Insurance providers help people during their time of need, though all parties in the transaction hope the buyers never need to use the coverage.
When the unthinkable happens, however, beneficiaries and carriers take a closer look at all the costs — and this analysis is especially crucial following an acquired disability.
The complexities involved with long-term disability (LTD) insurance go beyond other types of insurance. Unlike home or auto insurance plans where coverage can sometimes be “one and done” — damages are paid out and everyone may move on in a matter of days or weeks — LTD plans have far greater timelines, lasting months or even years.
Thanks to the Social Security Administration’s (SSA) recent changes to the Social Security Disability Insurance (SSDI) program, those timelines could become longer for some claims and cost LTD carriers more than they originally anticipated. The key to understanding how the SSA’s changes affect LTD carriers is this: Every day that an individual spends waiting for their Social Security disability benefits to be approved, LTD carriers provide the full replacement income for individuals who’ve had to stop working due to an acquired disability.
In a perfect world, individuals who experience a disability would be able to apply for SSDI and receive their approval in only a matter of days, and then complete coordination with their private LTD policy, which is designed to accommodate the federal disability program. In reality, this is not the case. Only one-third of initial SSDI applicants are approved, and it takes, on average, at least a year up to three years-plus applicants to have their case reviewed by Social Security.
This delay is due in part to the backlog of claims that Congress dedicated more funding to address in 2018. There have been some wait time reductions, but the SSA predicts that any further progress has plateaued. On top of this, the SSA has recently introduced a number of SSDI program modifications, including several described here, that on the face appear to hinder a greater number of people’s abilities to receive the benefits they’ve paid for with FICA payroll taxes during their working careers.
One of these modifications involves reinstating the reconsideration process in 10 states, thus adding three to six more months with a new appeal level for tens of thousands of claimants. With reconsideration, a second reviewer looks at an initially denied application. For some, that second pair of eyes will increase an applicant’s odds of being approved. For the majority, however, the opposite occurs and the second reviewer simply agrees with the first denial and the case proceeds to the hearing level, where about 800,000 people are waiting an average 18 months for a decision. According to the 2017 Annual Statistical Report on the Social Security Disability Insurance Program, the average reconsideration allowance rate in 2016 was just 9.2%.