >10% HighLoss Loss 2% to10% -2% to2% -7% to-2% <-7% Customers exhibiting moderate job growth (2 - 10%) have the lowest LTDincidence. Source: The Standard claims analyticsresearch 20

  21. Increase ByDiagnosis % increase inawards (2005-2010) 50% Increase in awards between2005-2010 47% 40% 30% 27% 26% 20% 18% 11% 20% 10% 10% 0% Cancer Heart Injuries Mental Musculo- skeletal Nervous System Respiratory Significant increase in Musculoskeletal claims in the past 5 years; currently makes up 32% of all SSDIclaims. Source: SSDI data 21

  22. Trend #3: Increased DisabilityIncidence Solutions/Implications Impacts • Higher disability incidence due to theeconomy. • Workplace stress has a direct impact on disability and healthcare costs. • Significant increases in musculoskeletalclaims. • Decreases in interest rate will continue to increase disabilitycosts. • Investments in early intervention, return to work and stay at work will bekey. • 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.

  23. Trend #4: UnintendedConsequences Impacts • Cost shifting to disability voluntary plans increases healthcare and productivitycost. • Enrollment levels are likely to be low; especially given values and economics facing generations X, Y andAO. • Savings in total costs will be short term and temporary, with longer term and permanent higher healthcarecosts.

  24. Cost Shifting In EmployeeBenefits HC – EmployeePortion HC – EmployeePortion 20,000 4,377 4,377 4,129 15,000 10,000 11,600 11,600 10,944 5,000 0 $300 savings per employee Cost shifting of healthcare inflation by switching from employer paid LTD to voluntary LTDplans.

  25. Healthcare Cost ForFamily # OfEmployees The majority of healthcare costs result from a minority of theemployees Costs 300 Employees 250 Employees 250Employees $6,400 $1000 $500 100 Employees 80Employees $18,000 $54,000 10 Employees 10Employees $203,000 $440,000 10% of employees (100 employees from 1000 life company) cost 70% ofhealthcare. 0.5% of employees (5 employees in a 1000 life company) go out ondisability. 25

  26. Trend #4: UnintendedConsequences 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 andAO. • Savings in total costs will be short term and temporary, with longer term and permanent higher healthcarecosts. • Convert voluntary disability plans to employer paidplans. • Pursue voluntary plans only if enrollment will high. • Build active communication strategies about the need for Disability during benefits orientation or open enrollment.

  27. The NewNormal • Key trends due to economy, demographics andhealthcare • Trend#1: Baby boomers will stay at worklonger • Trend#2: Sandwiched generation will demand higherflexibility • Trend#3: Increased disability incidence due toeconomy • Trend#4: Unintended consequences of increasedhealthcare • costs from cost shifting to voluntary disabilityplans • KeyImplications • 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 toincrease. • Staffing levels will significantly impact disability/ healthcarecosts. • Disability insurance will become highly relevant n a world of increasing healthcarecosts.

  28. Questions?

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