Disability insurers have been sued for clogging the Social Security Disability system with unnecessary claims, according to a story in the New York Times.  Disability insurance companies include provisions requiring people on their disability insurance to exhaust all other methods of income, including applying for Social Security disability, or risk getting their payments cut by the amount they might qualify for under SS disability. 

The problem is that the qualifications for SS disability are much more stringent than for disability insurance.  Disability insurance pays short term claims, as well as long term claims.  SS disability is only for those who can demonstrate the inability to work for the past 12 months or that they will not be able to work for 12 months in the future.  It is not for a person who is only not able to work for 6 months.

However, the insruance companies are requiring those who are only going to be disabled for a short time to apply and appeal their denials.  This clogs up the SS system and prevents those who have valid disability claims from getting their hearing date.

“Anybody who is forced to come into this system, and who doesn’t need to be there, is affecting someone else,” said Ken Nibali, a former administrator from the Social Security Disability system, “(t)hey’re holding up cases for the people who have been waiting for months and years, who in many cases are much worse off.”

According to the article, the number of disability cases waiting for a hearing in front of an administrative law judge has doubled since 2000 and the average wait time has risen from 258 days in 2000 to 512 days.

The lawsuits were filed against the Unum Group and Cigna.  The suit claims that the insurance companies require people to file claims and pursue appeals, eeven when the insurance company has evidence that the person could never qualify for SS disability.  The cost to the SS system is staggering.  It article puts the cost of processing one SS disability action at $1,180.  If the claimant goes to the administratice law judge for relief the cost is $4759. 

Insurers benefit financially from this practice in several ways, according to the article.  They can stop paying the claim if the insured refuses to apply.  The insurer can reduce its claims reserves when claimants apply for SS disability, which raises profits.  Also, if the claimant applies over and over for SS, their claim might be accepted, which cuts the amount the insurer pays for the claim.