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.”

Auto Enrollment .... For LTD?

The ERISA Advisory Council, which advises the Department of Labor on ERISA issues, held a meeting this week to present its recommendations to the Employee Benefits Security Administration (EBSA). Its website says the EBSA’s mission is to assure the security of the retirement, health and other workplace related benefits of America's workers and their families, by developing effective regulations; assisting and educating workers, plan sponsors, fiduciaries and service providers; and vigorously enforcing the law.

The Council held several hearings this summer, including a couple that focused on the role that disability plans need to play in providing financial security for American workers.

Among the Council’s recommendations this week was one calling on the EBSA to issue guidance for plan sponsors and plan administrators on the permissibility of “auto-enrollment” for long term disability plans where employees pay some or all of the cost of coverage.

Long a staple in the retirement plan world, auto-enrollment is where employees are enrolled in a benefit plan requiring some level of employee contribution, without requiring the employee to affirmatively enroll in the plan. On the disability side though, employers have traditionally been reluctant to adopt such an approach, even though a person’s group LTD coverage is typically $20-25 per month.

While it may take some time for the DOL to actually make such recommendations and for all this to “flow down” through the employee benefits infrastructure, it seems like the climate on this may be changing. The DOL seems to be recognizing that the value of and need for disability coverage (for all stakeholders, including the government) is on par with that of retirement plans, and that maybe therefore the time has come to green light auto-enrollment in the effort to help swell the ranks of those with disability coverage.

Upcoming AICP Annual Meeting

Boarding pass printed.....check.

Out of office message ready.....check.

Voice greeting updated.... check.

Hope to see you on the Riverwalk in San Antonio this weekend as the 25th annual conference of the Association of Insurance Compliance Professionals (AICP) kicks off! Don't miss Session 14, "Trends and Transformations in Disability Income Insurance," featuring a panel with an AHIP representative, regulators from the CT and VA insurance departments, and myself.

Innovation, Technology and Compliance

Admittedly, those are not words you see in the same sentence very often.

Nonetheless, Colorado Division of Insurance Bulletin No. B-6.3, issued in mid-June, is an interesting example of the effort by regulators to contend with new insurance product development features and technologies that were just not contemplated when state insurance laws were written. In the absence of any CO law specifically permitting or prohibiting use of pre-paid debit or stored value cards as a method of paying benefits, the CO bulletin provides guidance about insurers’ use of such cards for benefit payment purposes.

Insurers must afford claimants the choice of whether to receive their benefits in the form of a stored value card or a traditional check, draft, or EFT, and the right to subsequently revoke that choice at any time.

Insurers remain liable to claimants for any outstanding amounts in the event of insolvency or insufficiency of the issuer of the pre-paid debit or stored value card.

Claimants cannot be assessed any fees, charges or surcharges for depositing, withdrawing or drawing down or accessing the funds on their card, and “there should not be burdensome obstacles to the claimant being able to access the funds.”

The insurer and the card issuer must make full written disclosure of all aspects of the card system to claimants at the time the claimant chooses the form in which he/she wants to receive his benefits, including:

• All fees associated with use of the card, including ATM, paper statement, card replacement, overdraft, balance inquiry or similar fees;

• Customer service and contact information, including a list of financial institutions that participate in the card system in the claimant’s area and ATM’s where funds can be accessed;

• Whether interest is paid on funds remaining on the card, and to whom the interest is payable; and

• That the funds on the card are subject to Colorado’s unclaimed property laws.

ERISA Stirrings?

The ERISA Advisory Council held hearings a couple weeks ago in Washington on “Managing Disability Risks in an Environment of Individual Responsibility.” Another hearing is slated for mid-August. The Council advises the Secretary of Labor on ERISA-related matters and is comprised of 15 appointees representing employee organizations, employers, the general public, and the insurance, corporate trust, accounting, actuarial, and investment fields.

The Council is examining the impact that the shift to Defined Contribution plans has had on access to employer-provided LTD coverage. The review is being conducted in the context of promoting conditions for a financially secure retirement for American workers, including how to protect employees’ retirement savings in periods of disability.

The broad questions that the council is reviewing and attempting to answer are:

1) What are employees offered?

2) What retirement income gaps are created during a period of disability?

3) What role can the DOL adopt to assist participants with respect to managing disability risks?

4) What role can the DOL undertake with respect to assisting employers to develop and offer effective disability benefit designs?

In regard to the last item, the Council is specifically looking at how LTD insurers adjudicate claims for persons going through the Social Security disability claim and appeal process and also “what revisions, if any, can be made to the [ERISA] claims regulations to explicitly address the application of the full and fair review standard as applied to disability plan,” including offset provisions.

This is no surprise, as regulators at the state and federal levels have had Social Security and other LTD policy offsets in their cross-hairs for the last couple years. What is not always well understood, though, is the crucial role that offsets play in keeping LTD premiums down and claimants from being over-insured relative to their normal work earnings.

It will be interesting to see if the August hearings bring more calls from consumer groups (and their allies in the plaintiff bar) for changes in the regulatory framework that governs employee benefit plans, including ERISA.

Policy Delivery State Requirements

I saw an industry reference tool this week showing state requirements on time frames for delivery of policies.

With no small amount of nostalgia, I was reminded of my early years as a group life and disability benefits analyst, where I was close to the “hand to hand combat” that seemed to break out in haggling with the broker and the employer’s Benefits/HR rep over the wording of provisions in the new policy we were issuing vs. the one they had just terminated. In extreme examples, the process could drag on for months, with multiple iterations of the policy being swapped back and forth in what sometimes came to resemble a hostage exchange.

In fact, the laws of most states require that a policy be delivered “within a reasonable amount of time” after it is issued, “except where a condition required by the insurer has not been met.”

FL requires mail or delivery of a policy “not later than 60 days after the effective date of coverage.”

KY requires the policyholder’s agreement for delivery of the policy in electronic form, a common practice in the group world these days.

MD requires delivery of individual health insurance policies (including long term care) within 60 days of the effective date of the policy.

MN requires that agents deliver a policy, certificate or other evidence of coverage to the insured within 30 working days of the agent’s receipt, unless the insured agrees in writing that the agent may retain it.

NJ requires that agents deliver a policy, certificate or other evidence of coverage to the insured within 10 calendar days of the agent’s receipt, unless the insured agrees in writing that the agent may retain it for a longer period.

In addition, many states have laws requiring long term care policies to be issued within 30 days after approval of the application.

Interstate Compact Soon To Develop Group Disability Product Standards

Having completed development of the Product Standards for individual disability income products, it looks like the Interstate Insurance Product Regulation Commission (IIPRC) will soon begin work to draft and refine the Product Standards for group disability income products. As noted in prior posts here, approvals of product filings submitted to the IIPRC are extended to all the states that belong to the IIPRC for that product. I am looking forward to being part of the group working with IIPRC staff in the effort to develop the group disability standards that will serve as the guide to future state filings of group disability products.

There are presently 39 states that belong to the IIPRC (plus PR and DC), with legislation pending in several other states. Holdouts include AR, AZ, CA, CT, DC, DE, FL, MT, ND, NY and SD.

2012 Regulatory Stirrings

As state legislators and regulators kick into gear for 2012, here are some recent items of note for disability carriers …. NJ AB 1562 proposal would replace existing language in a current law requiring disclosure of broker commissions in “health insurance policies or contracts” with a more narrow reference to “health benefit plans”, thereby exempting disability policies….MA SB 452 proposal would  require a conversion provision in all group health, accident and sickness policies, including STD and LTD .… GA HB 736 wins the award for first 2012 state proposal aiming to ban discretionary clauses in disability policies…. CA Insurance Department just announced the formation of a new unit within the  Policy Approval Bureau to focus solely on health insurance policy reviews. The CA DOI also affirmed its commitment to improving its organizational effectiveness. The department is scheduled to meet today with industry representatives regarding ongoing policy form review and approval issues

MA and RI Regulatory News

A number of disability-related proposals have been languishing on the MA state legislative docket since early 2011. These included prohibitions on Social Security offsets, behavioral health disorder limitations and discretionary clauses in group LTD policies. Now it looks like the MA Joint Committee on Financial Services will hold hearings on these proposals January 24, 2012. For some time, MA has been a state that does not require filing for approval of new group disability products, and has very few regulations for such products. Stay tuned.

On another New England state regulatory note, we want to congratulate Phil Sheridan of the RI Insurance Division for receiving the Arlene Violet Award for Consumer Protection. Phil is one of the truly good people in the insurance regulatory world and a deserving recipient of this award. Way to go Phil!

Notes From The State Filing Desk

As we head into the holiday season, here are a couple recent news items on the topic of state filings:

CA - The Department of Insurance (CDI) has a hearing scheduled for next week on its proposal to increase filing fees for most product lines. The proposed new fees for group disability filings will more than double the current filing fees for those products. The CDI last month also announced the retirement of the assistant chief counsel who had been overseeing the Policy Approval Bureau for the last several years, and appointed attorney Leslie Tick as the acting chief.

IN - In a letter to the Interstate Compact dated October 27, 2011, Insurance Commissioner Stephen Robertson advised that the Compact’s recently adopted uniform standards for individual disability income products “do not provide sufficient protections to the citizens of Indiana” and informed the Compact that IN planned to “opt-out” of those standards. Under Interstate Compact rules, a state such as IN that has approved the Compact may still “opt-out” of the Compact for specific products. in the event of an “opt-out”, insurers would still be required to submit their product for approval by the state that opted out, instead of deeming that state approved once the compact has approved the product filing.

Interstate Compact – a Compact representative stated at last week’s annual meeting of the National Conference of Insurance Legislators (NCOIL) that the Compact has completed the uniform standards for individual products ands will now begin development of uniform standards for group products. It is anticipated that group life will be the first product on the Compact’s docket.

Social Security Administration Announces Cost of Living Increases

For the first time since 2009, Social Security beneficiaries will receive a cost of living adjustment (COLA) increase to their benefit amount. Starting in January 2012, SS benefits will be upped by 3.6%, for an average increase of $39 per month for recipients of SS disability and retirement benefits. The annual COLA provision of Social Security is tied to certain inflation indices, but because inflation ran low in 20010 and 2011, there were no COLA increases for SS beneficiaries in those years.

Group Long Term Disability policies typically reduce (“offset”) the LTD benefit amount payable by the amount of Social Security disability benefits the insured receives. However, LTD policies do not offset for amounts received as a result of COLA increases.

The down side for SS recipients, though, is that Medicare is expected to announce increases in Medicare B premiums shortly. Those premiums are deducted automatically from monthly SS checks.