Possible Impacts of Health Care Reform on Disability Insurers

A recent study by a disability consultant and the Disability Management Employer Coalition (DMEC), a group primarily made up of employers with over 5,000 employees, suggested some interesting possible impacts that health care reform (ACA) may have on the disability industry.

The study was based on a survey this summer of 169 large employer benefit managers and 118 senior industry people.

Key takeaways for disability carriers include the following:

• Employers are not focused right now on how absence and disability management will change as the ACA is implemented, but they do believe there will be some impacts.

• 1/3 of employers and over half the insurers polled believe that both claim incidence and claim durations will increase.

• Incidence may rise due to employees no longer fearing loss of health coverage due to longer term disability.

• Durations may increase due to increased waiting times for care as a result of many new insureds entering the US health care system, which respondents believe will outstrip any positive impacts of more timely treatment of conditions under ACA.

• Greater employee awareness of health benefits under ACA will lead to greater awareness of job-protected leave opportunities and disability benefits.

It may be awhile before we see how the ACA itself shakes out, never mind the possible “spillover” ramifications for disability insurers. But even just a small movement – one way or the other – in LTD claim patterns could make a big difference in costs. Disability insurers who don’t pay close attention to health care trends and directions under the ACA in the next couple years will do so at their own peril.

Social Security Disability Fraud Ring Busted in Puerto Rico

The FBI’s website ran a piece last week reporting on the arrest and indictment in Puerto Rico of 75 persons, including 3 physicians and a former Social Security employee, who are suspected of committing fraud on Social Security disability claims. The arrests capped two years of FBI investigation into suspicious Social Security Disability (SSD) claim activity on the island, where SSD claim volume and other historical data suggested possible illegal activity.

The former SSA employee would allegedly complete SSS applications for claimants in a manner he knew would be likely to meet SSA requirements, and upon SSD claim approval, would collect up to $6,000 for his efforts.

The doctors would allegedly evaluate, treat, diagnose and provide medical records in a manner calculated to satisfy the medical criteria required for SSD claim approval. Their fee for submitting the bogus medical reports was up to $600.

At least one of the doctors arrested this week has been the treating provider on a number of private insurer Long Term Disability claims on the island in recent years. For the sake of everyone involved – including consumers, whose premiums rise due to insurance fraud like this - here’s hoping that this situation serves to discourage others who might be similarly inclined to lie on their claim applications, whether for SSD or private insurer plans.

Insurance Execs Getting the Message

Insurance Networking News ran a story last week on a recent KPMG survey of U.S.-based insurance executives. An interesting finding in the survey, at least for compliance types, was that regulatory issues have surpassed cost consciousness as the predominant concern of those surveyed. 60% of the respondents identified regulatory and legislative pressures as the most significant barriers to growth, up from 47% in last year’s survey. Not surprisingly, health care reform led the list of vexing compliance topics, but increased federal oversight, convergence of contract standards, corporate tax reform and consumer protections were also cited as concerns by at least 20% of the group.  

The key takeaway here?

Compliance has come a long way, baby.

CIGNA Multistate Settlement

The insurance departments of CA, CT, MA, ME, and PA recently announced a settlement with the CIGNA companies that write disability business. The fines that were levied don’t amount to much; CA, MA and ME divvied up a total of $925,000. What is more concerning is the use of the terms of the 2005 agreement that UNUM entered into with 49 state insurance departments and the U.S. Department of Labor – terms that were themselves not included in any administrative code or regulations - as part of the standards used to evaluate CIGNA’s disability claim handling.

Insurers certainly need to be held accountable for their compliance with applicable state and federal laws regarding claims handling. But holding insurers accountable to arbitrary standards that are not a part of any duly enacted laws or regulations can begin to look like regulatory overreach. For this to occur with a major industry player for the second time in eight years seems to suggest a continuing trend whereby fundamental aspects of disability products are being dictated more by administrative bodies than by marketplace factors and forces.

Pushing the Envelope in CT

The CT legislature passed a law effective in 2012 requiring employers with 50 or more service workers to provide 1 hour of sick time for each 40 hours worked. While CA, HI, NY, NJ, PR, and RI all require employers to provide some type of short term disability benefits to their workers, the CT bill was the first “sick leave” measure of its kind to be implemented at the state level.

Another bill that now awaits the CT governor’s signature would create a task force to study how to set up a statewide short term disability benefits program that would also pay benefits for workers who take time off to care for family members. CA and NJ are the only other states with such programs – in CA, workers are taxed to pay for the state program, while in NJ, employers and employees share the cost (though employees pay the full cost of the paid family leave component).

Proposals like the current CT one point up the need for short term disability insurers to be pro-active in designing plans and developing administrative capabilities that anticipate benefit program changes and state requirements alike that push beyond the boundaries of traditional short term disability plans.

Food For Thought?

Just back from a two day seminar in Boston on current disability claims and legal issues, with lots of excellent speakers and topics for disability specialty companies like mine. One of the more thought provoking opinions heard there was the view that the discretionary clause (written about in prior blog entries on this site) has assumed an exaggerated level of importance, in the minds of those within the industry as well as those outside it, and has thus run its course. That opinion cited the increasingly negative image and bad press the discretionary clause creates for the disability industry, when in fact it is a potential factor only in the .6%-9.% or so of disability claims that are litigated, according to a Milliman study several years back.

Regardless of the position you stake out, the key assumptions and premises related to the discretionary clause issue need to be scrutinized and subject to critical review. Whatever your perspective or bias on this issue is, it seems nonetheless like a healthy step for views to be aired that depart from the orthodoxy of thinking that has prevailed on both sides of this issue for some time.

ERISA Advisory Council Posts Final Report

Last summer in this space, we were following the hearings the ERISA Advisory Council was holding on the topic of “Managing Disability Risks in an Environment of Individual Responsibility.” The Council was created by ERISA to advise the Department of Labor (DOL) on employee benefits issues.

The Council’s final report was posted last week on the EBSA website. While the contents of the report do not represent the position of the Department of Labor (DOL), the report is nonetheless instructive.

Key findings in the report include the following:

• The need for development of educational materials and outreach to help better inform individuals about the risk of becoming disabled during their working years and the value that disability plans provide;

• The important role that regulatory guidance on the topic of “automatic enrollment” could play in helping to increase disability plan participation levels;

• The recommendation that the DOL clarify the application of ERISA claim and appeal regulations to the specific topic of other income offsets that serve to reduce the benefit amount payable under group disability policies, especially in regard to how the reductions are calculated, the recovery of unpaid benefits by claimants in situations where the claimant does not end up receiving other income, and the types of other income sources that are offset against the disability benefits.

The Council concluded that in the upcoming review of ERISA claim and appeal regulations, the “DOL should pay particular attention to disability claims.”

Stay tuned.

Maryland Proposal Would Require Short Term Disability Benefits For Pregnancy Leave

It can be hard to tell in the early stages of a state legislative session which proposals have a legitimate chance of passing and which ones are dead in the water.

That said, Maryland HB 1335 may be worth watching. It would require certain employers to offer short term disability benefits to employees who are pregnant and would require the employer to pay 80% of the premium cost for such coverage. Benefits would be provided for 125 work days for an employee who is unable to work due to a pregnancy-related condition and 30 work days for an employee on maternity leave. Benefit levels would be “graded” to afford higher income replacement levels for employees with more seniority.

Apart from the mandatory sick leave law that Connecticut passed a couple years ago, there has not been much legislative push at the state level for expanding state-required benefits for non-occupational sickness or injury. An Oregon proposal several years ago went nowhere. And with tenuous signs of an economic recovery only now beginning to appear, there may be little room for this sort of program in revenue-strapped state budgets. But it may be a sign of things to come, not tomorrow and probably not the day after that either. At some point though, once health care reform has dug itself in a little more firmly, don’t be surprised if insurance-related reform shifts over to proposals like the Maryland bill.

Electronic Commerce and Insurance Regulation

I saw a post recently on a blog run by a compliance consulting vendor, regarding state legislative efforts to regulate the use of electronic commerce in the insurance world.

Here's the link:

http://www.insurancecompliancecorner.com/electronic-developments/

For better or for worse, we are in the electronic age, with new ways of doing business and new tools to promote efficiency and convenience. And there's no going back. But it's not exactly supposed to be the Wild West out there either. It is important that compliance professionals ensure that their companies are aware of regulatory requirements and limitations on how electronic commerce is conducted. 

To Trust or Not to Trust?

A topic that always gets the tongues of Compliance folks wagging is the long standing use of trusts to write and issue group insurance business and what state filings are required to support that approach. Since a master trust policy is typically issued to a bank or other entity in a state besides the situs state of the employer group that is participating under the trust policy, questions arise as to the states where the trust policy provisions must be filed or whose laws will govern the coverage.

Is it only in the state where the master trust policy is issued? Or must filings be done in other states where the participating employer is located and/or where the insureds actually reside or work? And since many state’s laws – this being the United States – do not clearly address this issue, there are sometimes quite varied interpretations of the appropriate course of action for insurers on the filing question.

On that note, the Washington Insurance Commissioner recently issued a consent order holding that “beginning in 2005 Aetna [Life Insurance Company] issued unfiled group term life and short term disability plans to Washington consumers through the Rhode Island Trust.” WA fined $1,000,000 for “issuing, delivering and using unapproved policy forms,” cited Aetna for “failing to file copies of all certificate forms and other related forms providing coverage in Washington” and found that the insurer “engaged in unfair practices with respect to out of state group life and disability insurance.”