Minimize claims experience by employees on long-term DI
Health and dental benefits are a critical piece of many employee compensation packages. But if an employee needs to go on long-term disability (DI), should a company have to continue to pay for his or her group health and dental benefits?
If these benefits are continued during the long-term disability leave, any amount claimed by the employee figures into the insurance renewal costs and would likely result in a hefty premium increase for the whole group based on the claims experience.
A founding member of a law firm required a liver transplant. He is placed on long-term DI and because of his long-standing position with the firm, group health and dental benefits continued. He had successful surgery and now needed to take medications, which amounted to approximately $4,000 a month (or $48,000 a year). Based on this claim experience, renewal costs increased, resulting in higher contributions for the rest of the group. Is this fair, or unfair?
To protect the integrity of the group insurance, there are a number of options companies can take
First, create an employment policy that clearly states for each employee and employee class if, for how long and for how much health and dental benefits will be maintained if they are placed on long-term DI.
Second, investigate individual health and dental programs, such as Manulife’s Follow Me, to which the employee on long-term DI can switch to without having to undergo a medical exam. Programs such as these can be paid for in whole or split between the company and the individual. Again, this switch in programs should be part of an employment policy so that all employees know exactly how a long-term DI situation will play out.
Third, institute a stop loss level. With this, any claims that fall below that level are added to the claims experience, but any claims that are above that level are paid by stop loss insurance and are therefore not a part of the claims experience.
I am currently dealing with two such cases, both of which could have been avoided had these steps been taken.
In one, a trusted, long-term employee is on DI insurance because of a muscle problem. The company has been paying this person’s group health and dental benefits for the past two years and, because of this, premiums went up 15% upon renewal.
In the other case, a hardworking relative of the company’s owner has been on long-term DI for two years while the company continues to pay for their benefits.
Both companies had no policy in place to deal with such cases and are working through this issue for the first time. As such, in the first case, the company has decided to cease paying the employee’s health and dental benefits this summer. No final decision has been reached in the second case. In both cases however, whatever management decides is precedent setting and these companies will now be bound by these decisions in the future, rather than by a definitive company policy.
In summary, create the employment policy before it’s needed so that disabled employees can be removed from the group health and dental benefits and onto individual insurance as quickly as possible to minimize the effect on the group’s claims experience and on future premiums.
About The Author:
Barry Greenberg, B.Comm., MBA is a seasoned business and insurance adviser in estate, retirement, and legacy planning with substantial experience in the tax efficient use of savings and /or retained earnings. Barry helps people create wealth and maximize financial protection through insurance without any additional out of pocket outlays.
Barry’s experience comes from 30 years of operational responsibility as an owner, partner and senior executive. For 10 years he was the president of an importing wholesale company and CEO of a multi-million-dollar retail and wholesale chain in the art and drafting supply industry. He has consulted for multi-national retail clothing and transportation companies.
Email: barry@bgfinancialstrategies.com
Web Site: www.bgfinancialstrategies.com