The Dangers of Shared Cost LTD Plans
By Ray Bourhis and Alexander MacDougall
It should not come as a surprise that many employers are trying to find ways to tighten their belts and save money in these trying economic times. One way that companies have begun to do this is by offering “shared cost” insurance plans whereas before, they may have simply paid for such a plan outright. A shared cost plan is rather straightforward in that it requires the employer and the employee to each make contributions towards the premium with the percentage paid by each varying from employer to employer. This is one way that employers can structure employee benefits such as Long-Term Disability (LTD) insurance plans.
Many employees see a plan where their employer pays for some portion of their benefits as a welcome employment perk and accept it without another thought, assuming that such a LTD plan will offer adequate coverage should the insured need to file a claim. Therein lies the danger. These shared cost plans, like most plans with employer contributions, are usually governed under the Employee Retirement Investment Securities Act (ERISA) which is a collection of federal laws that strip insureds of all of the protections established under state law. Under ERISA, an insured loses the right to a jury trial, the opportunity to bring a cause of action for bad faith, and the ability to recoup consequential damages (such as a foreclosure as a result of missed mortgage payments while not receiving benefits) and attorneys’ fees.
Instead, in order to receive benefits, an insured would have to first exhaust their administrative remedies which means going through the carrier’s internal appeals process (which may involve several appeals taking numerous months each) and only then, may the insured file a case in federal court. The case would not allow for meaningful discovery and would be heard solely by a judge who would not determine whether the insured is actually disabled, but whether the insurance company made a “reasonable” decision in denying the claim. As can be imagined, this is a very unfavorable position for the insured.
Another serious concern regarding shared cost LTD plans is the fact that if a premium is not timely paid, for any reason, the policy can be cancelled or non-renewed pursuant to the terms of the contract. The cautious insurance purchaser should carefully consider the foregoing when determining which LTD plan is right for them.