As a Greater New Orleans disability attorney, I have had quite a few people approach me with the following scenario:
I applied for and was granted long-term disability benefits under my employee benefit plan. I also applied for Social Security Disability. While I was waiting for a Social Security Disability decision, the LTD insurance paid me my full benefit amount. After a year or so of waiting, I was finally awarded SSDI. At some point, when the LTD insurer discovered I was receiving SSDI, I received a letter stating “We overpaid you by $____________ as a result of your receipt of Social Security Disability Benefits. Please send us a check in this amount.” What do I do?
The Disability Offset Catch
If you have long-term disability insurance through your work, and you have received long-term disability benefits under that policy, you need to be aware of the disability offset provisions.
Most likely, your disability policy contains language that allows the long-term disability insurance company to deduct (or offset) any amounts you receive from other sources for your disability. These other sources could be social security disability, worker’s compensation, an injury settlement, disability retirement through an employer, or another long-term disability policy. The precise offsets will be in your policy.
The language of the policy usually allows the disability insurer a dollar-for-dollar deduction of those benefits.
More significantly, the provision usually allows the insurer to recapture any “overpayment” when you are given a lump sum retroactive award.
For this reason, it is important to read your long-term disability policy and get a firm grasp on the total amount of money you will be receiving from all sources.
Benefit Reduction for Long Term Disability Income Offsets
In almost all long-term disability insurance policies received through employment, the insurance company is allowed to offset (or deduct) amounts you receive through other means for your disability. This deduction is dependent on the specific language of the policy but is usually a dollar-for-dollar deduction of other benefits such as social security disability, worker’s compensation payments, other long-term disability benefits, disability retirement payments, and a litany of other payments you may receive.
For example, if your gross income is $2,500 per month and your long-term disability provides for 60% of your gross if you become disabled, your LTD payment should be $1,500. However, if you receive social security disability (SSDI) benefits in the amount of $850 per month, your long-term disability payment will be reduced to $650 per month($1,500 minus $850). You will not receive $2,350 ($1,500 plus $850).
In some instances, the amount you receive for these other benefits (including SSDI) will reduce your long-term disability monthly payment significantly and may result in you receiving only the minimum payable under the policy (usually somewhere between $25 and $200 per month).
What Is A Long-Term Disability “Overpayment?”
In many cases, the offsetting income is not immediately applicable and therefore not initially deducted from your monthly benefits.
Let’s take an example with these facts:
- You receive $2,500 per month for long-term disability benefits.
- You have been receiving these benefits for a period of 24 months;
- You were recently awarded social security disability benefits paid in the amount of $1,000 per month;
- The SSDI award found you disabled as of 18 months prior to the decision;
- You will receive a lump-sum payment from social security of approximately $18,000 ($1,000 per month times 18 months).
According to the terms of the long-term disability insurance policy, you will have been overpaid by the insurance company by $18,000.
How is this? Because the policy calculates the amount payable as your maximum benefit minus any offsets.
Long Term Disability Overpayment Recovery
In this case, even though you did not receive any deductible offset until 24 months after receiving the long-term disability benefits, you will still be required to reimburse the insurer for their overpayment. The catch is that if you did not receive the benefits you would not have to repay them, but since you did receive them you will have to repay them.
This is troubling news for Houma disability claimants.
The situation is often not caught immediately by the insurer and the claimant does not usually report it, but you are contractually obligated to reimburse the insurer this money.
What happens is that when the insurer finds out, you either have to pay it back in one lump sum or your monthly benefits are reduced.
The choice is usually up to the insurance company under the terms of the policy.
Does long-term disability have to be paid back?
Usually, the amount that the LTD insurance company is seeking to recover is substantial—$10,000 or more.
This is a difficult prospect for a disability claimant who is already struggling to survive on 60% or so of their earnings and dealing with medical expenses.
To make matters worse, disability claimants often get this letter in conjunction with a reduction in their disability benefit payment to the minimum due under their policy OR after the disability insurer has determined they no longer qualify for benefits.
So what are your options for repayment of disability benefits?
If you remain eligible for the long-term disability insurance benefits, you can ask that the insurer apply your currently due amounts to the overpayment.
While it is not ideal because you are losing out on much-needed funds, you may often have ancillary benefits dependent upon you remaining on long-term disability insurance—such as medical, pension, or waiver of premium insurance.
If the long-term disability insurance company is demanding repayment either because you are no longer on benefits or because they claim you need to repay to stay on benefit, you may be able to say “Leave Me Alone” and mean it.
Repayment of Long-Term Disability Benefits
In the case of Cooperative Benefit Administrators, Inc. v. Ogden, 367 F.3d 323 (5th Cir. 2004), the United States Court of Appeal for the Fifth Circuit held that long-term disability insurers were not legally able to sue a claimant for recovery of an overpayment.
The court looked at the text of ERISA, the federal law that governs employee benefit plans, and found that the law did not provide insurers with a right to sue claimants for money. The court also found that there was no federal common law right of recovery in such a case.
This case effectively shields claimants from suits by long-term disability insurance companies to recover overpayments, which are often tied to Social Security Disability awards.
It is important to make clear that this case only applies to decisions in the 5th Circuit: Texas, Louisiana, and Mississippi. The legal rules in your area may differ and allow such recovery from an ERISA plan.
This holding does not prevent the long-term disability insurance company from asking you for the money and taking it if you give it to them.
If you receive a letter demanding that you repay a substantial portion of money to the long-term disability insurance company because of an overpayment, you should seek legal counsel before sending off your check.
If you would like to request a consultation to discuss the specifics of your case, contact disability attorney Loyd Bourgeois at 985-240-9773.