Understanding Plan Definitions
I recently came across a situation that reminded me about the importance of knowing the definitions contained in each plan separate from each other. In this particular case, a disability plan and a life insurance plan had two separate definitions for "actively at work" that actually were not in agreement and created a significant conflict.
The disability policy defined "actively at work" as being regularly schedule to work or receiving payroll from the company. The life insurance coverage defined "actively at work" as being actually working and performing a job function. Factually, the company had an employee who went out as a result of an illness in October of 2006, but stayed on the payroll. In March of 2007, he applied for and received long term disability and came off the payroll. Unfortunately he passed away in December of 2007.
From the disability carrier's point of view, he had ceased employment in March of 2007, when he ceased receiving payroll. But from the life insurance carrier's point of view, he ceased being actively at work in October of 2006, when he actually stopped performing his job function. Both coverages used the same term, and both coverages had a different way of defining it.
It is important for employers as plan sponsors to review and identify inconsistencies in plan (and insurance coverage) definitions so that they can adequately administer benefits. There may not be any way to make all providers use the same definition so it is essential that the employer understand how each coverage defines not only eligibility, but also its own terms.
