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Claims Performance and its Impact on Client Relations

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

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Claims Performance and its Impact on Client Relations

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  1. Claims Performance and its Impact on Client Relations Definition of Disability Limitations Definition of Income

  2. Definition of DisabilityWhen does “own occ” duration begin? CLAIM EXAMPLE: Monthly Pre-disability earnings….…….$4,000Plan Design…………60% - $5,000/180 Day EP24 month own occ Assume total disability CARRIER A “Own occ” trigger at beginning of elimination period RESULTOwn occ duration actually 18 months (24 months - 6 months EP) TOTAL DISABILITY BENEFIT……………..…,,,.$2,400BENEFIT DURATION…..x18 MOTOTAL LIABILITY……,..$43,200 CARRIER B “Own occ” trigger at end of elimination period RESULT TOTAL DISABILITY BENEFIT…….…...$2,400 BENEFIT DURATION……….…x24 MOTOTAL LIABILITY……………..$57,600 Carrier B pays $14,400 more total benefit

  3. Definition of Disability Is there an “hourly” restriction on how “own occ” is defined? CLAIM EXAMPLE: Monthly Pre-disability earnings….……..…$10,000Plan Design…..…………60% - $6,000/180 Day EPTotal 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 Uses 40 hour work week limitation when defining “ownocc” definition of disability RESULT No payment because back conditiondoesn’t preclude employee from performing duties of “own occ”40 hours/week. CARRIER B No limit on “own occ” RESULT Employee suffers a loss of duties and income (30%) as a result of chronic back condition. INCOME LOSS*………..$3,000 PARTIAL DISABILITY BENEFIT……………..$3,000BENEFIT DURATION… ..x24 PARTIAL BENEFIT LIABILITY**……… $72,000 *Benefits beyond 24 months would be based on 50% earningsoffset formula **Benefit ignores affect of indexing Carrier B pays $72,000 more total benefit

  4. Definition of DisabilityWhat earnings loss is required? CLAIM EXAMPLE: Monthly Pre-disability earnings….…….$4,000Plan Design…………60% - $5,000/180 Day EPPost-disability Earnings..……………….$2,800 (30% earnings loss) CARRIER A Requires 40% earnings lossfor “Partial” benefit eligibility RESULT No benefit payment until earningsloss equals/exceeds 40% CARRIER B Requires 20% earnings loss for“Partial” benefit eligibility 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 HOMEPOST DISABILITY EARNINGS…$2,800 PARTIAL DISABILITY BENEFIT.$1,000 TOTAL …………………………….$3,800 Carrier B pays $1,000 more per month

  5. Definition of DisabilityWhat is Partial Disability Income Limit? CLAIM EXAMPLE: Monthly Pre-disability earnings….………...$4,000Plan Design…………..…60% - $5,000/180 Day EPTotal Disability Benefit…....60% - $4,000 = $2,400Post-Disability Earnings…………………….$2,800 CARRIER A Imposes 70% “All Sources” Income Limit. Benefit reduced when Post-Disability Earnings plus Insurance Benefit exceeds 70% of Pre-Disability Earnings RESULT POST DISABILITYEARNINGS…………… ….$2,800UNREDUCED INSURANCE BENEFIT…$2,400TOTAL INCOME FROM ALL SOURCES………….$5,200 80% ALL SOURCES LIMIT-80% OF $4,000….$3,200TOTAL INCOME EXCEEDS BY…………..$2,000INSURANCE BENEFIT REDUCED TO………….$ 400 CARRIER B For approved rehab claims, the above example would result in no reductionin benefit for first 24 months of benefitperiod. There after 50% earnings off-set would apply resulting in $1,000 benefit ($2,400-$1,400) RESULT POST DISABILITY EARNINGS……………………….$2,800 UNREDUCED INSURANCE BENEFIT…………………………$2,400 TOTAL INCOME FROM ALL SOURCES………………………=$5,200 Carrier B pays $2,000 more per month

  6. CLAIM EXAMPLE: Monthly Pre-disability earnings….………...$4,000Plan Design…………..…60% - $5,000/180 Day EPClaimant returning to work in “another” jobworking full time and earning $2,500/month Definition of DisabilityHow is Partial Disability Defined? CARRIER A Requires loss of time/duties AND income RESULT POST DISABILITY No payment because no loss of time/duties in “new” occupation. (May apply only to “any occ’ period.) CARRIER B Dual definition of disability…loss of time/duties OR income RESULT During 24 month Work Incentive BenefitPeriod, carrier pays at least $1500/month($4,000 - $2,500 post disability earnings) 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

  7. CLAIM EXAMPLE: Company has locations in Seattle & Fairbanks, AK.An employee in Fairbanks goes on disability. Monthly Pre-disability earnings….………...$4,000Plan Design…………..…60% - $5,000/180 Day EP 24 month own occ planTotal Disability Benefit…....60% - $4,000 = $2,400 Definition of DisabilityHow is “Own Occ” defined? CARRIER A Defines “own occ” based on how it is performed in the National Economy. 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 CARRIER B Defines “own occ” based on how it isperformed in the Local Economy. RESULT No relocation required. Disability benefit ispayable based on “dual definition of disability..loss of time/duties or income DISABILITY BENEFIT…….………………...$2,400 DURATION………………x24 monthsTOTAL LIABILITY………………..…$57,600 Carrier B pays $57,600 more total benefit

  8. CLAIM EXAMPLE: Monthly Pre-disability earnings….………...$4,000Plan Design…………..…60% - $5,000/180 Day EPPost disability earnings…………………….. $2,800 Definition of DisabilityWhat % earnings offset is used? CARRIER A Uses 70% earnings offset after the Return to Work Adjustment period. RESULTGreater reduction in Insurance Benefit due to 70% (rather than 50%) earnings offset TOTAL DISABILITY BENEFIT….$2,400POST-DISABILITY EARNINGS…$2,800EARNINGS OFFSE…..……….…… X.70 $1,960INSURANCE BENEFIT ($2,400 - $1,960) …………………..$440TOTAL EARNINGS ($2,800 + $440) ………………….$3,240 CARRIER B Uses 50% earnings offset after the Return to Work Adjustment period. RESULT TOTAL DISABILITY BENEFIT……………………..….$2,400POST-DISABILITY EARNINGS…………………...…$2,800EARNINGS OFFSET…………... X.50 $1,400 INSURANCE BENEFIT ($2,400 - $1,400) ……………....$1,000TOTAL EARNINGS ($2,800 + $1,000)………………$3,800 Carrier B pays $560 more per month

  9. CLAIM EXAMPLE: Monthly Pre-disability earnings….………...$4,000Plan Design…………..…60% - $5,000/180 Day EPTotal Disability Benefit…....60% - $4,000 = $2,400 LimitationsIs “Managed Rehabilitation” a contract requirement? CARRIER A Contractually includes a Managed Rehabrequirement. Carrier’s claim dept. feels claimant has “functional capacity” to perform material duties with “reasonable continuity.” Claimant disagrees and objects to suggested rehab program. Carrier can retain contractual right to denyclaim payment. RESULT NO BENEFIT PAYMENT CARRIER B Does not include a Managed Rehabrequirement. Carrier cannot force disabled employee to enter into a recommendedrehab program over which they have exclusive control. RESULT DISABILITY BENEFIT…….…...$2,400 DURATION…………………x24 monthsTOTAL LIABILITY……………..$57,600 Carrier B pays $57,600 more total benefit

  10. CLAIM EXAMPLE: Monthly Pre-disability earnings….………...$8,000Plan Design…………..…60% - $5,000/180 Day EPIndividual Monthly Disability………………$3,000Military Pension Monthly Benefit………….$2,000 Assume Total Disability LimitationsIs there an offset with Military Pensionor Individual Disability Plans? CARRIER A Offsets Group Disability Benefit withIndividual Disability Benefit or Military Pensions RESULT TOTAL DISABILITY BENEFIT…..………………....$4,800(-) INDIVIDUAL DISABILITY PLAN…………………………$3,000(-) MILITARY PENSION……. $2,000TOTAL BENEFIT…………….$100 CARRIER B Does not offset Group Disability Benefit with Individual Disability Benefit or Military Pensions RESULT 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

  11. CLAIM EXAMPLE: Monthly Pre-disability earnings….………...$4,000Plan Design…………..…60% - $5,000/180 Day EPAssume Total Disability, claimant age 52 totallydisabled to Age 65 due to Chronic Back Fatigue LimitationsDoes the contract have a “Self Reported Self Diagnosed” symptom limitation? CARRIER A Includes a Self Reported Symptomslimitation of two years. RESULTPays total disability benefit for twoyears TOTAL DISABILITY BENEFIT…..………………....$2,400DURATION……….………24 monthsTOTAL LIABILITY…………$57,600 CARRIER B Does not include Self Reported Symptoms limitation of two years RESULT Pays claim to age 65 TOTAL DISABILITY BENEFIT…..………………....$2,400DURATION………………156 monthsTOTAL LIABILITY…..……$374,400 Carrier B pays $316,800 more than Carrier A

  12. CLAIM EXAMPLE:Coverage Effective date………….January 1, 1999 Monthly Pre-disability earnings….………...$9,000Plan Design…………..…60% - $5,000/3/12 pre-exEmployee is aware of but doesn’t treat major backproblems-December 1998. Employee ruptures a diskwhile skiing February 1999. Employee files total disability claim immediately. LimitationsDoes the contract include “Prudent Person Pre-ex” language? CARRIER A Includes “Prudent Person Pre-ex” language RESULT Claim could be denied due to the fact thatany “prudent” person would have received treatment, advice or servicedue to the back condition. Therefore, this could be considered pre-existing. CARRIER B Does not include “Prudent Person Pre-ex” language RESULT Assuming claimant meets definition ofdisability: DISABILITY BENEFIT…….…...$5,000 DURATION…………………x24 monthsTOTAL LIABILITY…..………$120,000 Carrier B pays $120,000 more total benefit

  13. CLAIM EXAMPLE: Monthly Pre-disability earnings….………...$4,000Plan Design…………..…60% - $5,000/180 Day EPReported pre-disability earnings…………...$3,600 Employer fails to report annual salary increases priorto filing of LTD claim Definition of IncomeDoes the contract include clerical misstatement protection? CARRIER B Includes “Clerical Misstatement”protection and doesn’t use “as last reported language in definition of income” RESULT Benefit based on Actual (not reported) income: DISABILITY BENEFIT (60% - $5,000) ……….…….…...$2,400 DURATION…………………x24 monthsTOTAL LIABILITY…..………..$57,600 *Assuming claims duration of 24 months,Carrier B pays an additional $5,760 CARRIER A Includes “As last reported in writingby employer” language in definition ofincome. RESULT Benefit based on $3,600 of monthlypayroll reported DISABILITY BENEFIT (60% - $3,600) ……….…….…...$2,160 DURATION…………………x24 monthsTOTAL LIABILITY…..………...$51,840 Carrier B pays $5,760 more total benefit

  14. CLAIM EXAMPLE: Gross Pre-disability earnings….….………...$4,000Net pre-disability income (assuming $500/month for 401K & Flex)…$3,500Plan Design…………..…60% - $5,000/180 Day EPAssume Total Disability & 24 month Claim duration Definition of IncomeDoes Definition of Income Exclude 401k/Flex Contributions or 125 Deductions? CARRIER A Bases benefit on “Net” Monthly Income RESULT DISABILITY BENEFIT (60% of $3,500) ……….…….…...$2,100 DURATION…………………..x24 monthsTOTAL LIABILITY…..…………$50,400 CARRIER B Bases benefit off of “Gross” MonthlyIncome RESULT DISABILITY BENEFIT (60% of $4,000) ……….…….…...$2,400 DURATION…………………..x24 monthsTOTAL LIABILITY…..………….$57,600 Carrier B pays an additional $7,200 Based on what earnings level are your clients paying premium?

  15. Questions? Which carrier do you want to pay your disability claims?

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