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Plan Provisions Allow You To Control Costs, Payout

We discussed some of the cost-controlling plan provisions over on the the basic LTD plan provisions page -- waiting period, benefit percentage and amount, and benefit duration.

And on the Definition For Disability Plans page, we talked about mental and nervous conditions, alcohol and substance abuse, and other fairly common contract limitations.

Often the carrier will "slip them in" without your knowledge, but you can also choose to include them to reduce costs or avoid subsidizing behavior you disapprove of.

Here, we plan to talk about "intermediate-level" contract provisions. Again, the carrier may include them, or they may be optional and left to your discretion.

Yes, there is an "advanced-level" page, too.

Common limitations, old and new

So, what are some of the limitations you should expect? The first and most common might be the definition of "earnings." Many group long-term disability plans exclude commissions and bonuses. Check your benefits booklet; your employees may only be covered for their base salaries. Was that an oversight? Hopefully not!

In addition, most group contracts impose some limitations on specific conditions. For example, almost all limit the benefit period for disability from alcohol or substance abuse.

Likewise, most also impose a limit on benefits paid for mental and nervous conditions. Unless hospital confined, carriers usually won't pay benefits for more than two years -- some carriers, only one year.

Most HR managers, CFOs and CEOs know about those limits because they're pretty standard. But there are newer, less-known provisions that even many brokers don't know or understand.

For example, self-reported illnesses. What are those? Well, soft tissue (muscle) problems like back pain. Ringing in the ear. Chronic fatigue syndrome. Migraine headaches. Seasonal Affective Disorder.

These are all (often) legitimate illnesses that can be debilitating for the affected person, but they have one thing in common: there's no way to prove they exist. A clever malingerer can milk an insurance company dry. So some carriers put a two-year limit on benefits for those illnesses.

Some carriers go a step further with claims for muscular/skeletal problems. In many cases they limit the benefits to two years even when there's an identifiable cause to the disability. It knocks 5-10 percent off the price, but it puts a limit on some people's benefits.

Remember that the purpose of most of these limits is to allow each employer the ability to keep costs under control by not covering conditions that might prove too costly. Problems only arise when those contract provisions are "slipped in" without anyone's knowledge.

Some other limits are real doozies. For example, every contract has a "pre-existing conditions limitation" clause. This only affects new plans or new employees joining the plan. It says the person won't be covered for any conditions s/he already suffers from. . .at least not for a while.

Let's use me as an example of how this works. I have controlled high blood pressure (ah, the perils of selling group insurance!). Upon joining a new plan, there's a limitation for any disability that results from any illness for which I have been treated in the last three months (typically) until I've been covered by the plan for 12 months (typically). That limitation is called a "3/12 pre-ex limit."

My daily medication is considered treatment, so clearly I've had treatment in the three months before I join the plan. I have to wait 12 months for coverage for, say, a stroke caused by my high blood pressure. In the meantime, if I fall and break my leg, I'm covered.

But there are literally tons of variations in the exclusions. Another common clause is called "3/6/12," which has the same limit of "three months prior" and "12 months on." But it lets the employee recover by saying that if you go six months without treatment (before the 12 months is over), you'll then be covered by the plan for the pre-existing condition.

[Confused yet? In the past, I've showed prospective clients up to nine insurance quotes at the same time: three with 3/12 limits, one with a 6/12 limit, one with 6/24, one with 6/12/24, two with 12/6/24, and one with 12/12/24. Wow! Which would you choose?]

But the latest wrinkle is the so-called "prudent person" clause. It says that in addition to limiting you for conditions you had treated, you're also limited for any condition "for which a prudent person would have sought treatment." So if you have a heart attack and happen to mention to the carrier that you had heartburn off and on for the period before your heart attack, the carrier can say, "Gee, a prudent person would have seen a doctor about that heartburn," and deny the claim.

Most of these methods -- from limiting the time they'll pay for certain conditions to not insuring you for "pre-existing conditions" until you've met participation requirements -- aren't really designed to "cheat" you of your benefits. They're designed to help make disability insurance affordable for the employer and to keep malingerers from collecting unfairly.

 

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