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%.
With the addition of reconsideration in 10 states, already understaffed SSA offices will have to spend more time managing applications and appeals through a process they haven’t experienced in nearly 20 years. In these states, the SSA has said it will hire and train Disability Determination Services (DDS) staff, another change that takes up even more precious time.
The SSA now also requires that applicants provide every piece of medical information that “relates to” their disability. The average person going through the SSDI process for the first time generally doesn’t know what health record information is or is not important to Social Security, so the majority play it safe and send in far more information, often duplicating and including irrelevant records. Not only is it expensive for applicants to gather all this information — it can potentially cost hundreds of dollars — it’s also time consuming.
If applicants opt not to initially submit everything and end up getting denied, they have the chance to submit additional evidence before their hearing. The good news is that the SSA now alerts SSDI applicants of their hearing date 75 days in advance compared to the previous 20 days. The bad news is that the SSA now requires all supplemental information to be shared five days before their hearing, preventing claimants from being able to present information on the day of their hearing. Though 75 days may sound like ample time to prepare, applicants can’t control how quickly medical providers respond to requests for information and might still miss that deadline.
Unfortunately, even if applicants possess the crucial piece of evidence they need the judge to see on the day of their hearing, this new “five-day rule” may prevent the evidence from being considered. Even worse, if a recent SSA policy proposal is approved, applicants soon may no longer get the chance to have their case heard in person with an administrative law judge. Instead, they will be required to attend a video hearing, and applicants often suffer from this low-quality interaction: with 6% fewer people receiving SSDI approval with video hearings. Once again, an applicant may be wrongfully denied and see delays in coordination of their LTD income with SSDI benefits.
A final SSA change has to do with how appeals decision-makers and administrative law judges consider disability claims. Instead of giving priority or “controlling weight” to medical information provided by a person’s treating physician, a state agency’s examiner or medical consultant is to be considered equally — even though these outside examiners are not as familiar with the applicant’s medical history as is their treating physician. A Tennessean article reveals that one agency doctor spent only 12 minutes per Social Security disability case.
In spite of what may have been good intentions, each of the SSA’s new regulatory measures has the potential to make it more difficult for individuals to access the disability assistance they’ve paid for and to complicate the marketplace for LTD carriers, who’ve designed their programs to coordinate with the federal insurance program that 155 million workers annually fund through their FICA taxes.
On the face of it, no one can afford to have longer SSDI wait times. In addition, American workers and the LTD carriers who provide vital disability insurance coverage should be concerned that this federal insurance program — created to save workers from financial devastation — is being devastated through regulatory reforms that are creating more barriers and hardship for workers.
— Read Jim Allsup Publishes Guide to the SSDI Claim Determination Maze, on ThinkAdvisor.
Steve Perrigo is the Vice President of National Accounts and Consulting for Allsup.