BILL NUMBER: S5242

SPONSOR: BRESLIN
 
TITLE OF BILL:

An act to amend the insurance law, in relation to prohibiting insurers
from reducing disability benefits unless certain conditions are met

 
PURPOSE:

To prohibit insurers from reducing long-term disability insurance bene-
fits for estimated benefits provided under the federal Social Security
Disability Insurance Program unless certain conditions are met.

 
SUMMARY OF PROVISIONS:

Section 1 adds a new subsection (n) to § 3216 of the Insurance Law which
expressly prohibit insurers from issuing or delivering a policy or
certificate for accident and health insurance providing disability bene-
fits that authorizes an insurerto offset or reduce benefits due to the
actual or reasonably expected eligibility for social security disability
benefits or other disability benefits, unless such policy or certificate
              

notifies the insured that insured may qualify for such benefits, and to
pursue such benefits through any required administrative appeals; and a
new subsection (o) which provides that no insurer may offset or reduce
benefits payable under a policy of accident and health insurance provid-
ing disability insurance due to the actual or reasonably expected eligi-
bility for social security disability insurance benefits unless: (1) the
insurer has a reasonable, good faith belief that the insured is entitled
to such benefits and a means of reasonably estimating the amount paya-
ble; (2) the insurer makes a good faith effort to assist the insured in
applying for such benefits; and (3) the insured fails to apply for, or
pursue, such benefits with reasonable diligence during the application
process or any required appeals.

Section 2 provides that this act shall take effect immediately.

 
JUSTIFICATION:

Social Security Disability Insurance is a federal benefit which provides
benefits to individuals who have worked jobs covered by Social Security
and have an inability to do any substantial gainful activity by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to
last for a continuous period of not less than 12 months.

As a matter of sound public policy, it is critical that New York encour-
age its residents to take full advantage of the federal benefits they
are entitled to, including Social Security Disability Insurance
("SSDI"). The benefits of SSDI are numerous and New York residents
should not go without the many advantages this federal program provides.
All too often New Yorkers are on the losing side of the equation when it
comes to resources provided from Washington.

Providing clear requirements as to when insurers are permitted to deduct
estimated SSDI benefit payments from long-term disability ("LTD") insur-
ance payments will encourage more policyholders to take advantage of
their substantial federal benefits.

There are numerous benefits, beyond the financial benefit itself, that
individuals and their families entitled to SSDI receive under the SSDI
program. As eligible workers have earned this benefit by contributing
6.2% (on top of 6.2% from the employer) of their earnings through the
Federal Insurance Contributions Act ("FICA") to fund Social Security,
including disability insurance, it is only right that they are encour-
aged to take advantage of all of the program's benefit.

The following are benefits received under Social Security Disability
Insurance:

*SSDI freezes the individual's Social Security earnings records, which
means that the amount of eventual retirement benefit may be substantial-
ly higher (depending on when someone is disabled). The normal Social
Security Retirement 35-year average earnings is adjusted for years on
disability, which for the average SSDI beneficiary could lead to a
substantially higher retirement benefit.  The impact of having zero
earnings considered for a given year can be dramatic. If an SSDI-eligi-
ble claimant remains solely on an LTD plan, the 35-year average earnings
will be significantly lower due to the disability period, leading to a
reduce retirement benefit.

*SSDI provides spousal and child benefits to those eligible. On average,
the SSDI benefit amounts to $415 for spouses and $390 for children that
would not be available to private long-term disability only claimants.

*Individuals entitled to SSDI are eligible for Medicare coverage after
24 months, allowing for medical services at reduced health insurance
premiums. Some disabling conditions waive the 24-month waiting period
and grant immediate Medicare coverage. SSDI eligibility also increases
extension of employer sponsored medical coverage under COBRA (bridges
COBRA to Medicare).

*Individuals taking advantage of the SSDI program may be entitled to
significant tax savings (SSDI benefit vs a taxable long-term disability
benefit).

*There is the potential for a closed period award (a closed period
exists when a claimant for Social Security disability benefits or SSI is
found to be ineligible for ongoing benefits, but yet eligible to receive
benefits for a period of time in the past).

*SSDI provides the ability to participate in a work trial period (9
months without losing SSDI and potential re-training through the SSA's
"Ticket to Work program").

*Cost of living adjustments made to the SSDI benefits would not be
deducted from the private longterm disability benefit payments, and
therefore, would go directly to the disabled reside nt. This is one of
the most significant benefits which can lead to substantial increases in
income overtime.

In addition to missing out on the many benefits that an individual disa-
bled claimant may be entitled to, the prohibition that insurers are no
longer permitted to deduct LTD disability insurance benefit payments for
estimated SSDI benefits, has a negative impact on the offering and pric-
ing of disability benefits in the state. With this interpretation, New
York is the only state to prohibit the practice of estimating SSDI bene-
fits by allowing carriers to offset for benefits actually received while
also prohibiting carriers from requiring claimants to appeal for SSDI
benefits or appeal adverse determinations. As a result, all premium
ratepayers are negatively impacted by higher pricing due to the reluc-
tance of the few individuals who actively choose to not seek the federal
benefits they are entitled to.

 
LEGISLATIVE HISTORY:

This is a new bill.

 
FISCAL IMPLICATIONS:

None.

 
EFFECTIVE DATE:
This act shall take effect immediately.