Changes in the Social Security disability process may have an impact on how insurers conduct their group long-term disability business. The reason is that most group LTD policies have an offset for Social Security Disability Insurance Benefits (DIB). So, a change in the DIB process may directly affect LTD.
The most interesting change under way with DIB, and the one with the most far-reaching potential, is the Social Security Administrations (SSA) conversion from paper to electronic files. Though thinking is only beginning concerning the many ways this can impact the LTD process, at first blush, it would seem that the claims process could benefit greatly from the development.
A difficult problem in the LTD claims process is determining the status of a DIB claim. While the SSA has made attempts at providing online files in the past, the results have been difficult to work with, and generally unsatisfactory. If the electronic file process is successful, it should provide remote access to claim files for parties with the proper authorization and access codes.
Such access would permit an insurer to view online, and without delay, the status of a DIB claim. Indeed, it would allow an insurer to determine if a DIB claim had been filed by the disabled worker.
Such knowledge would help an insurer determine whether the disabled worker is performing his or her obligations under the LTD contract. The LTD contract generally requires a disabled worker to apply for DIB and to pursue the application through an administrative hearing.
Since some claimants say they have done this, when, in fact, they may not have, or their application for DIB may not be current, the electronic file will allow the insurer to confirm status of a claimants DIB case instantly.
In appropriate cases, if a claimant does not fulfill his or her obligations under the LTD contract, the insurer may offset the LTD benefit by an estimate of the DIB amount that the claimant might receive if the DIB application were filed and benefits awarded.
The electronic file may therefore cut down on administrative time and effort by the insurer to determine the appropriate actions on claims.
Also, large amounts of benefits may be affected by access to current and correct information. Therefore, the insurer may save substantial sums just by being able to act more quickly than is possible when proving claim status with paper documents (which may already have been stale by the time of receipt by the insurer).
Similar advances in technology may also permit the insurer to recover any “overpayments” more quickly than currently possible.
For example, sometimes a disabled employee receives LTD for several years before DIB benefits are awarded. This can be for any number of reasons, such as the delay in hearing cases at SSA caused by a large case load. Cases may not get heard by an administrative law judge for over a year after a hearing is requested. If DIB is awarded, the benefits are retroactive to date of disability. The employee then receives a lump sum for these “past-due” benefits. SSA deposits the lump sum by electronic transfer into the claimants bank account.
In these cases, the award of retroactive DIB benefits creates an overpayment of LTD benefits. In other words, had the DIB been awarded more promptly, the offset in LTD benefits would have occurred earlier in time. So, the LTD insurer is entitled to be reimbursed this overpayment.
These reimbursements more often are now being accomplished by electronic fund transfers. These transfers save the insurer time, and therefore money, as the float is minimized because the reimbursement is deposited directly into the insurers account. Administrative time to receive, rout and otherwise process a paper check is also eliminated.
The additional interest earnings gained by receiving the funds earlier than before may be substantial, in view of the fact that many reimbursements may be made in this manner.
A word of caution. Whenever an organization as big as the SSA undertakes a major change like this, glitches can be expected. Anecdotes are circulating to the effect that this particular change has not been given enough time to be considered and implemented, that the SSA is rushing to make this change too quickly. Though some difficulties are fully expected, my view is that the SSA should be applauded for moving forward with the concept, as the savings in time and money for all concerned should be substantial.
So far, the SSA is making a very limited number of files available on a CD at the hearing level, whereas before the files had to be copied manually page by page. Now the hearing exhibits in this pilot program are provided on a well-organized CD where exhibits are easily viewed with the software in Microsoft Office. If this is a forerunner of the quality of what we can expect from SSA in the future, then the results should be very good. Of course, only time will tell, but the beginning of this process looks promising.
Douglas I. Friedman, a partner in the Friedman & Downey, P.C. law firm of Birmingham, Ala., is national counsel on estate and business planning for insurers. His e-mail is firstname.lastname@example.org.
Reproduced from National Underwriter Edition, March 4, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.