Posted: Fri Jun 20, 2008 04:55 pm Post subject: Supreme Court - LTD contracts, SSA, conflicts of interest
I've said it before and I'll say it again. Congress should immediately amend the ERISA or the non-assignment clause of the Social Security Act to eliminate the awful practice of the offset of Social Security disability benefits in private insurance policies. Eliminating this offset would save SSA hundreds of millions of dollars in unnecessary DDS processing and ODAR adjudication costs, not to mention the blatant corporate welfare paid to private insurance companies in the form of disability benefits to private beneficiaries. Also, eliminating the offset practice would reduce the burden on federal courts, which must hear thousands of Social Security disability claims that if paid will result in little more than windfalls to insurance companies.
Eliminating the offset is an extremely fast way to dramatically reduce the ODAR backlog. It is a one-stroke solution and it is time to do it now.
The Supreme Court held that courts must consider the inherent conflict of interest involved in this process.
The SSA should go further and take a new broom to this awful practice. Clean it up and save the taxpayers a ton of money. Stop subsidizing issuance companies. Stop burdening legitimate LTD claimants with needless applications at SSA and the usual adjudication that produces.
Joined: 11 Jun 2004 Posts: 159 Location: Montpelier, Vermont
Posted: Fri Jun 20, 2008 06:18 pm Post subject:
The effect of such legislation would be the extinction of LTD policies. The policies are priced with coordination of LTD/DIB assumed. Without the ability to coordinate they would become too expensive to offer. Employers already feel the pinch from offering medical insurace as an employee benefit.
As much problems as ERISA LTD policies have, I can't agree to legislation that would result in their elimination. I had a case once which I took all the way to the 2nd Cir Ct Ap. and lost, but luckily for my client, the employer had a LTD policy which found her disabled and entitled to benefits. Admttedly it is a rare occasion when an LTD administrator finds disability when SSA will not. But without that LTD policy she would have been screwed.
What the policies do is simply misstate the benefits provided and the nature of the contract. If they wish, the insurers could easily provide a Disability Supplement Policy, which would not pose as a Disability Policy. This would be similar to a Medicare Supplement policy, which does not pretend and is not priced like a full health care plan.
Giving consumers the option of buying a supplement policy or a real disability insurance policy would make the process clear, and simplify the market comparisons for employers.
It's a shell game, with misnamed insurance policies and unreasonable expectations generated in the minds of the consumers.
Furthermore, providing a public subsidy to the very profitable life insurance industry is hardly a public policy that we need to endorse. This is especially true during a record budget deficit period where the majority of legitimate disability claims are unpaid by DDS and appeals take years.
SSA should opt-out of the shell game, now. There is no public policy basis for the offset other than corporate welfare. I'm not a big fan of corporate welfare except when it is actually needed to save a sector of the economy. Life insurance is not a sector that needs our help.
Additionally, the Supreme Court makes clear that the current practice can produce significant conflicts of interest that are harmful to consumers. SSA has a moral obligation to not tacitly or actively participate in such conflicts.
Joined: 11 Jun 2004 Posts: 159 Location: Montpelier, Vermont
Posted: Mon Jun 23, 2008 01:31 pm Post subject:
I don't see how converting these policies into a "disability supplemental policy" would solve the issue of the number of SS claims that get filed because of the existence of these policies. If they become a "supplemental" policy then you are still predicating the benefit upon an application to SSA for benefits. Only now you are predicating payment of the policy, not only on an application, but upon the success of the application as well, putting all the more pressure on SSA to provide quick adjudication to a great number of claims.
I've never had a client with an STD/LTD policy not understand that they had to apply for SS benefits and that their STD/LTD benefits would be reduced if they were found disabled by SSA. I don't see it as a problem with understanding the nature of the benefits. There are, however, two huge problems with these policies. The first is a review process which is plagued by self-interest, self-dealing, and the reliance upon doctors who are beholdened to the insurance industry. This could be addressed by a change in the federal review standard to make the disability policies more susceptible to judicial scrutiny.
The second problem is the burden that the policies place on SSA in additional claims. I think we could have a more nuanced approached to this problem than to simply prohibit coordination of the benefit with Social Security in all cases. How about this: Prohibit the policies from requiring that the claimant apply for Social Security for the first year in which the disability benefits are paid. There is no reason whatsoever for an STD/LTD policy to require a person to apply for SS benefits when they are expected to be out of work for less than 12 months. This would, I think, eliminate the majority of the specious SSA claims that are related to these policies, while at the same time permitting coordination of the LTD benefits with SSA such that they would be more affordable for low and middle income workers.
Perhaps there should be some truth in advertising out there.
Companies should be precluded from selling "long term disability insurance." They should be selling "supplemental disability insurance" which covers:
a. impairments that are "disabling" for less than 12 months.
b. impairments that preclude past work, but that do not preclude an adjustment to other work.
c. a supplemental benefit for a person over and above DIB.
d. long term disability benefits for someone not entitled to DIB due to program rules (i.e., too few covered quarters).
We are currently paying for long term disability benefits. It is called Social Security. These other policies are supplements and should be labeled as such.
The big problem is that the SSA reimburses the insurance company, so that US taxpayers paid for much of the coverage purported provided by a private carrier. Why should the taxpayers pay for that? Why should the cost be hidden?
Joined: 11 Jun 2004 Posts: 159 Location: Montpelier, Vermont
Posted: Mon Jun 23, 2008 06:33 pm Post subject:
Your premise is that tax payers are subsidizing these policies, but I don't see evidence of this. These policies are relatively cheep as employee benefits go, far cheeper than other mandatory or voluntary employee benefits such as workers' compensation, pensions or medical insurance. To me this indicates that they are being priced under the assumption that the coordination will occur. Otherwise they would be more expensive. If you can show me that they are priced under the assumption that the coordination will not occur, then I would agree that they are subsidized by public benefits and something should be done about it.
Your premise is that tax payers are subsidizing these policies, but I don't see evidence of this. These policies are relatively cheep as employee benefits go, far cheeper than other mandatory or voluntary employee benefits such as workers' compensation, pensions or medical insurance. To me this indicates that they are being priced under the assumption that the coordination will occur. Otherwise they would be more expensive. If you can show me that they are priced under the assumption that the coordination will not occur, then I would agree that they are subsidized by public benefits and something should be done about it.
Your argument is wonderfully self-referent. It's a logical Möbius strip I love it! Because the government subsidizes a very large portion of the LTD market, the insurance companies can sell the product cheaper. Thus, you reason that there is no subsidy.
Compare with "because the Mexican government subsidizes the gasoline industry gas in Mexico is two dollars cheaper than in the United States."
Because Canada subsidizes the timber industry, Canadian lumber is less expensive than American Lumber."
"Because India subsidizes the automobile industry, cars made in India are cheaper than American imports."
Alternatively, the subsidized industry often puts all or some of the subsidies in their pockets without changing prices. For example:
"Because the United States subsidizes the oil industry, oil industry profits and prices are at an all time high.
Dressing Social Security Disability in a corporate logo via a complex consumer contracts is a great deal for the insurance companies. They get to resell something that they don't have to pay for, they get to use SSA's application and adjudication systems essentially for free, and most importantly, they don't have to make the monthly payments to the beneficiaries for decades on end.
Putting free products like that in a wrapper and reselling them is a stupendous deal for the insurance companies. It is a bad deal for the customers who have no idea what they are in for when they apply for SSD. It's a very a bad deal for the taxpayers, and a very bad deal for SSA, which is getting screwed with high caseloads. Those hurt most are the disabled, which is the ultimate point of the Supreme Court case.
Well, that's a little ad hominem, but that's okay.
So, you think it is not a subsidy because of what? It reduces the cost of LTD to the insured?
That does not make any sense at all. Indeed, the examples I gave such as low gas prices in Mexico show how subsidies reduce prices to consumers in all sorts of markets, from oil to timber. I could increase that list substantially.
Similarly, the repackaging of a (to the industry) free product in a branded LTD wrapper is obvious. How, exactly am I mistaken?
How is it not a subsidy to offset a private policy with DIB while using the SSA's application and adjudication system to screen out beneficiaries?
Please, seriously, explain. If I am on the wrong track here I would like to know how.
The LTD insurance industry has just glommed on to a government program and based its business model on the program.
It is sort of like Tang. The government needed Tang for the astronauts. Then the guys who made the Tang sold it to us. The list is endless. Maybe it started with fire-cracker manufacturers in China. It could have been the canned beef makers in France. Or perhaps it was Jeep.
In this case, SSA would have to make decisions if the people did not have LTD insurance (for the most part). The LTD insurance companies are just helping people know their options (and the LTD insurance carriers have a financial incentive to do so).
IMHO, the only way to stop this is to have people be able to opt out of the DIB program. Won't happen.
Joined: 11 Jun 2004 Posts: 159 Location: Montpelier, Vermont
Posted: Tue Jun 24, 2008 06:55 pm Post subject:
David Traver said:
Quote:
Well, that's a little ad hominem, but that's okay.
Yes, but so is your sarcasm.
Is it a subsidy? First of all, what do you mean by a subsidy? Do you mean it is subsidized because the benefits are coordinated? If that is the case, there is a difference between pricing a policy to coordinate with a public benefit and subsidizing the insurance industry so that the policy is priced at a level that is artificially lower than what the market would support on its own. In the first case the price is lower because of the public benefit, but it is not artificially lower. You can outlaw the coordination of the benefits, but that is not eliminating a subsidy, that is altering the market through regulation. Just as outlawing the sales of prescription drugs over borders alters the market for prescription drugs. (And allows the drug industry to profit from the subsidies that the US Government gives them locally, like prohibiting Medicare from negotiating lower prices. This is absolutely a subsidy, because it results is an artificially high price for drugs which the taxpayers are paying for.)
Do you mean that there is a subsidy because there is a signficant administrative burden placed on SSA which ends up benefiting the LTD industry because of the resulting reduced payments on the LTD policies? I have agreed that the policies place an undue administrative burden on SSA and I have proposed a solution that does not throw the baby out with the bath water. I still think that there are legitimate reasons for the existence of these policies. See Katall, supra a-d, Jarvis, supra e.
Do you mean that there is a subsidy because LTD carriers get paid back money that it has already paid once the DIB is awarded? The payback is the result of a contingent debt agreement. Debt is paid back all the time from awards of various kinds. I've never heard anyone call this a subsidy. The federal goverment will take back debts owed it too out of the award. Is that a subsidy?
Maybe l'm off base. Maybe someone can explain to me how the market price for the policies is artificially low or high, other than the fact that they would be higher if we outlawed coordination.
David Traver said
Quote:
If the Supreme Court is wrong about the conflict of glaring LTD conflict of interest problem, should we send them a postcard and set them right?
You have a habit of assuming that if someone challenges you on a point, that they are against you across the board. The Supreme Court is absolutely and possitively correct that conflicts of interest exist. In my mind, they don't go far enough in either appreciating or remedying the extent of this problem. I would go farther than they have, as I have already said, by altering the standard of review in federal court away from arbitrary and capriciousness to something along the lines of a substinative review.
EDIT: On second thought, my example above of outlawing cross-border drug sales is not a good example. It is a subsidy in the form of a trade barrier. But I hope you get my point. Here is a better example. Is it a subsidy to require the car industry to install air bags? I don't think so. It is a regulation that changes the nature of the product being sold across the board. It may result in a higher price for the cars, but this is not an artificial price.
That's a nice picture of the Wizard. Unlike him and most posters on this board, we post with our real names. That's nice.
To answer your first question, I mean a perverse subsidy. "The term "perverse" is sometimes applied to a subsidy when it encourages undesirable actions imposing social costs upon the rest of society. Wikipedia, ~~1Subsidy - Wikipedia, the free encyclopedia.~~2, http://en.wikipedia.org/wiki/Subsidy (as of June 24, 2008). The Supreme Court has identified the social costs, I have identified more.
In this instance, SSA allows insurance companies to use the application process for free, to use the adjudication system for free, to use the benefit awards for free, and to use the entire adjudication for the perverse processes described in the Supreme Court case. Your argument (which you offer without a scintilla of evidence) is that the pricing structure by the insurance companies makes this all a wash. Therefore, because the insurance companies are allegedly scrupulous about not making a profit on that part of their actuarial analysis and pricing structure, there is no subsidy. That argument is similar to arguing that milk subsidies don't exist because farmers really never make any money producing milk. (It's true, dairy farming is a crappy job.) Other analogies that you give are not on point. The government is not providing free drugs to the pharmaceutical companies for rebranding and resale. Yet, that's exactly what SSA is doing. It is providing disability insurance and the related infrastructure to the insurance industry. The industry rebrands DIB by shoving it into a complex contract that most attorneys would not understand. Medicare and Medicaid would be such examples, but law prohibits insurers from rebranding those services. So, instead, insurers clearly sell Medicare supplement policies. I would not object to the sale of offset insurance policies if they were clearly DIB supplement policies and there was no claim to past due benefits. But that is not what is being sold.
There is more here than simply putting a product (for which the companies pay zip) into a LTD wrapper. LTD companies are hard to distinguish from the payday lending industry. Giving a cash advance on a DIB check, with a contractual lean or claim on the DIB check is illegal. It should also be illegal to "lend" disabled claimants money in a "LTD" policy with a contractual claim to the past-due benefits. A contingency contract with for DIB benefits is against public policy, as is shown by the many court cases enforcing the non-assignment clause of the Act. Mr. Hall's nice blog today has a link reagarding Congressional hearings into the illegal payday lending practice. The basic difference here is that the "payday loan" is not from huge insurance companies. LTD companies are "respectable" and big. So what?
Your solutions are pie-in-the-sky and almost impossible to implement. Also, you have provided no proof whatsoever that they would have any effect. My solutions are simple and powerful. They can be accomplished with just a few sentences in two statutes. Your solutions call for institutional changes by hundreds of insurance companies and the Federal Courts. Your solution is like the "gas tax holiday." We all know that would never work.
Finally, you mentioned that you have "never seen" a claimant who did not understand that he or she had to repay the insurance company. I wonder what you would see if you were speaking to people who were not trying to win a disability claim at SSA after they had been denied by SSA and told by the insurance company that they better get a rep because their LTD was ending. Your sampling technique on that issue is not valid. Once again, it is a very lovely self-referent Mobius strip. My favorite example of that kind of pre-selected self-serving survey is from the Village of Shorewood in Wisconsin. When objecting to a law requiring costly installation of curb cuts at all of the corners at intersections, one council member argued with considerable vigor (and I paraphrase) that it was "hogwash, we never see people in wheelchairs using our sidewalks."
He was exactly right, and he was completely wrong.
Joined: 11 Jun 2004 Posts: 159 Location: Montpelier, Vermont
Posted: Tue Jun 24, 2008 08:35 pm Post subject:
Am I relying on incomplete, sometimes questionable and at times anecdotal evidence? Absolutely. Could my mind be changed if you showed me better data. Absolutely. Was my example regarding the drug industry a bad one. Absolutely. See my edit above.
What I have not seen is any better evidence coming from you. If you have it, by all means post it. I'd love to see it. Seriously.
However, I think that the heart of our disagreement probably comes down to a judgement call as much as it relates to any data. I do see legitimate reasons for the existence of the policies and would like to see a system that enables the legitimate use of these policies. My sense is that you do not see a legitimate reason for the existence of these policies. That's fine by me. But it doesn't mean that I have to agree with you.
Perhaps we could agree that SSA processing DIB claims for individuals is not a subsidy for LTD insurance carriers. But it is frustrating that the LTD insurance carriers get the service for free.
And perhaps we could also agree that the way the current system is run is bad policy, benefitting mostly, if not only, insurance carriers. But there are many a bad policy out there.
Mr. Jarvis argues persuasively for the first postulation.
Mr. Traver argues persuasively for the second.
And they both argue past each other.
The economics of this are interesting. Anyone know how the reps are paid? This whole system might really be bad for claimants. For example, an individual has $3000/month LTD. LTD tells him to file for DIB. LTD insists that he get an attorney. In the end, the backpay from SSA is over $22,000. Does the rep get $5,300 from the individual? If he gets the money from the LTD carrier, is there a conflict of interest? Can the LTD carrier force the person to request reconsideration? If the rep gets the money from the individual, then the individual is worse off than he would have been had he only had LTD benefits. This would be troubling. On the other hand, it may not work like this.
Am I relying on incomplete, sometimes questionable and at times anecdotal evidence? Absolutely. Could my mind be changed if you showed me better data. Absolutely. Was my example regarding the drug industry a bad one. Absolutely. See my edit above.
What I have not seen is any better evidence coming from you. If you have it, by all means post it. I'd love to see it. Seriously.
However, I think that the heart of our disagreement probably comes down to a judgement call as much as it relates to any data. I do see legitimate reasons for the existence of the policies and would like to see a system that enables the legitimate use of these policies. My sense is that you do not see a legitimate reason for the existence of these policies. That's fine by me. But it doesn't mean that I have to agree with you.
As an attorney who used to work for an LTD subrogation/SSDI firm, I have some insight into the fee structure. With our work, we were paid out of the SSDI back payment in every case. There was no payment of attorneys' fees by the LTD directly. All the LTD did was guarantee us a steady stream of high quality referrals. However, in order to remain competitive, we would often agree with the claimant that we would only take a lesser specified amount out of the back pay regardless of the $5300 cap. Often, depending on the LTD carrier, we would agree to only take $2000 as a fee in order to secure the business and referrals from the LTD company. Ultimately this allowed the LTD a larger share of the back pay amount and allowed them to further subrogate their losses on the policy.
Posted: Fri Jul 25, 2008 05:33 pm Post subject: The hammer is coming down on the LTD/SSA scam
Quote:
The Senate is investigating whether insurance companies are forcing able-bodied people to apply for Social Security disability benefits, worsening a severe backlog in the government program while increasing their own profits.
Senator Charles E. Grassley of Iowa, the senior Republican on the Finance Committee, has sent letters to nine insurers, requesting detailed information about their handling of disability claims “as part of the committee’s ongoing inquiry into these important matters.”
Sick and injured people must often wait more than a year before their claims can be decided by one of Social Security’s adminis
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