The New York State Insurance Department has issued a batch of guidance that could affect the way group disability insurers handle timing of benefits payments.
Group disability insurers operating in New York may have to take extra steps to justify use of group disability policy elimination periods that are longer than 180 days, according to Louis Felice, deputy chief of the department’s health bureau.
To get state approval for a group disability elimination period longer than 180 days; a group disability insurer must explain why the longer period is necessary, Felice writes in Supplement Number 1 to Circular Letter Number 14 (2007).
“For example, a longer elimination period may be appropriate where the insurer has issued both short and long-term disability policies together, and the elimination period is designed to prevent payment of both long and short-term disability benefits at the same time,” Felice writes.
The 2007 circular letter dealt with a New York Court of Appeals decision on a case involving a unit of MetLife Inc., New York.
After the circular letter came out, many insurers asked about how they should handle potential conflicts between the state’s statutory pre-existing condition waiting period and any elimination periods included in group disability policies, Felice writes.
Conflicts could arise in cases in which “an insured who has no credit for prior disability coverages … is healthy enough to be hired but has a pre-existing condition that leads to her total disability during the policy’s pre-existing condition waiting period, and where the policy also includes an ‘elimination period,’” Felice writes.
In most cases, the department will expect elimination periods and pre-existing condition waiting periods in group disability polices to run concurrently rather than consecutively, to avoid the possibility that disabled insureds might have to go without benefits for extremely long periods, Felice writes.
“All elimination periods should be construed to run from the first date of the disability, rather than upon expiration of the pre-existing condition waiting period,” Felice writes. “Payment of benefits therefore should begin upon expiration of the elimination period, subject to the pre-existing condition waiting period. If the pre-existing condition waiting period has been satisfied, then payment of benefits should begin upon expiration of the elimination period.”
If the elimination period has been satisfied and the pre-existing condition waiting period has not been satisfied, payment of benefits should begin on the first day of the month following the expiration of the pre-existing condition waiting period, Felice writes.
Felice notes that New York state does not define the term.
In the circular letter supplement, Felice defines an elimination period in the circular letter supplement as a “time period before disability benefits will be paid.”
Elimination periods “serve as a mechanism by which an insured can choose, for some specified period of time, to self-insure income losses from disability,” Felice writes.
Short elimination periods can help hold down the cost of coverage, but very long elimination periods can cause hardship for the disabled insured, Felice writes.