Senate Bill S5318

                                 
BILL NUMBER: S5318

SPONSOR: BAILEY
 
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:

The purpose of this bill is to prohibit insurers from reducing long-term
disability insurance benefits for estimated benefits provided under the
federal Social Security Disability Insurance Program unless certain
conditions are met.

 
SUMMARY OF PROVISIONS:

This bill would expressly prohibit insurers from issuing or delivering a
policy or certificate for accident and health insurance providing disa-
bility benefits that authorizes an insurer to offset or reduce benefits
due to the actual or reasonably expected eligibility for social security
disability benefits or other disability benefits, unless: (1) the insur-
              

er 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 notifies the insured that the insured may qualify
for such benefits, and to pursue such benefits through any required
administrative appeals; (3) the insurer makes a good faith effort to
assist the insured in applying for such benefits; and (4) the insured
fails to apply for, or pursue, such benefits with reasonable diligence
during the application process or any required appeals.

 
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 require-
ments as to when insurers are permitted to deduct estimated SSDI benefit
payments from long-term disability ("LTD") insurance 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 encouraged to take advantage of all 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 is 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 retraining through the SSA's
"Ticket to Work program").

*Cost-of-living adjustments made to the SSDI benefits would not be
deducted from the private long-term disability benefit payments, and
therefore, would go directly to the disabled resident. 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 choose not to seek the federal benefits
they are entitled to.

 
LEGISLATIVE HISTORY:
2023-24: S5242A - Vetoed

 
FISCAL IMPLICATIONS:

None.

 
EFFECTIVE DATE:
Immediately.