Claims Performance and its
Impact on Client Relations
Definition of Disability
Limitations
Definition of Income
Definition of Disability
When does “own occ” duration begin?
CLAIM EXAMPLE:
Monthly Pre-disability earnings….…….$4,000
Plan Design…………60% - $5,000/180 Day EP
24 month own occ
Assume total disability
CARRIER A
CARRIER B
“Own occ” trigger at beginning
of elimination period
“Own occ” trigger at end of
elimination period
RESULT
Own occ duration actually 18 months
(24 months - 6 months EP)
RESULT
TOTAL DISABILITY
BENEFIT……………..…,,,.$2,400
BENEFIT DURATION…..x18 MO
TOTAL LIABILITY……,..$43,200
TOTAL
DISABILITY BENEFIT…….…...$2,400
BENEFIT DURATION……….…x24 MO
TOTAL LIABILITY……………..$57,600
Carrier B pays
$14,400 more
total benefit
Definition of Disability
Is there an “hourly” restriction on how
“own occ” is defined?
CLAIM EXAMPLE:
Monthly Pre-disability earnings….……..…$10,000
Plan Design…..…………60% - $6,000/180 Day EP
Total Disability Benefit…………..………….$6,000
Disabled employee/consultant working an avg. of
60hrs/week, billing clients an average 40hrs.
Disabling condition is a back problem limiting amount
of travel via plane/car resulting in reduced work week
CARRIER A
CARRIER B
Uses 40 hour work week
limitation when defining “own
occ” definition of disability
No limit on “own occ”
RESULT
Employee suffers a loss of duties
and income (30%) as a result of
chronic back condition.
No payment because back condition
doesn’t preclude employee from
performing duties of “own occ”
40 hours/week.
Carrier B pays
$72,000 more
total benefit
RESULT
INCOME LOSS*………..$3,000
PARTIAL DISABILITY
BENEFIT……………..$3,000
BENEFIT DURATION… ..x24
PARTIAL BENEFIT
LIABILITY**……… $72,000
*Benefits beyond 24 months
would be based on 50% earnings
offset formula
**Benefit ignores affect of
indexing
Definition of Disability
What earnings loss is required?
CLAIM EXAMPLE:
Monthly Pre-disability earnings….…….$4,000
Plan Design…………60% - $5,000/180 Day EP
Post-disability Earnings..……………….$2,800
(30% earnings loss)
CARRIER A
CARRIER B
Requires 40% earnings loss
for “Partial” benefit
eligibility
Requires 20% earnings loss for
“Partial” benefit eligibility
RESULT
No benefit payment until earnings
loss equals/exceeds 40%
Carrier B pays
$1,000 more
per month
RESULT
Claimant eligible for:
*First 24 months of the benefit period the
claimant would receive approximately
$28,800 ($1,200 x 24 months)
*After 24 months benefit would be based
on 50% earnings offset formula
TOTAL DISABILITY
BENEFIT……….$2,400 (60% of $4,000)
(-) 50% OF RETURN TO WORK
INCOME……....$1,400 (50% of $2,800)
(=)PARTIAL DISABILITY
BENEFIT………………………...$1,000
TOTAL TAKE HOME
POST DISABILITY EARNINGS…$2,800
PARTIAL DISABILITY BENEFIT.$1,000
TOTAL …………………………….$3,800
Definition of Disability
What is Partial Disability Income Limit?
CLAIM EXAMPLE:
Monthly Pre-disability earnings….………...$4,000
Plan Design…………..…60% - $5,000/180 Day EP
Total Disability Benefit…....60% - $4,000 = $2,400
Post-Disability Earnings…………………….$2,800
CARRIER A
CARRIER B
Imposes 70% “All Sources”
Income Limit. Benefit reduced
when Post-Disability Earnings
plus Insurance Benefit exceeds
70% of Pre-Disability Earnings
For approved rehab claims, the above
example would result in no reduction
in benefit for first 24 months of benefit
period. There after 50% earnings offset would apply resulting in $1,000
benefit ($2,400-$1,400)
RESULT
RESULT
POST DISABILITY
EARNINGS…………… ….$2,800
UNREDUCED
INSURANCE BENEFIT…$2,400
TOTAL INCOME FROM
ALL SOURCES………….$5,200
POST DISABILITY
EARNINGS……………………….$2,800
UNREDUCED INSURANCE
BENEFIT…………………………$2,400
TOTAL INCOME FROM ALL
SOURCES………………………=$5,200
80% ALL SOURCES
LIMIT-80% OF $4,000….$3,200
TOTAL INCOME
EXCEEDS BY…………..$2,000
INSURANCE BENEFIT
REDUCED TO………….$ 400
Carrier B pays
$2,000 more
per month
Definition of Disability
How is Partial Disability Defined?
CLAIM EXAMPLE:
Monthly Pre-disability earnings….………...$4,000
Plan Design…………..…60% - $5,000/180 Day EP
Claimant returning to work in “another” job
working full time and earning $2,500/month
CARRIER A
CARRIER B
Requires loss of time/duties
AND income
Dual definition of disability…loss
of time/duties OR income
RESULT
RESULT
During 24 month Work Incentive Benefit
Period, carrier pays at least $1500/month
($4,000 - $2,500 post disability earnings)
POST DISABILITY
No payment because no loss of
time/duties in “new” occupation.
(May apply only to “any occ’ period.)
AFTER WORK INCENTIVE
BENEFIT PERIOD PAYMENT=
TOTAL DISABILITY BENEFIT….$2,400
(-) 50% OF $2,500 …………………$1,250
TOTAL BENEFIT TO AGE 65..…=$1,150
*Example ignores the effect of indexing
Carrier B pays
$1,150 more
per month
Definition of Disability
How is “Own Occ” defined?
CLAIM EXAMPLE:
Company has locations in Seattle & Fairbanks, AK.
An employee in Fairbanks goes on disability.
Monthly Pre-disability earnings….………...$4,000
Plan Design…………..…60% - $5,000/180 Day EP
24 month own occ plan
Total Disability Benefit…....60% - $4,000 = $2,400
CARRIER A
CARRIER B
Defines “own occ” based on how it
is performed in the National
Economy.
Defines “own occ” based on how
it is
performed in the Local Economy.
RESULT
RESULT
1) Employee either takes relocation
package moves to an urban area and
enters a “rehab” program, or
2) Stays in rural location and receives no
benefit
No relocation required. Disability
benefit is
payable based on “dual definition of
disability..loss of time/duties or income
Carrier B pays
$57,600
more total
benefit
DISABILITY
BENEFIT…….………………...$2,400
DURATION………………x24 months
TOTAL
LIABILITY………………..…$57,600
Definition of Disability
What % earnings offset is used?
CLAIM EXAMPLE:
Monthly Pre-disability earnings….………...$4,000
Plan Design…………..…60% - $5,000/180 Day EP
Post disability earnings…………………….. $2,800
CARRIER A
Uses 70% earnings offset after the
Return to Work Adjustment period.
CARRIER B
Uses 50% earnings offset after the
Return to Work Adjustment period.
RESULT
Greater reduction in Insurance Benefit due
to 70% (rather than 50%) earnings offset
RESULT
TOTAL DISABILITY BENEFIT….$2,400
POST-DISABILITY EARNINGS…$2,800
EARNINGS OFFSE…..……….…… X.70
$1,960
TOTAL DISABILITY
BENEFIT……………………..….$2,400
POST-DISABILITY
EARNINGS…………………...…$2,800
EARNINGS OFFSET…………... X.50
$1,400
INSURANCE BENEFIT
($2,400 - $1,960) …………………..$440
TOTAL EARNINGS
($2,800 + $440) ………………….$3,240
INSURANCE BENEFIT
($2,400 - $1,400) ……………....$1,000
TOTAL EARNINGS
($2,800 + $1,000)………………$3,800
Carrier B pays
$560 more per
month
Limitations
Is “Managed Rehabilitation” a contract
requirement?
CLAIM EXAMPLE:
Monthly Pre-disability earnings….………...$4,000
Plan Design…………..…60% - $5,000/180 Day EP
Total Disability Benefit…....60% - $4,000 = $2,400
CARRIER A
CARRIER B
Contractually includes a Managed Rehab
requirement.
Carrier’s claim dept. feels
claimant has “functional capacity” to
perform material duties with
“reasonable continuity.”
Claimant disagrees and objects to
suggested rehab program.
Does not include a Managed Rehab
requirement. Carrier cannot force disabled
employee to enter into a recommended
rehab program over which they have
exclusive control.
Carrier can retain contractual right to deny
claim payment.
RESULT
DISABILITY BENEFIT…….…...$2,400
DURATION…………………x24 months
TOTAL LIABILITY……………..$57,600
RESULT
NO BENEFIT PAYMENT
Carrier B pays
$57,600 more
total benefit
Limitations
Is there an offset with Military Pension
or Individual Disability Plans?
CLAIM EXAMPLE:
Monthly Pre-disability earnings….………...$8,000
Plan Design…………..…60% - $5,000/180 Day EP
Individual Monthly Disability………………$3,000
Military Pension Monthly Benefit………….$2,000
Assume Total Disability
CARRIER A
CARRIER B
Offsets Group Disability Benefit with
Individual Disability Benefit or Military
Pensions
Does not offset Group Disability Benefit
with Individual Disability Benefit or
Military Pensions
RESULT
RESULT
TOTAL DISABILITY
BENEFIT…..………………....$4,800
(-) INDIVIDUAL DISABILITY
PLAN…………………………$3,000
(-) MILITARY PENSION……. $2,000
TOTAL BENEFIT…………….$100
TOTAL DISABILITY
BENEFIT……..$4,800
*Claimant receives full disability benefit
($4,700/month more than Carrier A)
Carrier B pays
$4,700 more per
month
Limitations
Does the contract have a “Self Reported
Self Diagnosed” symptom
limitation?
CLAIM EXAMPLE:
Monthly Pre-disability earnings….………...$4,000
Plan Design…………..…60% - $5,000/180 Day EP
Assume Total Disability, claimant age 52 totally
disabled to Age 65 due to Chronic Back Fatigue
CARRIER A
CARRIER B
Includes a Self Reported Symptoms
limitation of two years.
Does not include Self Reported
Symptoms limitation of two years
RESULT
RESULT
Pays total disability benefit for two
years
Pays claim to age 65
TOTAL DISABILITY
BENEFIT…..………………....$2,400
DURATION……….………24 months
TOTAL LIABILITY…………$57,600
TOTAL DISABILITY
BENEFIT…..………………....$2,400
DURATION………………156 months
TOTAL LIABILITY…..……$374,400
Carrier B pays
$316,800 more
than Carrier A
Limitations
Does the contract include “Prudent
Person Pre-ex” language?
CLAIM EXAMPLE:
Coverage Effective date………….January 1, 1999
Monthly Pre-disability earnings….………...$9,000
Plan Design…………..…60% - $5,000/3/12 pre-ex
Employee is aware of but doesn’t treat major back
problems-December 1998. Employee ruptures a disk
while skiing February 1999. Employee files total
disability claim immediately.
CARRIER A
CARRIER B
Includes “Prudent Person Pre-ex”
language
Does not include “Prudent Person
Pre-ex” language
RESULT
RESULT
Claim could be denied due to the fact that
any “prudent” person would have
received treatment, advice or service
due to the back condition. Therefore,
this could be considered pre-existing.
Assuming claimant meets definition of
disability:
DISABILITY BENEFIT…….…...$5,000
DURATION…………………x24 months
TOTAL LIABILITY…..………$120,000
Carrier B pays
$120,000 more
total benefit
Definition of Income
Does the contract include clerical
misstatement protection?
CLAIM EXAMPLE:
Monthly Pre-disability earnings….………...$4,000
Plan Design…………..…60% - $5,000/180 Day EP
Reported pre-disability earnings…………...$3,600
Employer fails to report annual salary increases prior
to filing of LTD claim
CARRIER A
Includes “As last reported in writing
by employer” language in definition of
income.
RESULT
CARRIER B
Includes “Clerical Misstatement”
protection and doesn’t use “as last
reported language in definition of
income”
Benefit based on $3,600 of monthly
payroll reported
RESULT
Benefit based on Actual (not reported)
income:
DISABILITY BENEFIT
(60% - $3,600) ……….…….…...$2,160
DURATION…………………x24 months
TOTAL LIABILITY…..………...$51,840
DISABILITY BENEFIT
(60% - $5,000) ……….…….…...$2,400
DURATION…………………x24 months
TOTAL LIABILITY…..………..$57,600
Carrier B pays
$5,760 more
total benefit
*Assuming claims duration of 24 months,
Carrier B pays an additional $5,760
Definition of Income
Does Definition of Income Exclude
401k/Flex Contributions or 125
Deductions?
CLAIM EXAMPLE:
Gross Pre-disability earnings….….………...$4,000
Net pre-disability income
(assuming $500/month for 401K & Flex)…$3,500
Plan Design…………..…60% - $5,000/180 Day EP
Assume Total Disability & 24 month Claim
duration
CARRIER A
CARRIER B
Bases benefit on “Net” Monthly Income
Bases benefit off of “Gross” Monthly
Income
RESULT
RESULT
DISABILITY BENEFIT
(60% of $3,500) ……….…….…...$2,100
DURATION…………………..x24 months
TOTAL LIABILITY…..…………$50,400
DISABILITY BENEFIT
(60% of $4,000) ……….…….…...$2,400
DURATION…………………..x24 months
TOTAL LIABILITY…..………….$57,600
Carrier B pays an additional $7,200
Based on what earnings level are your
clients paying premium?
Questions?
Which carrier
do you want to
pay your
disability
claims?