What if there were a non-divisive public policy change that would save the country billions and benefit the average American worker? Well, there is one, and it is ripe for action: The enactment of legislation that restricts how Social Security Disability Benefits may be used by private insurers to “offset” their own financial obligations.
When most of us think of Social Security, we think of retirement benefits. The Social Security Act is a Depression-era law whose original purpose was to protect widows and children when the family’s provider died.
Over time, Social Security’s scope of coverage expanded. It became a primary retirement plan while continuing to provide death benefits to minor children. It also expanded to protect workers who became permanently disabled with the creation of the Disability Insurance Benefits program, known as SSDI. It is this SSDI coverage that has been exploited by the disability insurance industry.
Here’s how:
The typical employee with disability insurance is often covered through their employer’s group long-term disability plan, often an ERISA-qualified plan. If this employee becomes seriously ill or is hurt, they can file a claim with the employer’s disability insurer. When a claim is filed, the insurer sends the employee a packet of forms that includes a contract requiring them to file a claim with Social Security and simultaneously claim disability benefits from the federal government.
The insurer will condition the payment of benefits on the claimant’s filing an application with Social Security and pursuing all avenues of appeal. Some insurers will even provide the disabled employee with legal representation to pursue a Social Security claim. This is done right when the claim is filed.
The problem is that, in most cases, Social Security’s legal standard of disability is much stricter than what a private disability contract requires. A private disability contract may pay a benefit if an employee cannot do their own job. Social Security requires proof of an inability to perform any job in the national economy.
So, already, the private disability insurer is forcing an employee to file a claim for benefits paid by the federal government when that same employee has a private contract of insurance. And, worse still, the insurer is requiring the filing of an SSDIB claim when the employee may not yet be eligible.
The reason for this is that the private disability insurer receives a dollar for dollar offset (or credit) for any monies paid by Social Security.
To illustrate this point, take the case of a 40-year-old female with two minor children earning $75,000 per year. If the employer’s disability contract pays her a benefit equal to 60% of her salary, she would be entitled to a monthly payment of $3,750 per month or $45,000 per year.
If she were required to apply for SSDI, and her monthly Social Security benefit was $1,600 and $750 for each of her two children, the government would be paying her $3100. If she is awarded that amount from Social Security– voila – the insurance company’s responsibility drops to $650 per month.
During the period of “own occupation” benefits, typically two years, the insurer’s $90,000 obligation drops to $15,600, and the U.S. Taxpayer is now responsible for paying the claimant $74,400, even though, in our example, the employee had private insurance.
Given the original purpose of the Social Security Act, even with its subsequent amendments, it seems inappropriate to require the U.S. Taxpayer to pay for a benefit where a person has private insurance and may not even qualify for SSDI.
There are, of course, exceptions. In the case of a seriously injured or ill person or the victim of, for example, a stroke, an early claim seeking Social Security benefits is entirely appropriate. And Social Security claimants also received Medicare benefits. So, there are other considerations. But in those cases where an individual’s illness or injury has not yet risen to the level of a permanent disability, this practice seems to benefit no one but the insurance industry.
So, what can be done?
State insurance commissioners have been ineffective at combatting this practice, so the Social Security Act or the ERISA statute could be amended and updated to curb these practices. Here are three suggested reform propositions that could be added:
1) A disability insurer could not require a disabled employee to file a claim for Social Security Disability benefits any earlier that the first 36 months of continuous disability unless the employee wishes to do so voluntarily.
2) A disability insurance company would not be permitted to take an offset for Social Security for any period where the insurer denied a claim for disability benefits; and
3) If a private disability claim in “approved” status is later terminated and then reinstated, no Social Security offset could be claimed for any period where the private contract benefits were not paid.
These are common sense reforms that would bring about real and meaningful change in the lives of the occupationally disabled worker. They would save the federal government billions in actual benefit and administrative costs. And, as a bonus, these changes would clean up questionable claims-handling practices within the disability insurance industry.
—————
John Joseph (J.J.) Conway is an employee benefits and ERISA attorney and litigator and founder of J.J. Conway Law in Royal Oak.
When most of us think of Social Security, we think of retirement benefits. The Social Security Act is a Depression-era law whose original purpose was to protect widows and children when the family’s provider died.
Over time, Social Security’s scope of coverage expanded. It became a primary retirement plan while continuing to provide death benefits to minor children. It also expanded to protect workers who became permanently disabled with the creation of the Disability Insurance Benefits program, known as SSDI. It is this SSDI coverage that has been exploited by the disability insurance industry.
The typical employee with disability insurance is often covered through their employer’s group long-term disability plan, often an ERISA-qualified plan. If this employee becomes seriously ill or is hurt, they can file a claim with the employer’s disability insurer. When a claim is filed, the insurer sends the employee a packet of forms that includes a contract requiring them to file a claim with Social Security and simultaneously claim disability benefits from the federal government.
The insurer will condition the payment of benefits on the claimant’s filing an application with Social Security and pursuing all avenues of appeal. Some insurers will even provide the disabled employee with legal representation to pursue a Social Security claim. This is done right when the claim is filed.
The problem is that, in most cases, Social Security’s legal standard of disability is much stricter than what a private disability contract requires. A private disability contract may pay a benefit if an employee cannot do their own job. Social Security requires proof of an inability to perform any job in the national economy.
So, already, the private disability insurer is forcing an employee to file a claim for benefits paid by the federal government when that same employee has a private contract of insurance. And, worse still, the insurer is requiring the filing of an SSDIB claim when the employee may not yet be eligible.
The reason for this is that the private disability insurer receives a dollar for dollar offset (or credit) for any monies paid by Social Security.
To illustrate this point, take the case of a 40-year-old female with two minor children earning $75,000 per year. If the employer’s disability contract pays her a benefit equal to 60% of her salary, she would be entitled to a monthly payment of $3,750 per month or $45,000 per year.
If she were required to apply for SSDI, and her monthly Social Security benefit was $1,600 and $750 for each of her two children, the government would be paying her $3100. If she is awarded that amount from Social Security– voila – the insurance company’s responsibility drops to $650 per month.
During the period of “own occupation” benefits, typically two years, the insurer’s $90,000 obligation drops to $15,600, and the U.S. Taxpayer is now responsible for paying the claimant $74,400, even though, in our example, the employee had private insurance.
Given the original purpose of the Social Security Act, even with its subsequent amendments, it seems inappropriate to require the U.S. Taxpayer to pay for a benefit where a person has private insurance and may not even qualify for SSDI.
There are, of course, exceptions. In the case of a seriously injured or ill person or the victim of, for example, a stroke, an early claim seeking Social Security benefits is entirely appropriate. And Social Security claimants also received Medicare benefits. So, there are other considerations. But in those cases where an individual’s illness or injury has not yet risen to the level of a permanent disability, this practice seems to benefit no one but the insurance industry.
State insurance commissioners have been ineffective at combatting this practice, so the Social Security Act or the ERISA statute could be amended and updated to curb these practices. Here are three suggested reform propositions that could be added:
1) A disability insurer could not require a disabled employee to file a claim for Social Security Disability benefits any earlier that the first 36 months of continuous disability unless the employee wishes to do so voluntarily.
2) A disability insurance company would not be permitted to take an offset for Social Security for any period where the insurer denied a claim for disability benefits; and
3) If a private disability claim in “approved” status is later terminated and then reinstated, no Social Security offset could be claimed for any period where the private contract benefits were not paid.
These are common sense reforms that would bring about real and meaningful change in the lives of the occupationally disabled worker. They would save the federal government billions in actual benefit and administrative costs. And, as a bonus, these changes would clean up questionable claims-handling practices within the disability insurance industry.
—————
John Joseph (J.J.) Conway is an employee benefits and ERISA attorney and litigator and founder of J.J. Conway Law in Royal Oak.
