Actuarial and Risk
Management Guide to Long Term Disability Benefits
This Web Site (ltdbenefits.com) was created and is maintained by:
Self Funding Actuarial
Services, Inc.
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Tel: (336)
759-2035
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8025 North Point Blvd.,
Suite 207W
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Fax: (336)
896-0392
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Winston-Salem, NC 27106 |
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Carlton Harker, FSA, MAAA, Principal |
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The purpose of this web site is to identify and discuss three problem areas with long term disability (LTD) benefits and then offer and promote solutions thereto.
1. Group LTD
Problem
Areas
The large number of group LTD litigations primarily due to three essential flaws in the present risk paradigm is the basic problem.
Modify the present LTD risk paradigm in these ways:
· Replace the funding method from fully insured to non-ASO self-funded in direct response to the conflicted interest problem with fully insured or ASO plans. See Self-Funded Long Term Disability.
· Replace the present vague and/or undefined plan document language with painfully exact terms so that the true nature of the insuring clause is clear and understood.
· Incorporate risk management disciplines in the LTD plan document, either by terms or by addendum.
2. Individual
LTD
The combination of the following factors constitute a problem for all parties thereto:
· Vague and undefined policy terms.
· Diminution of the traditional role of the actuary and underwriter; increased role of the marketing and financial interests.
· Significant conflicted interest in the claims determination process.
· Acceptance by the new financial-dominated insurance function of an operational model that a few lost court cases (as a few mis-manufactured widgets) is just one more cost item to be factored into their model.
Briefly, the following changes are suggested and promoted:
· A policy with all of the vague and undefined provisions replaced with painfully detailed and precise provisions.
· A reemphasis on basic risk assumption disciplines at the direct expense of growth and manipulated financial results. Exclude LTD from GAAP accounting requirements is needed.
· Exclude LTD financial experience being a factor, directly or indirectly, in the compensation of insurance managers.
3. Market
Place Marketing
Problem
There is often confusion between the buyer and the seller as to whether an arrangement of individual LTD policies, sold on an employee-pay-all basis with employer-provided payroll deduction and/or other administrative amenities, is or is not an ERISA plan.
As an alternative to the present method offer the following two options:
Modify the present practices so that the so-called safe harbor rules will not be met. This, in effect, makes clear that (a) ERISA rules must be met and (b) state law relief of any sort is unavailable.
Offer an employee-pay-all LTD plan to the sponsoring employer but through a risk pool maintained by a professional association.
· The funding format will a MEWA, or its successor should Congress adopt the proposed Federal Association Health Plan law.
· The plan will be managed by a plan supervisor which will attend to all of the details (underwriting, compliance, records, claims, stop-loss, etc.)
The role of Self-Funding Actuarial Services, Inc. with LTD is two-fold:
One
Serve the plan supervisor with
self-funded LTD (either group or association) as its actuary and risk
advisor. See Actuarial/Risk
Services.
Provide expert witness assistance
to either plaintiffs or defendants with individual or group LTD. See Expert Witness Services.