Are your employees protected when changing non-medical carriers?

There are a number of issues you should be aware of to help ensure a smooth transition between carriers – and help make sure that no employee falls through the cracks when their insurance changes from one group carrier to another.

The # 1 Issue: Actively At Work

A number of states have discontinuance & replacement (D&R) laws intended to guarantee continued coverage to persons who were insured under the prior carrier at the date of transfer and who are eligible under the succeeding carrier, regardless of their health status.

The D&R laws:

Assures currently insured employees and their dependents don’t lose coverage due to a change in carrier. It does not guarantee the same coverage levels.

Applies to employees and their dependents covered under the prior carrier on the date of its termination who are eligible and enrolled under new program on its date of issue.

In order to comply with these laws, many insurance policies issued in these states contain a “Replacement of Prior Group Policy” provision for all coverages. This provision waives the actively-at-work, confinement and preexisting condition restrictions and, in effect, assures coverage for the lesser of our scheduled benefit or the benefit provided under the prior carrier.

Several D&R laws place specific responsibilities on the replacing carrier when calculating deductibles or waiting periods. Less frequently, a credit must also be given for coinsurance. These laws require the new carrier, when applying any deductible, waiting period, or coinsurance provision, to give credit toward the satisfaction of those provisions if the prior carrier had the same or similar provisions and benefits.

For the deductible and coinsurance provisions, credit is given for those expenses actually incurred and applied to the prior carrier in the same or overlapping benefit period. Only those expenses eligible under the new carrier and subject to the same or similar deductible and coinsurance provisions are required to be credited.

Dental and Vision Coverage:

For dental and vision coverage, employees or dependents that are covered under the prior carrier’s contract on the date of termination who would have been covered under contract are normally immediately eligible for coverage.  Underwriting approval is generally not required.

Disability Coverage:

Different disability contracts can have different provisions.

Employees not actively at work due to extended leave, illness or injury on disability are generally not eligible for coverage on the effective date of coverage. They are eligible once the employee returns to active full-time employment and the individual is no longer receiving a disability benefit from the prior carrier. The carrier includes them on the bill as a ‘timely’ entrant for their disability benefit.

It’s important to remember that returning employees need to be enrolled in the new carrier’s disability coverage at the point in time when they are actively at work and eligible for coverage.

A common question that is asked is: We thought the prior carrier would cover this person for an additional period of time, even after they returned to active work.  Why do we need to enroll this person when they become eligible for coverage with the new carrier?  Isn’t that double-coverage?

Some carriers’ disability contracts have a provision that covers an individual for recurrences of the same illness or injury even after the person returns to work for a period of time.

Other carriers’ contracts either do not provide this ‘recurrence’ of coverage provision, or do not allow the ‘recurrence’ provision to apply after the person returns to active work and becomes covered under a different policy.

In addition, it is not typical for a carrier to cover an employee for an unrelated illness or injury after the employer has moved the disability coverage elsewhere and the employee is eligible and enrolled for the new coverage.

To ensure the employee is covered for the disability benefit, enroll them in the new carrier’s disability carrier regardless of the prior carrier’s contract provisions.

Life Coverage:

Life coverage is a bit more complicated. To ensure employees maintain their coverage, follow these steps when switching prior life coverage:

  • Employees not actively at work on the effective date of coverage should be offered the right to convert their policy to an individual plan under the prior carrier. If coverage is not converted and a death occurs, the new carrier would review the prior carrier policy and their policy to determine who has liability for the claim.
  • Employees who are not actively at work on the effective date of coverage due to disability should be directed to file for life waiver under the prior carrier. If an employee is declined for life waiver and was not eligible to convert their coverage to an individual plan, the new carrier generally would review the prior carrier policy and their policy to determine who has liability for the claim.
  • Dependents who are in a period of limited activity on the effective date of coverage should be offered the right to convert their policy to an individual plan under the prior carrier. If coverage is not converted and a death occurs the new carrier would review the prior carrier policy and their policy to determine who has liability for the claim.

Two key questions should be answered for anyone not actively at work or in a period of limited activity, yet were covered under the prior policy on the date of its termination:

  1. Does this person meet the prior carrier’s requirements to convert his/her group life benefit to an individual life benefit? (applies to employees and dependents)
  2. Has this person been disabled for a length of time and now qualifies to waive life premium under the prior carrier’s policy? (applies only to employees)

If either answer is ‘yes’, this person may not be eligible for coverage under the new contract until they return to active work or are no longer in a period of limited activity.  They will need to work with the prior carrier to ensure they fill out the appropriate material to continue coverage with the prior carrier.

If both answers are ‘no’, the person is generally eligible for coverage when the benefits are transitioned to the new carrier.

Just like employees aren’t eligible for coverage if they are not actively at work, most insurance policies include a clause that says spouses and other dependents aren’t immediately eligible for life coverage if they are in a period of limited activity on the coverage effective date. Period of limited activity applies if a spouse or dependent child is confined in a health care facility or at home and unable to perform the regular and usual activities of a healthy person of the same age and sex.

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