Disability Insurance Alert! Have You Reviewed Your Maximum Covered Salary Lately? Why It’s a Must!

The Maximum Annual Covered Salary (MACS) on your disability insurance plan is the highest salary the insurance carrier has contractually agreed to insure. In other words, if the MACS is $50,000 but an employee makes $65,000 and files a claim, the insurance company will pay the claim based on $50,000.

If this employee is contracted to receive a disability benefit as set percentage of their full salary, at best you may have a grievance on your hands, at worst a legal issue. This is considered a gap between your contract and your policy which makes for shaky territory.

Check your bargaining contracts or agreements to see if they specify a MACS. If the contract does not state a specific cap, then find out the MACS on your policy to ensure you don’t have a gap. You can work with your National Insurance Services (NIS) Representative in either situation to amend the policy.

It should be noted that sometimes bargaining agreements cap the salary maximum at a lower amount as a cost savings measure (the lower the MACS, the lower the rates). In this situation, it’s a good idea to offer the employees a voluntary buy-up option where they can opt for full salary coverage and pay the difference themselves (through payroll deductions).

The best time to review the MACS on your disability insurance policy is when salary increases are implemented. Also, if you are quoting with different carriers, make sure you are comparing apples to apples by observing that the MACS are identical and match your intent. It’s much easier to increase the MACS during the bid process rather than after the coverage is transitioning to the new carrier. Increasing the MACS at this point could delay the implementation process.

Ideally, schools, cities and counties with a disability insurance benefit plan should review their MACS on an annual basis to prevent issues. Luckily, reputable insurance companies usually “pad” the MACS to allow for future salary increases, which save the school, city or county from additional annual underwriting and paperwork. However, it’s still a best practice to review these amounts annually to ensure that there aren’t any employees making over the maximum amount.

For more information about MACS or disability insurance, contact your NIS Representative.