The New York State Department of Financial Services (“DFS”) has issued an Insurance Circular Letter (“ICL”) which will have a major impact on the manner in which insurers process and fund long term disability (“LTD”) benefit payments. Most importantly, this ICL will, in most LTD cases, result in substantial, interim increases in the LTD payments due to disabled insureds and beneficiaries under the LTD plan.
Under group long-term disability (“LTD”) policies, the gross amount of a claimant’s LTD benefit is typically reduced by the amount of “other income benefits,” such as Social Security Disability Insurance (“SSDI”) benefits. Historically, LTD insurers could require claimants to apply for SSDI benefits and sign reimbursement agreements, under which the claimant agreed to repay any LTD overpayment resulting from a retroactive SSDI award. If a claimant refused, the insurer could reduce the LTD benefit by an estimated amount of the claimant’s anticipated SSDI benefit. So, for example, if a disabled insured were eligible for a $10,000 per month LTD benefit and was potentially entitled to an SSDI benefit of $3,000 per month, the insurance company could reduce the LTD payment by that $3,000. That is no longer the case for LTD policies issued in New York.
Under the ICL, insurers can no longer require claimants to apply for SSDI benefits and cannot, absent the claimant’s consent, deduct an estimated SSDI benefit from the claimant’s LTD benefit. The change was made following DFS’s realization that there is a significant disparity between the eligibility standards for SSDI and those applicable to most disability income insurance policies. DFS explained that “[t]he eligibility threshold for SSDI is more stringent than the eligibility threshold for benefits under most disability income insurance policies” and that requiring an insured to pursue government benefits, even when the likelihood of success is low, “serve[s] as a hardship on an insured.”
For decades, LTD attorneys have argued that forcing claimants to apply for SSDI benefits is unfair and can impose unnecessary burdens upon individuals who are already disabled. New York State has now recognized these inequities, and eliminated them.
There may still be legitimate and beneficial reasons for a claimant receiving LTD benefits to apply for SSDI. But being compelled to do so by a private insurance company is no longer one of them in New York.
If you have any questions about your long-term disability benefits, the SSDI offset provision in your LTD plan, or any other issue involving your LTD claim, the attorneys at Hiller, PC are here to help.
