Devastating injury and illness loom increasingly larger in Americans’ lives. Most US households need two incomes to get by. Combined with a Social Security system tottering on the edge of bankruptcy, adequate disability coverage is now more crucial than ever.

Although disability insurance is nothing new, several factors have emerged during recent years that have heavily affected the disability insurance industry. These factors have forced insurers to fill bigger than ever before:

Chronic disease: Modern-day medical advances allow employees with serious illnesses such as multiple sclerosis to rejoin the workforce for satisfying, productive careers. In the face of recent legislation like the Americans with Disabilities Act, employers must make reasonable accommodations for such workers.

Economic recession: Meanwhile, employers must do more with less. Smaller staffs must perform more functions. Consequently, employer-sponsored group coverage dynamics have changed radically. Fewer employees mean higher group coverage costs.

Longer Life spans: More people are delaying retirement, thus creating an older workforce. This demographic shift has forced employers to find the ideal balance between the benefits of older workers’ greater experience and correspondingly higher insurance costs.

Providers of disability group coverage have taken the following steps to accommodate these shifting social and economic trends:

• Chronic disease management programs
• Participation incentives for weight-loss, stress management, and smoking cessation programs
• Employee assistance programs such as crisis or nutritional counseling
• In-person and online health coaching
• Integrated health and disability insurance programs.

This last step cuts insurer costs by streamlining healthcare services delivery and facilitating effective preventive measures.

A CIGNA 2007 study revealed that integrated plan enrollees receiving short-term disability benefits were much more likely to return to work than non-integrated plan enrollees.

Social Security Administration studies conducted in 2004 and 2005 revealed significantly decreased revenues. Increased benefit payments to aging Baby Boomers was cited as the primary causative factor. Projections indicate that this deficit will increase in years to come.

The lesson is clear. Take full advantage of ancillary services of employer-sponsored programs. The self-employed or those without employer-sponsored coverage must maintain adequate coverage through private insurers.

A May 31, 2011, report by Zacks Investment Research revealed solid 2011 first-quarter earnings for most major health insurers. This is purportedly the third consecutive year of exceptional economic gains for the health insurance industry.

The market analyst firm attributed such ongoing health insurer profitability to several key factors. Chief among these were higher enrollment in health plans, widespread internal overhauls by insurers, and decreasing regulatory-related losses.

On the Right Side of the Law

Encouraged by recent health care legislative reform, Americans are apparently no longer foregoing or postponing needed medical treatment. This has resulted in much higher health plan utilization and correspondingly higher insurer revenues. Projections portend stabilized levels of increased healthcare utilization until 2012.

The recently enacted Health Care Reform Act (“HCRA”) is at the heart of all this increased marketplace activity. Effective as of this year, the HCRA mandates insurer maintenance of medical loss ratios of at least 80 percent for small group and individual health coverage. The new law requires a minimum ratio of 85 percent for larger commercial group policies. Medical loss ratio denotes the percentage of premium income that insurers must allocate to providing actual health care services.

A Banner Year

2011 portends to be a year of tremendous makeovers among major health insurance providers. Carriers must respond to a new regulatory climate, ongoing cost issues, and increasing consumer demands. This confluence of factors has forced insurers to re-examine their roles within the healthcare industry.

For instance, mandatory coverage for everyone, irrespective of pre-existing health problems has presented a major challenge for insurers. These phenomena are expected to temporarily decrease insurer profits for the next few years. Overall revenues are projected to re-stabilize with subsequent increased employment and consumer discretionary spending, however.

America’s aging population is also expected to fuel health insurance industry growth. Geriatric patients constitute a high-need segment of the market for healthcare services.

Combining Forces

Currently, several major health insurer consolidations are at various stages of fruition. Insurers are combining resources in an effort to cut operating costs and maximize profitability. UnitedHealth Group and WellPoint have both acquired several new subsidiaries during the last half-decade. Similar alliances are slated for the near future as much stronger leveraging power with pharmacies, physicians, and hospitals yield the desired results.