Although group income protection (GIP) cover is provided for only 7 per cent of UK employees, it is gaining popularly as a long-term absence management strategy. This is mainly because final-salary pension schemes and ill-health retirement options are diminishing. When an employee becomes unable to perform the tasks associated with his/her work, the cover provides the funding needed to enable the employer to retain the employee in service while work reintegration opportunities are explored. The GIP strategy looks attractive if you compare costs associated with the use of pension ill health retirement and solicitors to capability dismiss an employee on a medical incapacity basis.
But against the increasing complexity of such a product, is there room for occupational health to work in tandem with the insurers or are the new breed of case management and vocational rehabilitation services embedded in the contracts going to usurp the clinical management of individual employee health scenarios away from OH professionals?
GIP is the new name for a benefit that has traditionally been called permanent health insurance (PHI), long-term disability insurance, prolonged disability insurance and salary continuance during disability. Such schemes usually provide an income of between 50 per cent of salary and a maximum of 75 per cent, less the long-term incapacity benefit, which begins after a waiting/deferred period of incapacity of 13, 26/28, 52 or 104 weeks. Benefits are usually assessed on the basis of an employee’s inability to perform his/her own occupation but for high-risk (blue collar workers are often viewed as this) or licenced occupations (such as pilots or HGV drivers where group critical illness schemes often provides a better alternative) this basis can be replaced by an ‘any occupation’ criteria (under which the employee is assessed on the basis of his/her ability to undertake any task for which he/she may be suited, by reference to training, education and experience of other roles).
The basic salary-related benefit can be augmented by adding cover for employer pension and National Insurance Contributions (NICs) because this will ensure employee costs are fully funded while in service. Cover can also be organised on the basis that benefit payments escalate in the claim to allow inflation proofing. Traditionally, cover has been organised with benefits payable for a maximum period, ending at an employee’s normal retirement date, but it can now be arranged with benefit payable for maximum periods of two, three or five years. Industry statistics show that approximately 50 per cent of claimants will die, return to work or retire within the first three years of a prolonged period of incapacity. If the two-year payment option is adopted, employees can extend the period protected on a personal basis relatively inexpensively, but will normally be subject to medical underwriting procedures.
Although early notification is advisable so everything can be done to facilitate a return to work, it is common for a GIP claim form to be sent to an insurer at week 40, on a 26-week deferral period and insurers asked to backdate the claim and pay interest by the adviser. Department for Work and Pensions figures1 show any individual who is absent from work for more than six months has only a 10 per cent chance of returning and the psychological impact of absence begins to take effect at week six.
Insurers request that claims are completed and returned from day one for chronic cases, week six 26-week deferrals and, in worst-case scenarios, 10 weeks before the end of the deferred period. This is because it normally takes three months to set up, validate and pay for a claim (which is paid monthly in arrears).
There are two opportunities for OH to get involved in the case. First, any intervention or clinical assessment or treatment recommendations undertaken by the OH team should be submitted to the insurer to ensure that, if valid, the claim is paid. Second, the OH team should be the eyes and ears of the insurers and be able to drive the case. For example, if a phased return is possible the insurer will pay for a proportionate/rehabilitation benefit, if OH recommends this approach, the insurer will ordinarily support it. Insurers usually need a full claim to be established first, ie the employee has to be off for the entire deferral period, therefore phased return recommendations should be carefully managed, otherwise the employee may lose GIP benefit entitlement.
As insurers now offer value-added services – such as vocational rehabilitation, functional capability assessments and private medical treatment costs – one of the best ways to lower the claims impact is to get them involved as early as possible. Some OH teams may view this as competition for their service, but the potential for a partnership in preventing, limiting and mitigating costs should not be underestimated. For instance, where a treatment waiting list exists and the OH team believes the treatment will either prevent or reduce an absence, then funding for a non-private medical insurance-covered employee could come from this route.
Contractual terms and legal issues
If an employee will never be able to return to work, the employer may wish to replace them, but this could be deemed to be constructive dismissal. If an employee is sacked, capability dismissed or made redundant, the definition of disability can change from ‘own’ to ‘any’ occupation and hence the GIP benefit may cease. In Jowitt v Pioneer Technology , the employee won a claim for unlawful deduction from wages when the benefit ceased after two years, because of a change in incapacity definition. The employer had not made the limitations of the benefit clear to the employee and was made to pay as if it was the insurer. In Marlow v East Thames Housing Group , Marlow, a welfare officer, was involved in a road traffic accident and subsequently went on long-term sick leave. Occupational health advised the employer after several months that she would not return to work in the foreseeable future. Two years later the insurer stopped making payments on the grounds that on a subsequent assessment Marlow was no longer disabled within the meaning of the policy. When the insurer assessed Marlow as fit to work and therefore excluded from the benefit, the employer was obliged to challenge the insurer’s assessment but did not do so. Because the employer should have taken all reasonable steps to obtain the benefit of a policy from the insurer it had to pay as if it was the insurer.
OH has a pivotal role in supporting the employer in such cases. First, if an insurer turns down a claim, it can be complicated gaining medical records from the insurer unless a health professional is given access. Second, the OH team can then act as the employer’s advocate to go to appeal (or the Insurance Ombudsman if the scheme is subject to The Contracts (Rights of Third Parties) Act (1999)), or to confirm the insurer is right in declining the claim. In the latter scenario, the OH team can support the employee in work reintegration or in extreme cases through the Disability Discrimination Act (1995) capability dismissals.
OH can also help if the case is accepted by the insurer and annual reviews are undertaken. In this instance, OH can ensure continued payment of benefit by supporting the insurer’s investigation and by updating it on any work that the organisation has undertaken to resolve the absence. In both scenarios, OH is supporting the purchase of the benefit and acting in the employer’s best interests.
Despite some failings, GIP schemes are a good solution in managing long-term absence. The alternatives are less attractive: ill health retirements are expensive and an anti-employee disability diversity strategy and dismissal can be devastating for employees expected to live on state incapacity benefit. The main advantage of GIPs is that they afford a best practice approach to case management at no additional cost to employers. Insurers are beginning to view their value-added’ services as critically important, with some considering whether case management services should be offered to employers independent of an insurance context.
OH’s role in this is pivotal. If there is conflict between employer, employee and insurer, the OH team can ensure the best outcome is achieved for all parties. If employers and clients are considering the benefit, have it already or believe solicitors and pensions are not the best way to manage long-term absence, appoint a specialist advisor, get the claims in early and use the service to support your level of expertise.
Paul Avis is a director at Employ-Mend.
Tel: 01934 875930. Fax: 01934 875915.