Long-term disability income insurance (LTD) is not usually subject to the continuation of coverage mandates established for employer-sponsored health insurance plans, or to the federal rules that apply to some other types of employee benefits. As a result, LTD policy portability regulations are left up largely to the states, and in many cases LTD benefit transferability rules may come down to the options negotiated between your employer and the insurance company through whom the group insurance plan is contracted. This means that the transferability of long-term disability benefits can vary widely, depending on the terms of your policy and the options for policy portability and conversion offered through your workplace. Transferring long-term disability coverage can often make a significant difference in your peace of mind and comfort level in changing employers, so it makes sense to review some of the most common solutions offered by insurance companies and establish some context for how to interpret your own policy’s LTD benefit transferability rules.
Are Disability Benefits Transferable?
Individually purchased long-term disability policies are transferable by nature, since they are contracts directly between the policyholder and the insurance company. However, the majority of people who have long-term disability insurance are instead protected under group plans sponsored by their employers as part of their employee benefit packages. These policies are typically not transferable from employer to employer, so changing jobs can easily mean losing long-term disability coverage. Even if an individual leaves a job with LTD benefits for another job that offers comparable coverage, the transition will usually mean a new enrollment process and new exclusion period. Depending on the LTD benefit transferability rules that apply to the specific situation, the transition can also mean “restarting the clock” on the look back period for an individual’s pre-existing conditions.
Portability vs. Conversion
The transferability of long-term disability benefits can be handled in either of two main ways: portability or conversion. Both methods allow you to maintain long-term disability coverage if you leave the employer through whom you have the LTD policy, but they differ in a few key ways.
As a rule, the transferability of LTD benefits is only likely to become an issue in instances where the person on the policy is leaving an employer or other group that has sponsored a long term disability group plan, because individual plans are generally transferable as a matter of course. Termination of employment, however, or leaving one employer for another, can easily result in the loss of LTD benefits under a group plan unless appropriate measures are taken.
LTD Benefit Transferability Rules: Portability
Portability is a means of insurance transfer that allows an individual who has an insurance policy under one set of conditions to take that policy with them when the conditions change, keeping the policy terms, benefits, and coverage unchanged. The same basic principles may sometimes apply to other common employee benefits, such as retirement or pension accounts. However, it is important to note that the regulations governing the handling of employee retirement funds can be quite different from LTD policy portability regulations.
Portability provisions tend to be somewhat more common with other types of insurance, such as health insurance offered through an employer group plan or certain types of life insurance policies than with LTD. At the same time, if you are happy with the terms of your long term disability policy and the transferability of long term disability benefits without alteration is important to you, it may be worth having a conversation with the benefits coordinator at the company that has provided the policy to get help reviewing your options for a continuation of coverage with unchanged terms.
Transferring Long-Term Disability Coverage: Conversion
A conversion option for transferring long-term disability coverage does not secure the same benefits and policy terms in the way that portability options do. However, conversion coverage does help to prevent coverage gaps in a similar manner. Rather than allowing individuals to carry unaltered policy terms with them when they leave the company under which they first enrolled in an employer-sponsored group long-term disability insurance plan, conversion options give an individual who would otherwise lose LTD benefits they had obtained under a group plan to convert their group plan coverage to an individual policy with the same insurance provider.
What Are the LTD Policy Portability Regulations?
States may have their own portability requirements for long-term disability income insurance plans, but federal law provides relatively little in the way of LTD benefit transferability rules. Some employer-sponsored plans may be subject to federal regulations under more general guidance that covers a wide array of benefits offered by employers, to employees, as part of the benefit packages that most organizations offer to full-time employees in addition to salary, to make up a multi-modal system for total compensation.
By contrast to some other common elements of these compensation packages, such as retirement accounts and health insurance coverage, LTD policy portability regulations at the federal level tend to be limited in scope. If you are concerned about the transferability of long-term disability benefits in your particular situation, and you find the answers from your employer’s human resources (HR) office inconsistent or confusing, you may wish to consider speaking with an attorney in your jurisdiction to review the state and local regulations that may apply and get help reviewing your own options.
LTD Benefit Transferability Rules
Because long-term disability income insurance policies are not necessarily subject to the same types of federal regulations as health insurance and some other employer-sponsored benefits, the availability of options for transferring long-term disability coverage often come down to the selections presented of the specific insurance company, and those an employer’s HR team has chosen to include as options for employees. Often the techniques for ensuring continuation of long-term disability coverage rely on the employee’s purchase of a portability option or conversion policy. In one sense, these porting options or conversion policies function in a manner similar to the continuation of coverage options health insurance providers are required to offer to individuals losing benefits under employer-sponsored health insurance plans. However, the similarities are largely superficial.
LTD Benefit Transferability Rules vs. COBRA Health Care Continuation
Many individuals are familiar with the continuation of coverage options most employer-sponsored health insurance plans are required to offer under the Consolidated Budget Reconciliation Act (COBRA). Under COBRA rules, group health insurance plans must give individuals who lose access to their healthcare coverage due to a qualifying event, such as termination of employment or divorce from the employee under whose policy they were previously covered, the option to purchase a limited-duration continuation of their health insurance policy.
As with a portability option for LTD, COBRA continuation of coverage maintains the same benefits and exclusions as the original policy that was obtained through an employer-sponsored group plan. Unlike a true portability option, however, COBRA coverage does not allow the covered individual to simply keep their policy indefinitely, as long as they are assuming the cost of premiums. Unlike the conversion policies offered by some long-term disability insurance companies, COBRA continuation of coverage does not constitute a new health insurance policy. Instead, a continuation of coverage purchased under COBRA rules allows an individual to temporarily extend their existing policy beyond what would otherwise have been the coverage termination date.
LTD Policy Portability Regulations vs. HIPAA Rules
COBRA continuation of coverage works in tandem with a separate, but related, set of provisions under the Health Insurance Portability and Accountability Act (HIPAA). HIPAA is often cited for its patient privacy protections, but the legislation’s provisions for portability of coverage may have just as much impact, even if they receive somewhat less attention. “Portability” under HIPAA means something slightly different from what the same term would normally mean in a conversation about the transferability of long-term disability benefits. Rather than referring to a transition from one employer to another, while maintaining the same policy terms, the “portability” in HIPAA is usually meant to address specifically the portability of a patient’s status with respect to pre-existing conditions.
Prior to the passage of the Affordable Care Act (ACA), and even today in certain private health insurance policies that are not designed for ACA compliance, health insurance companies could reject applicants from enrollment on the basis of their pre-existing conditions. They could also charge these individuals much steeper premiums in light of their medical history, and they could refuse to cover any medications, office visits, or treatments associated with conditions that were documented before their enrollment in the policy. Under HIPAA, individuals who transition from one policy to another without a “gap” in their healthcare coverage can “port” their right to benefits covering conditions that might otherwise fall under an exclusion for pre-existing conditions. The desire to avoid a potential “reset” in the look-back period for pre-existing conditions is a major reason why individuals changing employers review LTD benefit transferability rules to look for conversion options, so before purchasing a conversion policy it is crucial to examine the terms and ensure that it will offer the seamless transition you seek.
Keeping Your Options Open: Exploring LTD Benefit Transferability Rules
If you have recently lost your job or are considering a change of employers, you may have a limited window of time in which to act to maintain your long-term disability coverage. LTD policy portability regulations at the federal level are limited, so your options may depend heavily on the insurance company with whom your existing policy is enrolled and the terms your employer has negotiated with them. Many companies have LTD benefit transferability rules that allow individuals losing their coverage to purchase portability or conversion options within a set amount of time after their employment ends. This period is usually quite short, yet reviewing policy terms and examining all of your options prior to transferring long-term disability coverage can be critical to securing your future interests. Your employer’s benefits coordinator may offer a useful starting point for gathering important information about the transferability of long-term disability benefits in your situation, but you may also wish to consider consulting with a disability law attorney who is familiar with circumstances similar to yours to receive additional guidance and perspective.
