Yesterday’s New York Times carries the story of the Senate Finance committee’s investigation of many disability insurance carriers' practice of requiring applicants to file for social security disability benefits as a prerequisite to receiving private insurance disability benefits. The only way to qualify for social security disability benefits is if you are disabled from any occupation. Most private disability insurance policies, at least for the first two years, require only that a person be disabled from their own occupation in order to qualify for benefits. Thus, individuals who qualify for disability insurance often do not qualify for social security disability benefits.

But that does not deter many disability insurers from directing applicants to file for social security disability. The financial incentive for the insurers is that almost all disability policies take a dollar for dollar offset of social security disability payments against the benefits the insurer must pay under the policy. The practices of the disability insurer are nothing less than shifting the cost of the disability benefits from themselves to the taxpayer. Not good.

It certainly isn’t true that every time a disability insurer directs a claimant to apply for social security disability benefits the insurer is acting improperly. Many folks who apply for private disability insurance benefits are also disabled under the stringent social security disability criteria. But often they are not. That’s what the Senate Finance committee is looking into by asking the nine large disability insurance carriers for additional information. And we should be glad for this attention by Congress. What currently exists is a government subsidy of a number of the largest corporations in the country. This investigation will, I hope, help us understand the magnitude of this cost shifting.

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