Two Forces on the Group LTD Rate: Mental-Health Claims and the Discount Rate

On June 5, 2025, House members introduced the Workers' Disability Benefits Parity Act, H.R. 3758, which would amend ERISA to bar group disability plans from limiting mental-health and substance-use claims more strictly than physical ones. The target is a provision standard in long-term disability contracts for decades: a 24-month cap on benefits for mental-health conditions, one of the most powerful severity controls in the product. For the pricing actuary the bill is a marker that the two assumptions doing the most work in a group LTD rate, claim incidence and the reserve discount rate, are both moving at once, and neither is moving in the carrier's favor. LIMRA reported workplace disability premium down 5 percent through the first nine months of 2025, to about $3 billion, with long-term disability new premium off 6 percent, so the rate has to absorb rising claim pressure in a market already buying less of the cover.

-6%

Year-over-year change in US long-term disability new premium through the first nine months of 2025, per LIMRA.

June 2025

Introduction of H.R. 3758, which would end the 24-month mental-health limitation by requiring parity with physical claims.

74%

Share of new disability premium written by the top 10 carriers over the first three quarters of 2025.

The Two Levers That Move the LTD Rate

A group long-term disability rate is built from four components an actuary estimates in sequence. Claim incidence is the probability that an insured becomes disabled and files. Continuance, the inverse of the claim termination rate, governs how long an open claim stays open through recovery, death, or reaching the benefit-period limit. The benefit itself, usually 60 percent of pre-disability earnings to a monthly maximum, fixes the payment. And the reserve discount rate sets how much the carrier must hold today against payments that may run for years or decades. Multiply incidence by the present value of expected continued payments, load for expenses, offsets, and profit, and that is the rate.

Of those four, two carry most of the volatility in any repricing. Claim incidence moves with the workforce, the economy, and the conditions that qualify, and it has been drifting up as mental-health and musculoskeletal claims grow. The reserve discount rate moves with interest rates, and because disability is a long-tail liability, a small change in the rate moves the reserve and the required premium more than its size suggests. The benefit is contractual and the continuance assumption changes slowly, so in 2026 the pricing story is mostly the interaction of incidence and the discount rate, and the legal status of the lever that has long held incidence-driven severity in check.

Claim Incidence and the 24-Month Mental-Health Limitation

Musculoskeletal disorders are the most common cause of long-term disability claims, with mental-health conditions such as depression, anxiety, and post-traumatic stress disorder among the other leading causes, and both categories have been a growing share of incidence. Carriers have managed the severity of the mental-health portion through a contractual lever rather than through the rate alone: most group LTD policies cap benefits for mental-health conditions at 24 months, so a claim that would otherwise pay to retirement age terminates after two years. That limitation, standard across the industry for decades, is a major reason the mental-health claim category has been priceable at all, because it converts an open-ended severity exposure into a bounded one.

H.R. 3758 would remove that lever. Building on a 2023 ERISA Advisory Council report titled Long-Term Disability Benefits and Mental Health Disparity, the bill would prohibit disability plans from applying duration limits to mental-health and substance-use claims that are more restrictive than those applied to physical conditions, which would effectively extend mental-health benefits from the 24-month cap to the full benefit period. The bill is early in the legislative process, sitting in committee, so it is a risk to monitor rather than a certainty to price. But it changes the question an actuary has to ask about the mental-health incidence trend. Under the cap, rising mental-health claims raise severity by a bounded amount; without it, the same claims pay potentially for decades, and the continuance assumption for the mental-health block would have to be rebuilt against long-duration physical-claim patterns the carrier has never observed for these diagnoses. Pricing the trend now means deciding how much weight to give a regime in which the cap no longer exists.

The Discount Rate on a Long-Tail Reserve

The second lever is the reserve discount rate, and the 2026 interest-rate environment makes it genuinely two-sided rather than the simple tailwind or headwind it has been in other years. A disabled-life reserve is the present value of expected future benefit payments on an open claim, discounted at an assumed rate, and those payments can extend for ten, twenty, or more years on a younger claimant. A lower discount rate raises the reserve and the premium needed to fund it; a higher rate lowers both. Through the recent past, elevated long yields have actually helped, holding reserves down relative to the low-rate decade that preceded them.

What complicates 2026 is the shape of the move rather than the level. The ten-year Treasury yield reached about 4.67 percent in late May 2026, near its high for the year, after falling to roughly 3.94 percent in late February, while the Federal Reserve's own projections pointed to only a couple of quarter-point cuts spread across late 2026 and early 2027, and markets pushed even those back amid sticky inflation. The yield curve rose and flattened over the year. For a pricing actuary, that combination is awkward: short-rate cuts may be coming while long yields, which discount a long-tail disability claim, sit high and uncertain. Lock in today's elevated long rate as the reserve and investment-return assumption and a subsequent decline leaves the block underfunded for its full run-off; price conservatively to a lower assumed rate and the premium is uncompetitive against carriers willing to bank the current yield. The discount-rate assumption is no longer a quiet input; it is an active bet on a rate path that the central bank and the market do not agree on.

Own-Occupation, Continuance, and Return to Work

The continuance assumption deserves its own attention because it is where pricing and claims management meet. Group LTD contracts typically define disability as inability to perform the insured's own occupation for an initial period, often 24 months, then shift to an any-occupation standard for the remainder of the benefit period, and that definitional pivot is a built-in claim-termination mechanism that the continuance assumption has to reflect. A richer own-occupation definition or a longer own-occupation window raises both incidence and continuance, and a carrier that competes by loosening the definition is changing the loss cost, not just the marketing. Return-to-work programs, vocational rehabilitation, and offset provisions for Social Security disability and other income work the other direction, pulling claims off the books earlier and improving continuance.

Group size and participation feed the credibility of all of this. A large employer with high participation generates enough exposure to credibility-weight its own incidence and continuance experience; a small group does not, and its rate leans on the carrier's manual and industry tables. The post-pandemic morbidity question sits underneath the whole continuance assumption, because deferred care, long-COVID sequelae, and the musculoskeletal consequences of changed work patterns could lengthen claim durations in ways the pre-2020 termination tables do not capture. An actuary who carries the old continuance assumption into a book whose morbidity has shifted will under-reserve the open claims and under-price the new ones.

A Softening Sales Market Sharpens the Tradeoff

All of this is being priced into a market that is contracting on the top line. LIMRA reported total workplace disability premium down 5 percent through the first three quarters of 2025 to about $3 billion, with long-term disability off 6 percent, and the top ten carriers writing roughly 74 percent of new premium, a concentration that intensifies price competition among the largest writers. Employers facing inflation and a softening economy are re-examining the breadth of their benefit offerings, which pressures both the volume and the richness of the cover sold.

A shrinking, concentrated market is where pricing discipline is hardest and matters most. The temptation is to defend volume by holding the rate flat against an incidence trend that is rising and a discount-rate assumption that may prove optimistic, which writes the inadequacy into multi-year contracts that are slow to reprice. The carriers that hold a defensible line will be the ones that have separated the two big levers explicitly: an incidence-and-continuance view that does not assume the 24-month mental-health cap survives indefinitely, and a discount-rate assumption set against the uncertainty of the rate path rather than the convenience of today's high long yield. Disability has always been a quietly technical line. In 2026 the two assumptions that have always driven it are both in motion, and the rate has to be built as though it knows that.