One proposed change to the federal benefits program would target a long-running misuse of those programs, not by the program’s intended beneficiaries, but by the insurance industry. A meaningful reform would be to restrict how disability insurers force long-term disability insurance claimants into the Social Security System prematurely. This practice benefits no one except insurers, and it places an undue burden on the disability claimant.

How the process currently works

When an employee covered by a group long-term disability insurance plan becomes ill or injured for an extended period, they typically file a claim for benefits with their insurance company. This is a means of replacing their lost income.

Upon receipt of a claim, an insurer usually sends a claims packet to the employee. The packet contains several forms, including a doctor’s disability certification form, a claimant statement of functional limitations, and authorizations allowing the insurer to access the claimant’s medical records.

Insurers also typically include a contract requiring the claimant to file a claim for disability insurance benefits with the Social Security Administration. Insurers are within their rights as they often have already included a provision within their disability contract requiring a claimant to file claims for any “other income” benefits for which they may qualify.

Such a provision allows the insurer to take a dollar-for-dollar offset from any payments it may owe the claimant. If the claimant does not file a claim with Social Security, the insurer is allowed to ‘estimate’ the maximum Social Security benefit allowable and deduct it anyway.

So, a disabled employee who has a contract of private insurance is required to file a claim for public assistance benefits to save the insurance company money. Effectively, this makes the public at large a reinsurer.

There appears to be no specific law that allows this practice, but there is also no law that prevents this practice either. It is merely a contractual way of legally offloading financial liabilities to the federal government.

The big problem with this practice is that many claimants do not yet qualify for Social Security disability benefits when they initiate a long-term disability claim with their insurance company. When a claim is filed with an insurer, it is usually initiated because the employee cannot perform a specific job. For example, an employee who works as a traveling salesperson cannot perform that specific job – traveling salesperson.

Social Security, on the other hand, requires proof of general unemployability. A Social Security claimant must show an ineligibility to perform any job in the national economy to qualify for benefits. In the aforementioned example, a traveling salesperson who files a claim for disability benefits with their insurer cannot perform their own job, but that employee may be able to perform some job. So, why do insurers do this? Just look at the numbers.

Take the case of a 40-year-old female with two minor children and earning $75,000 per year. If her employer’s disability contract pays a benefit equal to 60% of her salary, she would be entitled to a monthly payment of $3,750 per month or $45,000 per year from her insurance carrier.

Related: Elon Musk’s DOGE targets CMS in $1T spending overhaul, sparking legal battle

If she were required to apply for Social Security disability benefits, and her monthly Social Security benefit was $1,600 and $750 each for her two children, the government could be potentially paying her $3,100. If she is awarded that amount from Social Security, the insurer’s responsibility drops to $650 per month.

During the period of “own occupation” benefits, typically 24-months, the insurer’s once $90,000 obligation drops to $15,600, and the federal government is now responsible for paying the claimant $74,400, even though the employee had a private contract of insurance. Eventually, the Social Security approval will create an entitlement to Medicare benefits.

It seems inappropriate to require the taxpayer to pay for a public assistance benefit where a person has private insurance and may not even qualify for Social Security. Thus far, the states have shown little interest or have been ineffective at combatting this practice. This leaves the Social Security Act or the Employee Retirement Income Security Act of 1974 (ERISA), which most employees derive their benefits from, to be amended and updated to curb this practice. Here are three suggested reforms that could be added to those statutes:

1. A disability insurer could not require a disabled employee to file a claim for Social Security Disability benefits any earlier that the first 36 months of continuous disability unless the employee wishes to do so voluntarily.
2. A disability insurance company would not be permitted take an offset for Social Security for any period where the insurer denied a claim for disability benefits; and
3. If a private disability claim in “approved” status is later terminated and then reinstated, no Social Security offset could be claimed for any period where the private contract benefits were not paid.

The savings are real

Over time, the savings from these reforms could be considerable. The latest Social Security disability program statistics are reported using the year 2023. According to the SSA, in 2023, there were 8.7 million people collecting some form of disability payment (i.e., disabled workers, spouses, and children). Not counting the payment of supplemental benefits, the SSA was paying out $12.7 billion (the equivalent of about $39 per person in the U.S.) in benefits annually. Also, this figure did not include any payments of Medicare medical benefits which are awarded following a finding of total disability. A mere 3% decrease in forced early applications might save as much as $381 million a year; a 5% decrease, $635 million a year.

Restricting the forced early applications to the Social Security disability benefits program is a common-sense reform and could bring about real and meaningful change in the lives of occupationally disabled workers. It is a simple change but one that would ultimately save the federal government billions in actual benefit and administrative costs. And, if enacted, these changes would restore the financial responsibility for these claims to the rightful payor – the insurance company who sold the disability contracts in the first place.

John Joseph (J.J.) Conway is an employee benefits and ERISA attorney and litigator and founder of Michigan-based J.J. Conway Law. The firm represents those seeking full access to the employee benefits they earned and are legally entitled to. Conway has been involved with nationally significant employee benefit, disability and pension cases, including class action lawsuits for such landmark decisions as requiring Michigan private insurers to cover autism health treatments for children through age 18.