Claims Performance and its Impact on Client Relations

Definition of DisabilityLimitationsDefinition of Income

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 B pays $14,400 more total benefit

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

TOTALDISABILITY BENEFIT…….…...$2,400BENEFIT DURATION……….…x24 MOTOTAL LIABILITY……………..$57,600

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 BNo limit on “own occ”

RESULT

Employee suffers a loss of duties and income (30%) as a result ofchronic back condition.

INCOME LOSS*………..$3,000PARTIAL DISABILITY BENEFIT……………..$3,000BENEFIT DURATION… ..x24PARTIAL BENEFIT LIABILITY**……… $72,000

*Benefits beyond 24 months would be based on 50% earningsoffset formula**Benefit ignores affect of indexing

CARRIER AUses 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 pays

$72,000 more total

benefit

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 BRequires 20% earnings loss for“Partial” benefit eligibility

RESULTClaimant 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…$2,800PARTIAL DISABILITY BENEFIT.$1,000TOTAL …………………………….$3,800

CARRIER ARequires 40% earnings lossfor “Partial” benefit eligibility

RESULT

No benefit payment until earningsloss equals/exceeds 40%

Carrier B pays

$1,000 more

per month

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 BFor 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……………………….$2,800UNREDUCED INSURANCE BENEFIT…………………………$2,400TOTAL INCOME FROM ALL SOURCES………………………=$5,200

CARRIER AImposes 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 pays$2,000 moreper month

Definition of DisabilityHow is Partial Disability Defined?

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

CARRIER BDual definition of disability…loss of time/duties OR income

RESULTDuring 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 …………………$1,250TOTAL BENEFIT TO AGE 65..…=$1,150

*Example ignores the effect of indexing

CARRIER ARequires 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 pays $1,150 more

per month

Definition of DisabilityHow is “Own Occ” defined?

CLAIM EXAMPLE:

Company has locations in Seattle & Fairbanks, AK.An employee in Fairbanks goes on disability.

Monthly Pre-disability earnings….………...$4,000Plan Design…………..…60% - $5,000/180 Day EP 24 month own occ planTotal Disability Benefit…....60% - $4,000 = $2,400

CARRIER ADefines “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 BDefines “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…….………………...$2,400DURATION………………x24 monthsTOTAL LIABILITY………………..…$57,600Carrier B

pays $57,600

more total benefit

Definition of DisabilityWhat % earnings offset is used?

CLAIM EXAMPLE:

Monthly Pre-disability earnings….………...$4,000Plan Design…………..…60% - $5,000/180 Day EPPost disability earnings…………………….. $2,800

CARRIER AUses 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 $1,960 INSURANCE BENEFIT ($2,400 - $1,960) …………………..$440TOTAL EARNINGS ($2,800 + $440) ………………….$3,240

CARRIER BUses 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

LimitationsIs “Managed Rehabilitation” a contract requirement?

CLAIM EXAMPLE:

Monthly Pre-disability earnings….………...$4,000Plan Design…………..…60% - $5,000/180 Day EPTotal Disability Benefit…....60% - $4,000 = $2,400

CARRIER BDoes not include a Managed Rehab requirement. Carrier cannot force disabled employee to enter into a recommendedrehab program over which they have exclusive control.

RESULT

DISABILITY BENEFIT…….…...$2,400DURATION…………………x24 monthsTOTAL LIABILITY……………..$57,600

CARRIER AContractually 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 pays $57,600 more total benefit

LimitationsIs there an offset with Military Pensionor Individual Disability Plans?

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

CARRIER BDoes 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 AOffsets 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 pays $4,700 more per month

LimitationsDoes the contract have a “Self Reported Self Diagnosed” symptom limitation?

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

CARRIER AIncludes a Self Reported Symptomslimitation of two years.

RESULT

Pays total disability benefit for twoyears

TOTAL DISABILITY BENEFIT…..………………....$2,400DURATION……….………24 monthsTOTAL LIABILITY…………$57,600

CARRIER BDoes 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

LimitationsDoes the contract include “Prudent Person Pre-ex” language?

CLAIM EXAMPLE:Coverage Effective date………….January 1, 1999

Monthly Pre-disability earnings….………...$9,000Plan Design…………..…60% - $5,000/3/12 pre-ex

Employee is aware of but doesn’t treat major backproblems-December 1998. Employee ruptures a diskwhile skiing February 1999. Employee files total disability claim immediately.

CARRIER BDoes not include “Prudent Person Pre-ex” language

RESULT

Assuming claimant meets definition ofdisability:

DISABILITY BENEFIT…….…...$5,000DURATION…………………x24 monthsTOTAL LIABILITY…..………$120,000

CARRIER AIncludes “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 pays $120,000 more

total benefit

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 BIncludes “Clerical Misstatement” protection and doesn’t use “as last reported language in definition of income”

RESULTBenefit based on Actual (not reported) income:

DISABILITY BENEFIT (60% - $5,000) ……….…….…...$2,400DURATION…………………x24 monthsTOTAL LIABILITY…..………..$57,600

*Assuming claims duration of 24 months,Carrier B pays an additional $5,760

CARRIER AIncludes “As last reported in writingby employer” language in definition ofincome.

RESULT

Benefit based on $3,600 of monthlypayroll reported

DISABILITY BENEFIT (60% - $3,600) ……….…….…...$2,160DURATION…………………x24 monthsTOTAL LIABILITY…..………...$51,840

Carrier B pays $5,760 more total benefit

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 BBases benefit off of “Gross” MonthlyIncome

RESULT

DISABILITY BENEFIT (60% of $4,000) ……….…….…...$2,400DURATION…………………..x24 monthsTOTAL LIABILITY…..………….$57,600

CARRIER ABases benefit on “Net” Monthly Income

RESULT

DISABILITY BENEFIT (60% of $3,500) ……….…….…...$2,100DURATION…………………..x24 monthsTOTAL LIABILITY…..…………$50,400

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?