Unum, America's Largest Long Term Disability Insurer, Found Guilty of Social Security Disability Fraud

Today’s NY Times reports that a federal jury in Boston has found Unum, the nation’s largest long term disability (LTD) insurer, committed fraud by requiring it’s customers to apply for Social Security disability (SSD) benefits, even though they knew they were not eligible.

In addition to Unum, another large disability insurer, CIGNA, is facing a similar lawsuit which has been filed under the federal "whistle-blower" False Claims Act  alleging that the US taxpayer is paying to process these fraudulent claims.

In my opinion, this self-dealing referral by long term disability companies has been an ongoing problem for years that I have reported on this blog before.  A "cottage industry" of  Social Security representatives like Allsup and Advantage 2000, whose business’ are supported largely by referrals from disability insurance companies like Unum, CIGNA and Hartford, make millions of dollars from relationships with companies like Unum.

The self-interested system works like this:  Most employees who pay for long term disability insurance  through their employers are surprised to find out that if they become disabled and collect benefits from companies like Unum or Cigna, they are required to also apply for Social Security disability benefits under the threat that their LTD payments will be stopped or reduced.  Why do the LTD companies require them to apply for Social Security disability?

Let’s use the following example:  Mary Smith is a secretary with a young child earning $32,000/yr.  She pays $30 per week out of her paycheck for her long term disability protection. She stops work due a diagnosis of breast cancer requiring surgery, chemo-therapy and radiation.  The cancer was caught early and the eventual prognosis is good.  Her surgeon tells her she should be back to work in 6-9 months.  She applies for long term disability through her company’s long term disability insurer, such as Unum, Cigna or Hartford.  She is granted long term disability benefits at a rate of 60% or her monthly gross income.  In Mary’s case, this equals $1600 per month.  

After being granted LTD benefits, the insurer refers her to an outside Social Security disability representative with whom they have a financial relationship, such as Allsup or Advantage 2000 (aka Advantage2K).  These companies encourage the claimant to file for Social Security disability for the simple reason that if they are successful, the LTD carrier will get most of its money back from the claimant’s Social Security award.  Unbeknownst to most employees when they sign up for long term disability through their employer, any money the LTD insured pays the employee is "offset" by whatever amount the employee or her dependents receive from Social Security. 

In Mary’s case, her family Social Security benefits equal $1500 per month.  If she is awarded Social Security, Unum will only have to pay her a whopping $100 per month (the original $1600/mo. LTD payment less the $1500/mo Social Security payment).  This $100 per month disability protection is what Mary gets for her $30 per week salary deduction for LTD coverage!! 

Is this a scam? When I explain this to my clients on almost a daily basis, they are legitimately angry at their employers for selling them LTD coverage which in many cases is minimal at best.  They never would have signed up for and paid for LTD if they knew the protection was so lame.  This is a rampant problem among American employers, and should be addressed by an wide ranging educational program by organizations such as the Society for Human Resource Management.

As bad as this system is, the Boston jury actually found  Unum guilty of a different type of fraud.  In Mary’s case, her doctors believe she will be back to work within nine (9) months.  In order to obtain Social Security disability benefits, the claimant must be out of work a minimum of twelve (12) months.  She simply doesn’t qualify. Yet it is not uncommon for Unum and other disability insurers to encourage Mary to apply for a benefit they do not qualify for, in the hopes of recouping a large portion of their prior long term disability claim payments.  This was the essence of the fraud finding against Unum, but as explained above, it exposes a much larger problem of LTD insurers referring claimant’s to Social Security representation companies with whom they have a financial interest. 

So what is the fix?  Congress should pass a law preventing long term disability insurers from referring claimants to their hand picked representatives, which really represent insurers more than the actual individual.  I have had to take over SSD cases from representative firms who have clearly acted against the best interest of the client in order to benefit the LTD carrier.  My Advice – hire a local Social Security disability attorney who specializes in Social Security law and has no connection to any LTD insurance company.  He or she will have to act in your best interests as required by the Code of Ethics.  Until this mess is cleaned up, disabled buyers should beware.