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Long Term Disability Insurance Carriers Faulted for Forcing Claimants to Apply for SSDI

Earlier this week, the New York Times published an enlightening article about the practice of Long Term Disability (LTD) carriers requiring LTD beneficiaries to apply for Social Security disability.  This practice is commonplace and the reason for it is simple economics.  Most employer paid LTD policies provide that (1) any SSDI benefits received will offset the LTD carrier’s policy obligations and (2) the claimant must “repay” the LTD carrier any lump sum received for past due SSDI benefits.

An example will illustrate my point.  I have a client “Tom” who has a severe degenerative back condition and depression.  This is not a workers compensation situation because there was no specific “injury” at work – instead, Tom’s back problems arose from years of physical labor as well as a prior motorcycle accident. Tom applied for and received LTD benefits in the amount of $1,800 per month.  The LTD policy obligates Tom to apply for Social Security disability.  If Tom is approved, his SSDI benefit will be $1,500 per month.  Under the terms of the policy, the LTD carrier will use SSDI to offset its obligation – instead of paying Tom $1,800, it will only pay him $300.  In addition, the LTD carrier will demand that Tom sign over his past due benefit check as that check represents payment for months that the LTD carrier was paying benefits.

As you might imagine, this scenario does not make Tom happy.  He has to go through the hassle of applying for SSDI benefits, testifying at a hearing and dealing with the stress of the SSDI process only to see a big check from SSDI ($20,000+) go right out the door.  Most LTD carriers will not demand repayment of my attorney’s fees – they will only ask for the portion of the past due benefit check that Tom actually receives.

Several years ago I made some inquiries about the fairness of this policy and the LTD carrier’s position is that its premium structure is based on the expectation that a certain percentage of LTD beneficiaries will qualify for SSDI and therefore reduce the carrier’s exposure.  Fair enough explanation although I wonder how clear this offset policy is made to employees who are pitched to sign up for LTD policies by their employers.

By the way, many private LTD policies do not include this offset or SSDI repayment language – but if you are a prospective LTD purchaser you should ask the question.

In any case, the New York Times piece raised the question of whether this mandatory SSDI application policy was gumming up the works for Social Security disability case processing and adding to the already lengthy delays.  The Times quoted a Social Security spokesman as saying that approximately 18% of SSDI claimants acknowledged privately that they were unqualified, because they could still work and that  iIt is probable that many of these claimants were required to apply” by LTD carriers.  The spokesman went on to say that Social Security processes approximately 2.5 million applicants each year – 18% would equal around 450,000 applicants are wasting everyone’s time and causing delays for everyone.

I would suspect – although the Times does not say this – that many of these unwilling applicants do not hire lawyers, meaning that they would be considered “unrepresented claimants” by Social Security.  As any Social Security judge would tell you, unrepresented claimants take up more time and resources because their cases often require extra development and resets.

SSA is apparently floating the idea of changing its rules to treat LTD referred claims differently than regular claims.  There are also a number of “whistle blower” lawsuits that have been filed against LTD carriers for “dumping” unqualified applicants at Social Security’s doorstep.

It will be interesting to see how this all plays out.

0 thoughts on “Long Term Disability Insurance Carriers Faulted for Forcing Claimants to Apply for SSDI”

  1. “any SSDI benefits received will offset the LTD carrier’s policy obligations”

    In my case, this also includes the benefit my ex-wife receives for her being the custodial parent. A second lump-sum check swallowed whole, and a monthly offset that is greater than my child support payment was.

    It gets worse.

  2. We had to repay most of LTD to Guardian for years 2005, 2006, 2007, and 2008, along with attorney fees. We paid taxes on this for 05, 06, and 07 and this year we will have to pay taxes on LTD and SSDI. I inquired to Guardian about corrected W-2;s for each year and they said they do not issue them. How can amended tax returns be filed without them?

  3. I’ve been disabled since April 2008. I have been receiving 1200.00/mo. in LTD benefits and $500.00 in State Disability retirement benefits. My LTD carrier receintly sent me a letter (not return receipt requested or provable as sent or received in any way) claiming they are due 14K once my SSD award is approved. After my SSD atorney’s fee, taxes I anticipate that will be taken out of the SSD retroactive payment, there does not appear to be enough funds to repay the LTD carrier what they are demanding they be repayed. What is the likely outcome if I cannot repay the LTD even if I can prove that I in no way attempted to defraud them by not making a full repayment? Will the LTD attempt a legal action to attach my SSD and retirement. Also, what is likely to happen if a person receives a lump sum retroactive payment from SSD, spends it on past due bills and does not repay the LTD? Given that there is no real property owned and that the only provable asset of the person is the $1700.00 he receives monthly, can and more importantly, will the LTD succeed in obtaining a judgement and then be able to garnish the SSD and retirement until the LTD balance they claim they are owed is satisified?

  4. @kent:
    It will depend on your contract and your earnings. My husband was in technology sales and had a very good sales the year before becoming disabled. The long term disability (LTD) policy he has pays 60% of the earnings based on the last 12 months, minus SSDI and offsets. We certainly would have had to sell our home without the LTD.

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