As complex as it can be, there's one simple thing about Social Security claims - they all follow the same rules. Someone can come to me to talk about Social Security benefits, and I'll know the rules that apply because the same rules apply to everyone. The same is not true for private disability insurance policies – these often have sneaky little exceptions and exclusions that nobody told you about when you signed up for long term disability (LTD) coverage at work, or purchased a disability policy from an agent. Knowing about these exceptions ahead of time may help you avoid a nasty surprise later.
One of the most common differences between Social Security’s disability program and employee LTD plans is the “pre-existing conditions" exclusion. Most LTD policies contain a clause that says that if you leave work with a disability less than one year after you signed up for LTD coverage, then any medical conditions you received treatment for in the months before your coverage took effect are excluded. Most of the time, this hits new employees, but sometimes strange circumstances cause it to affect long-time employees, too. Recently, I reviewed the case of a woman who had worked in the same place, and had LTD coverage there for years. However, in the last year she worked before becoming disabled, her office became a division of a larger company. Along with that change, everyone got enrolled into the new company’s benefit plans. Because they were new enrollees, they were subject to the new company’s pre-existing conditions clause, and there was no way around it. This was something the woman’s employer could have avoided, if the company had been thinking about it and asked for the right exceptions to be put into the policy, but because they didn’t, this woman had to abandon a benefit she’d been paying for for years.
Pre-existing conditions exclusions hit any kind of condition, as long as it falls within the timeline described in the policy. One other type of exclusion that’s becoming more and more common in LTD policies is a specific exclusion for so-called “hard to prove" conditions. For years, most LTD plans have limited “mental and nervous conditions" to two years of benefits – i.e., if you’re disabled because of a bad back, you may be able to receive benefits until you turn 65, but if you’re disabled because of depression, or bipolar disorder, or schizophrenia, you can only get two years of benefits. Some people ask me how this can be legal when it’s so unfair. The answer, unfortunately, is that fairness has nothing to do with it. Except for a few key terms having to do with appeal rights, the law doesn’t regulate the terms of these plans.
Many LTD policies now also have duration limits or complete exclusions for “subjective symptoms," which, when interpreted the way some companies do, would exclude just about everything short of an amputated limb. A “subjective symptom" is anything you tell your doctor about that he can’t definitely prove with a test or procedure. Pain is the prime example of a subjective symptom – if you have a herniated disc in your back, your doctor can see the disc on an MRI, and he knows that such a condition is likely to cause pain, but the pain itself can’t be measured or proven. The same goes for pain due to other conditions, like migraines or fibromyalgia.
One recent court case from Georgia had an employee challenging a limit on “neuromusculoskeletal or soft tissue disorders" (which probably encompasses the majority of disability claims). The challenge was based on the fact that the employee had no opportunity to negotiate or change the terms of the LTD plan (that’s called an “adhesion contract"), and that the coverage was not what a “reasonable employee" would expect to get when he signed up for LTD coverage. The court recognized the truth of those arguments, but held that it didn’t change the terms of the plan. “The fact that the Plan is a contract of adhesion or that … employees would be surprised to learn that their disability coverage is not what a reasonable employee would think, is of no consequence. [The Employer] is the master of its plan and no … provision [of the law] bars it from excluding coverage for neuro-musculoskeletal disorders."In other words, these policies can contain all sorts of exclusions that may be unfair or surprising to employees, but the courts will enforce them as they're written in most cases.
Insurance companies are getting more creative with these exclusions, and employers don’t seem to care what they’re offering to their employees, so it falls on the employees themselves to make sure they’re being adequately protected. Anyone who has disability insurance, whether through work or purchased from a private insurance agent, should carefully review the exclusions and limits in those policies. In certain cases, it may be best not to count on the coverage you got from work and get your own, better, policy from a private agent. Other people may be able to avoid the application of certain terms, like pre-existing condition exclusions, by hanging on and staying at work a few months longer before filing a disability claim. In any case, forewarned is forearmed. Everyone should know what his or her policy does and does not cover before they need to file a claim.