In United States of America, ex rel. Patrick J. Loughren v. UnumProvident Corp. and GENEX Services Inc., the plaintiffs accuse Chattanooga, Tennessee-based Unum Group of illegally pushing many claimants to seek disability benefits from the Social Security Administration even though they did not meet the agency’s stringent qualifications.
Unum officials say the case has no merit. The trial, which began September 22 in U.S. District Court in Boston, is ongoing.
The suit has called into question a nearly universal practice in the long-term disability insurance industry: Most long-term disability policies require claimants to request Social Security disability benefits and reduce the insurer’s payout by a commensurate amount. The suit argues that Unum’s practice amounted to filing false claims because the company helped claimants who it knew did not meet Social Security’s more restrictive definition of disability to apply and, in some cases, receive the benefits.
In 2007, 7.1 million disabled U.S. workers received Social Security payments, according to the Council for Disability Awareness in Washington.
Disability insurers point out that Social Security offers benefits that private disability policies do not, so it makes sense to encourage claimants to apply.
Industry observers warn that the Social Security "offset," as the reduction/reimbursement provision is known, is what allows disability insurers to keep their pricing low. Group long-term disability insurance costs on average $212 to $224 a year per worker, according to consultant LIMRA International Inc. of Windsor, Connecticut.
Regulatory or legal changes affecting disability insurers’ ability to help claimants seek Social Security benefits likely would boost premium levels, the observers say.
"Premiums are based on what insurance companies expect to pay and, unfortunately, if they’re going to end up paying a lot more, insurance companies are no different: They’re going to pass on that cost to the people buying those policies," says Andrew J. Bernstein, vice president, law, at Disability Risk Management Services Inc., a Westbrook, Maine-based provider of turnkey disability risk management products.
About 40 million U.S. residents have employer-sponsored long-term disability insurance, according to America’s Health Insurance Plans, a Washington-based association that represents insurers. About 30 percent of private-sector employees have such income protection.
Long-term disability insurers receive about 200,000 new claims annually, according to the organization. Unum, one of the largest such insurers, said it receives about 50,000 new long-term disability claims each year.
In the Boston case challenging the actions of Unum and its GENEX unit, the company is accused of forcing claimants to apply for Social Security disability when the insurer knew many were ineligible. The suit alleges violations of the federal False Claims Act. Unum changed its name from UnumProvident to Unum Group in early 2007. It sold its GENEX unit in March 2007 to a unit of private equity firm Stone Point Capital.
While private disability insurance policies typically cover an injury that doctors expect to prevent a claimant from performing his or her current occupation, Social Security requires that the injured or ill claimant be unable to perform any job.
The Social Security Administration encourages all applicants who think they may be permanently disabled to apply, but insurance industry critics say the allegation that Unum directed unqualified applicants to the Social Security Administration is significant because investigating applicants costs an average of about $1,300 per claim, according to the complaint. And the Social Security Administration has a lengthy backlog of claims. The agency says it now takes an average of 82 days to review a new claim—down from 88 in 2006—and an average of nearly 18 months to rule on a claimant’s hearing request.
Critics say insurers’ method of convincing sometimes reluctant claimants to seek Social Security benefits—reducing their benefits by the amount of the expected offset, if claimants do not apply—proves insurers know what they are doing is wrong.
The Social Security Administration’s disability program has more stringent qualification criteria than most private income protection programs.
}Individuals must have worked a minimum amount of years, depending on their age. For example, 30-year-olds need two years of work experience.
}Individuals must have been employed recently—holding a job for about half the time since turning 21 for younger workers, or five of the past 10 years for older workers.
}Individuals must be currently earning less than a certain amount or not working at all.
}A medical condition must be severe enough to significantly reduce a person’s ability to perform basic work activities—such as walking, sitting and remembering—for at least one year.
}An injury or illness must prevent an individual from doing his or her current job and any other job that he or she could perform, based on age, experience and skills.
Source:Social Security Administration
"This wasn’t an accident; this was a business plan," says Patrick Burns, director of communications at the Washington-based Taxpayers Against Fraud, who has followed the case. "Someone at Unum had sat down and figured out the odds: ‘We’ll put in 100 [Social Security claims] and maybe they’ll grant 50.’ … Anything they let through is just money to us," he suggests.
The Department of Justice declined to join the suit and Unum declined comment.
The allegation, and a report in The New York Times, prompted Sen. Charles Grassley, R-Iowa, to write a letter in July to Unum, Philadelphia-based CIGNA Corp.—the subject of a similar, ongoing lawsuit also in U.S. District Court in Boston—and seven other disability insurers to express concern and request information about their Social Security disability practices. A hearing on a motion to dismiss the CIGNA case is scheduled for December 18.
In a response letter, America’s Health Insurance Plans noted that even if private disability insurers forwarded all claimants to the Social Security Administration, they would make up only 8 percent of the 2.5 million claims it receives annually.
America’s Health Insurance Plans also noted that in many discussions of the processing backlog, Social Security Administration commissioner Michael Astrue has never attributed the disability claim backlog to private disability insurers’ practices. Astrue has blamed the backlog on budget cuts, a shrinking workforce and escalating claims as baby boomers retire, the industry response letter said.
Many industry observers regard the allegations as specious. Waiting to apply for Social Security disability benefits until it’s certain that an injury will cause a year’s worth of disability would be foolish, given the processing backlog and the unpredictable nature of many injuries and illnesses, says Barbara Mountain, director of marketing and client relations at Integrated Benefits Inc.. The company, based in Jefferson City, Missouri, specializes in Social Security advocacy.
"You don’t know what’s going to happen," Mountain says. "You don’t know where the claim is going."
Mountain, whose experience includes seven years as an insurance specialist at the Social Security Administration, says the federal disability benefits also include Medicare and likely would boost a claimant’s future retirement benefits because of how those benefits are calculated. "So insurance companies that help claimants apply for Social Security disability, I think, are doing the right thing," Mountain says.
Other observers also are skeptical about the allegations.
Tom Klett worked in the long-term disability industry for seven years, including at Unum. He says flat growth in recent years may be pressuring disability insurers to cut costs. But he also says he doesn’t believe insurers would spend the time and effort, often paying subcontractors, to seek Social Security benefits for unqualified applicants.
"They have limited resources to pursue lots of things, including Social Security offsets," says Klett, who worked at a carrier and is now a senior consultant in Watson Wyatt Worldwide’s Stamford, Connecticut, office. "To devote resources where you don’t think there’ll be any return, that doesn’t make sense to me. They’re resource-strapped like any business," he says about insurers.
Klett works with employers to manage and audit their disability insurance programs. Usually, his team concludes that disability insurers’ choice of claimants to seek Social Security benefits is prudent and, in some cases, not aggressive enough.
Regulatory or legal changes affecting disability insurers’ ability to seek Social Security offsets could have "dire consequences," Klett says. "Social Security offsets are the single-biggest risk management tool that [disability] carriers use."
Klett, Mountain and Disability Risk Management’s Bernstein agree that new restrictions could raise premiums and decrease the number of employers that offers such coverage.
"If the result of this is that you have a bar or prohibition passed by a state legislature or by Congress prohibiting insurance companies from having this offset in their disability policies, premiums will go up," Bernstein says. "If disability insurance starts costing whatever percentage more, [employers] are going to have to start thinking long and hard about that."