ERISA Advisory Council Reports on Long-Term Disability Benefits and Mental Health Disparity

The DOL's Advisory Council on Employee Welfare and Pension Benefit Plans (the Council) recently issued a report examining the scope and impact of limitations on long-term disability (LTD) benefits for mental health and substance use disorder (MH/SUD) conditions. The report highlights the lack of parity in duration limits for coverage of MH/SUD as compared to medical/surgical conditions under LTD benefit plans and makes recommendations to address this disparity.

LTD insurance coverage protects employees by providing income replacement if sickness or injury prevents them from working for a prolonged period. State insurance laws regulate disability insurance, including LTD insurance. However, only one state, Vermont, currently requires mental health parity in disability insurance. Notably, the federal MHPAEA, which requires parity for coverage of medical/surgical and MH/SUD conditions, applies only to medical benefits and not disability benefits.

According to the report, most employer-sponsored LTD plans fund benefits through the purchase of insurance and do not require employee contributions. Significantly, insured LTD benefits typically have a 24-month limit on the duration of benefits for disabilities resulting from MH/SUD conditions, while benefits for disabilities due to other medical conditions generally continue until retirement age. According to industry sources cited in the report, only 1% of group disability policies sold in the US do not have MH/SUD limitations.

To better understand the rationale for and prevalence and effects of the LTD benefit limitations, including whether certain health conditions have been misclassified as being subject to such limitations, the Council sought testimony from numerous medical and industry experts and stakeholders. Several testified regarding the difficulty of assessing MH/SUD claims to make a disability determination and the misclassification of MH/SUD conditions leading to claim denials. Numerous individuals viewed the current lack of parity requirements for disability benefits as discriminatory.

Other stakeholders testified regarding employer sensitivity to cost when purchasing an LTD policy and the difficulty of assessing the cost of a policy without MH/SUD duration limitations (due to the small percentage of such policies currently issued). They noted that most insurers offer policies without MH/SUD benefit limitations, although these are neither promoted by brokers nor chosen by employers. In contrast, a retiree of Vermont’s insurance department indicated that the state’s implementation of a parity requirement had little impact on the cost or frequency of disability policies.

The Council, upon consideration of the testimonials and available data, concluded the report by recommending the DOL to take the following actions to address the current mental health disparity in LTD insurance benefits:

1. Encourage Congress to adopt LTD insurance parity requirements like the MHPAEA mandates applicable to group health plans and urge employers to reconsider whether current MH/SUD exclusions and limitations for LTD benefits are necessary.
2. Authorize research of LTD insurance to determine the basis for duration limits for MH/SUD conditions and the actuarial and cost implications of removing such limits.
3. Advise insurers to present plan sponsors with LTD coverage options without duration limits for MH/SUD conditions.
4. Educate plan sponsors on the impact of duration limitations in LTD policies, including with respect to employees’ well-being.

The Council’s recommendations are only advisory; the DOL has the discretion to determine whether to adopt any of these measures. However, in recent years, the DOL has focused on mental health parity enforcement with respect to group health plans. Accordingly, the DOL’s consideration and possible implementation of the report’s parity recommendations with respect to LTD benefits would seem consistent with their current priorities.

Employers that offer LTD benefits to their employees should be aware of this report and monitor for further developments. Employers should also make sure they are complying with MHPAEA requirements applicable to their group health plan benefits.

Report to the Honorable Julie A. Su, United States Acting Secretary of Labor Long-Term Disability Benefits and Mental Health Disparity »