What is a Non-Evidence Maximum?

Non-Evidence Maximums, also referred to as NEMs, Non-Evidence Limits or NEL’s are the highest amount of coverage a plan member can have without providing medical evidence of good health. Providing NEM’s is an advantage to both the plan members and the insurance carrier, as medical underwriting can be expensive and time consuming, not to mention the ramifications for plan members that are declined excess coverage for medical reasons.

NEM’s are provided on pooled benefits such as Life, AD&D, STD and LTD. The NEM typically applies to the group as a whole, different classes don’t have differing NEM’s. There is a general trend for market pressure to increase NEM’s over time, although increasing NEM’s also increases an insurance carriers risk.

How are NEM’s determined?

There are three main factors that are used to determine the NEM’s for a group:

• The size of the group: Larger groups are eligible for larger NEM’s as there is a greater spread of risk. Note that NEM’s may be based on the overall size of the group, or the number of plan members taking a particular benefit. For example, a 20 life group may only have the LTD benefit on the executive class of 5 lives. The LTD NEM may therefore be calculated based on 20 lives or 5 lives, depending on how the carrier calculates their NEM’s.Group size is often broken out into ‘bands’, for example 5-9 lives, 10-19 lives and so on. Adding more employees therefore won’t necessarily increase the NEM’s available. Different carriers have different life bands, which sometimes explains why different carriers are offering very different NEM’s for the same group.
• Average salary/benefit: Groups with higher average salaries are often eligible for larger NEM’s. Note that different carriers calculate the average salary differently, with some including all certificates and others removing the top two or three earners in the group before calculating the average. Whether or not average salary is used can vary based on the size of the group.
• Overall Maximum: Each of the benefits with an NEM has their own overall benefit maximum. NEM’s never exceed the highest overall maximum for the benefit as no plan member would be eligible for coverage above this amount.

Excess coverage

In any group, one or more plan members may be eligible for coverage over the NEM, also called excess coverage. Note that if the group has current coverage it is common for existing volumes to be grandfathered, plan members won’t need to be medically underwritten again, unless their volumes have increased due to a salary or plan design change.

An overview of the three possible outcomes for a plan member eligible for excess coverage over the NEM

Plan members that are eligible for coverage over the NEM can opt to apply for the excess, or they can choose not to apply. This results in three possible outcomes:

• Plan member approved for additional coverage: The plan member applies for the additional coverage and is deemed eligible, both now and in the future. Note that this is why carriers will still medically underwrite for very small amounts of coverage over the NEM (even down to $1) because the approval applies to future increases.
• Plan member declined additional coverage: The plan member applies for the additional coverage and is medically declined. Group insurance is not individually priced, so it is not possible to ‘rate’ individuals that do not present a standard risk. Even if a plan member was recently approved for individual coverage, this does not mean they are an insurable risk on a group policy. Terms and conditions for if and when reconsideration will be possible are often included in the notification of decline. It is important to note that individuals that were medically declined may not be eligible for future NEM increases the group receives. This practice differs from carrier to carrier. It is also worth noting that if the group moves to a different carrier, medically declined certs held at the previous NEM will be eligible for coverage up to the new NEM.
• Plan member does not apply for additional coverage: The plan member decides not to apply for the additional coverage, either because it is a nominal amount, they forget to apply, or because they know they will be medically declined. Plan members that don’t apply for their excess coverage are held at the NEM. There is however one key difference, plan members that chose not to apply will be affected by future NEM increases, as they were never technically declined additional coverage.

Key considerations

• Many carriers only review NEM’s at time of group transfer or upon a request. For groups that are growing this can lead to situations where their NEM’s remain far below what they are eligible for. Carriers also update their NEM’s with some regularity, meaning that even groups that aren’t changing dramatically may be eligible for more coverage. It is best practice to request an NEM review at least every other renewal. Note that it is uncommon for NEM’s to be reduced if a review finds that they are too high, although this may vary from carrier to carrier. If requesting an NEM review it is also a good time to ensure that the plan member salaries are up to date, especially if the benefits have salary related coverage.
• NEM’s can sometimes be purely cosmetic, for example if the NEM is already high and everyone in the group has volumes far below it. An increase in an NEM would therefore have no actual impact on the group, except for future hires or large salary increases.
• Make a review of plan member volumes part of the annual checkup. Plan members often don’t understand the communication they receive regarding excess coverage and may choose to ignore it, without fully understanding the consequences. Plan administrators don’t necessarily understand either and may not follow up with plan members. The worst time to find out about an underinsured plan member is during claim time.
• Very small groups may have no NEM, alternatively called a zero NEM. This means all the plan members will be medically underwritten for all coverage. The amount of lives that zero NEM’s apply to differs from carrier to carrier but is typically in the 2-3 life range.

Potential challenges

• Low NEM’s create more risk of under-insurance for plan members that don’t apply for excess or are medically declined. Particularly for income replacement benefits such as STD or LTD, the certificate may not be able to survive on what amounts to a fraction of their usual salary.
• There is sometimes pressure to keep NEM’s low for LTD, as this is most often an employee paid benefit and plan members can then choose whether or not to apply for more coverage (and therefore higher LTD premiums). This is not good practice, as those that choose not to apply may not have adequate coverage in the event they become disabled. It also penalizes plan members that are unable to pass medical underwriting, by keeping their coverage artificially low.
• Groups breaking away from much larger plans, either parent companies or association plans, often have NEM challenges as they are used to a much higher NEM from the larger plan. While grandfathering should cover the existing certificates it is important to inform the client of their new lower NEM’s and the potential implications.

What are your thoughts on NEM’s? Is there anything we should be adding or expanding on?