Unfortunately, most employees receiving ERISA benefits know very little about the insurance product that makes it possible for them to receive benefits. Most, often tell me, “The only thing I care about is that I am covered for LTD disability by my employer and are entitled to benefits.”
As short-sighted as that point of view is, it’s true that many, many people are now receiving benefits under an Employer’s Plan, but have no idea how they got it. Even when claimants were going through the annual process, they didn’t realize it, so if you “don’t care” to know anything except your benefit amount and due date each month, please feel free to skip this post. If, however, you decide to learn more about your STD/LTD Plan, read on.
Broadly defined, there are basically two groups of disability insurance, 1) IDI – Individually underwritten, and 2) Employer ERISA Plans- underwritten as a group. The word “underwritten” means that all insurance products sold, whether to a person, or a group, must be investigated to determine the “cost of doing business.” Insurance companies need to know “the risk” of how many claims are likely to be filed, before telling you what the PREMIUM IS GOING TO BE.
ERISA Plans are underwritten (costed out) as a group, and not individually, as IDI state products are. Therefore, medical conditions and risks of the individual employee are not considered. In fact, when new hires and company employees elect to be enrolled, or remain enrolled, no medical or other information is ever asked.
Think back to the forms you initially completed when you became enrolled in STD/LTD as a new hire, and the forms you may be required to complete each year during the annual enrollment period. You aren’t asked about any pre-existing medical conditions – ever. This is because the actual “underwriting” (costing out of the premium) is for the WHOLE GROUP OF EMPLOYEES, NOT INDIVIDUALS.
There is a downside to ERISA enrollment procedures, but mostly for the employer. New hires and enrollees are given 31 days to “elect enrollment”. If the enrollment paperwork is not returned within 31 days, employees are asked to complete additional forms, AND THOSE PEOPLE ARE UNDERWRITTEN WITHIN THE GROUP SEPARATELY. Medical questions ARE asked. Employers absolutely freak when this happens because if the people who didn’t file the forms within 31 days have medical conditions, the “premium cost” of the Plan is much greater, then it would have been if the forms were signed on time.
Those who don’t make changes to the Plans on time must wait until the next enrollment period to do so, which can be quite penalizing to employees.
Although ERISA was primarily based on the notion of “non-discrimination”, insurers might query the employer about the “make-up” of the employee base, or group such as sex, age, medical histories, absence records etc. Finally, a picture of “the group” as a whole is put together and the employer is finally informed of the cost of the proposed LTD Plan.
For contributory Plans, no employee is charged more than any other for medical conditions that might exist prior to enrollment because premium is charged and paid for because of the “risk of the entire group”, not just one person.
This is also why those covered by ERISA Plans are said to be “participants in the Plan”, or “beneficiaries” rather than insureds. Typically, they are called “claimants” because all they can do is “file claims” against a disability Plan that is wholly owned by the Employer.
ERISA participants have no ownership of the Plans they are covered under, and have no say as to what the written Plan directs. For this reason ERISA Plans are considered “contracts of adhesion” and are supposed to be given “deference” (advantage) under the law. I don’t think judges pay much attention to that anymore, and if ERISA litigants ARE given deference in the courts, it’s probably for another reason.
Although “fiduciary duty” is mentioned a great deal in ERISA litigation, it is more than blindsided by the notion of “discretionary authority”, which gives “Plan Administrators” federal authority to decide who gets paid and who doesn’t, and in some cases define what the actual Plan means. All in all, ERISA Plan participants are
often sitting ducks in a system where everyone else has authority to make decisions, EXCEPT YOU.
So while you might be only concerned with YOUR benefit, and the fact that it keeps coming, the product of Group Coverage is seriously flawed. The underwriting process is flawed as well. Let me give you an example.
While I was working at Unum, company underwriters of Group Disability would call me up and grill me about certain claims I was managing. They asked questions about the medical conditions of employees when employers were going through their annual enrollment periods. We can debate until doomsday whether this was ethical or non-discriminative, but Unum underwriters had information about the “covered groups” that probably increased premium for many employer LTD groups. In my opinion, this was unethical, but others may disagree with me.
I hope this article helped to explain why ERISA, although popularly regarded as an advantage for American workers, is also a major head slap for most people. At least, you may now realize that there is no individual underwriting connected with the product unless enrollees go over 31 days to return the paperwork. Participants may be getting benefits, but push come to shove, they have no say in anything because they don’t OWN the coverage.
If you have any questions regarding ERISA group underwriting, please feel free to give me a call.
