Checklist Tips for Saving Money on Life Disability Programs

Benefit teams have had a lot to cope with lately – ACA reporting, the new ADA/GINA wellness rules, and the Cadillac tax, to name just a few of the high-priority issues on their plates.  So it’s not surprising that when we ask clients about their absence, disability, life solutions (ADLS), they tell us they haven’t had time to review them over the past few years.  And many don’t see much to be gained from a review, since they don’t believe they would be able to negotiate a better rate.

But we’ve found that a cursory underwriting review that’s completed in as little as one day may identify opportunities to reduce program costs – in some cases, by as much as 25%. As you work on your strategic planning for 2017, take a look at your ADLS programs and remember there is always room for negotiation, even during your rate guarantee period.

The only time carriers may increase rates during a guarantee period is when lives/volumes fluctuate significantly (usually +/-10-25%). So reviewing your experience during the rate guarantee can only identify a savings opportunity or confirm the current pricing. Given the competitive nature of the ADLS marketplace, our experience has been that carriers are willing to partner with employers, offering rate decreases when warranted, during a current rate guarantee period.

At renewal time, don’t automatically accept rate increases. Even if your loss ratio is over 100%, there may be significant negotiation opportunity on the incurred claims (specifically the reserve component). It’s important to keep in mind that most long-term disability carriers base these reserves on a book of business; rather than a specific employer. If you understand how your rates are set, you are in a better position to negotiate them down.

It’s important to confirm the terms of the renewal. Many employers incorrectly assume that certain terms will automatically renew or that actuarial calculations must be reasonable. Here are some questions to ask your carrier:

  • Are they using the most recent base reserve table?
  • Will all performance guarantees automatically renew? Request a formal renewal to make sure you’re getting the strongest guarantees possible.
  • Have all employees eligible for waiver of premium been identified? Even when you have integrated the LTD and waiver of premium programs, employees may be missed because of differing definitions of disability or other reasons (e.g., manual intervention in the claim process).
  • If you instructed your carrier to price basic and supplemental life on a stand-along basis, confirm this is still the case.
  • It’s easy for busy underwriters to miss a step when ensuring supplemental life rates do not cross Table 1. Confirm the work was done correctly so you remain compliant.

Other points to keep in mind:  Benchmarks are not audits! Benchmarks may be helpful indicators but the only way to objectively assess a carrier’s claim management performance is to perform a claim file review audit. You can start with a short one-day claim file review to confirm if a larger sample is needed. It’s a good idea to conduct these short claim file reviews on an annual basis; at minimum every 2-3 years.

Finally, don’t be afraid to renegotiate ADLS contracts. While most fully insured and ASO contracts will auto-renew, an employer can review and renegotiate the terms of these contracts at any time.

This post is part of our 2017 Planning Checklist series.

Ken Jeffries
by Ken Jeffries

National Stop Loss Leader, Mercer

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