Social Security disability and LTD benefits - Maximizing post injury income

I have assisted thousands of people navigating the arduous process involved in obtaining and maintaining Social Security disability benefits. It occurred to me that the amount of benefits paid to recipients is hardly enough to survive. We have all been told by our government that Social Security retirement benefits are meant to be a portion of our retirement portfolio. This underscores the financial problems people face if they become disabled and have to survive on the benefits paid under the Social Security disability program.

SSA calculates an individual’s disability benefits based on lifetime earnings. The amount of benefits paid for disability is the same as the individual would be paid at full retirement. The caveat about establishing additional sources of income to supplement Social Security retirement is equally true if an individual’s only source of income is federal Social Security disability benefits. There is a logistical problem involved with planning for disability.

Firstly, most people, by nature, do not plan on becoming disabled. As a result, many people neglect the option of purchasing private disability. Secondly, choosing a policy that will supplement Social Security disability benefits is difficult.

Many insurance companies offer short term and long term disability policies. These policies contain provisions that offset their disability benefits against Social Security disability benefits. The result is a limitation in benefits due to the subtraction of the monthly Social Security from the full private disability benefit amount.

A person who has coverage for LTD from an employer can expect the insurance company to enforce a provision in the policy that requires that the disabled worker apply for Social Security disability benefits in order to continue to qualify for the LTD benefit. The insurance companies have become quite familiar with the Social Security disability process. As a result, many have included a provision that requires the individual to appeal the Social Security disability claim through the Hearing level. Since this requires the individual to appear before a Federal Administrative Law Judge, most of the insurance companies offer the services of “vendors” to provide legal representation on the claim for benefits.

One of the largest and most entrenched in this process is Allsup. Allsup offers “cost containment programs” that assist the insurance company in reducing exposure on LTD claims. Allsup also provide a cost containment program that involves auditing the individual’s use of medical insurance to offset costs that can be reduced through Medicare coverage. This has been the source of some controversy since the individual may not realize that they have the right to counsel of their choice. The fact that the insurance company offers the services of the vendor free of charge is inviting to the disabled worker. The fact is regardless of who the individual chooses to represent them on a disability claim; the fee charged by the representative of their choice is subtracted from the over-payment that occurs when the individual is paid retroactive Social Security disability benefits.

Allsup has been providing these services for decades. There is little doubt that they provide a valuable service to both the insurance industry and Social Security disability claimants. The claimant is better served if they are successful in obtaining SSD benefits even when LTD benefits are involved. The combination of benefits, however, does not provide the amount of income needed to live very well.

The individual becomes entitled to retroactive Social Security disability benefits commencing after 5 full months of disability. The length of time it takes to obtain Social Security disability benefits invariably results in an award of retroactive benefits. If the individual’s period of disability coincides with the months of the receipt of LTD benefits, the insurance company cites the individual with an over-payment. Any month the individual is entitled to both Social Security disability benefits and LTD benefits, requires the individual to reimburse the insurance company the Social Security disability benefit amount. Since the SSA provisions for the payment of attorney fees involves payment of 25% of the retroactive benefits for services rendered, the LTD companies arrange to subtract the authorized attorney fee from the overpayment.

Whether the individual chooses to be represented by an attorney or Social Security disability vendor referred by the LTD Company, the fee is still limited to 25% of the retroactive benefits. Most of the remaining retroactive benefit is paid to the insurance company as reimbursement for months that the individual received both benefits.

This creates a quagmire for the injured worker. Even if the individual has disability coverage through their employer, the amount of monthly benefits is limited due to the offset imposed by the Long Term Disability policy. If workers are expected to protect themselves against being limited to only Social Security benefits, are there other options? Many individuals in the insurance industry believe that an individual should not be entitled to benefits over a certain amount should they become disabled. After all, wouldn’t that be a disincentive to return to work? Most LTD policies limit benefits to 66% of pre-injury earnings. When the benefits received from SSA are offset against the LTD benefit, the individual is still restricted to approximately 66% of pre-injury earnings.

Given the government benefit offset of Social Security disability benefits by private Long Term Disability insurance companies, how can an individual make plans to supplement their Social Security disability income? The government allows a disabled individual to earn up to $980.00 per month while receiving disability benefits. If the individual is receiving LTD benefits, much of that income is subtracted from their monthly LTD benefit. In many cases, attempts to work while in receipt of LTD result in a termination of benefits.

I came across a disability plan that offers a disabled worker more income than the traditional combination of SSD and LTD. This plan requires some work and some luck, as well.
If an individual purchases an individual Long Term Disability policy, they may be able to find one that does not offset for SSD. I also learned of another possibility. If an employer offers coverage of an LTD policy, and the individual purchases a private plan before the commencement of employer-paid coverage, the insurance company, in many cases, cannot offset the private policy against SSD. Under these circumstances, the individual can receive full private LTD, full SSD and reduced employer-paid LTD. It can result in a combination of benefits that exceeds the individual’s pre-injury earnings.

While the insurance industry is loath to see an individual collect more in disability benefits than they earned while working, it seems fair that a worker that has to deal with the misfortune of injury and illness receive more than 66% of pre-injury earning. This solution may help. There is an additional cost for the individual disability policy premium. It does offer an option, however. This configuration of benefits is currently available, but one cannot predict for how long the insurance industry will allow this loop-hole to exist. A word to the wise is sufficient.