Disability Shouldn’t Mean Financial Disaster
Everybody knows about health insurance and life insurance. But there is another big risk too few of us ever think about--becoming disabled, unable to work and deprived of a paycheck.
Better be prepared for the danger: Between the ages of 20 and 65, according to government figures, 32% of men will suffer some significant spell of disability, a year or more in which they can’t work at their regular job. Among women, 24% will become disabled for a year or more.
People who become disabled sometimes feel as if they have fallen into a murky pit of despair. Not only has their health gone bad, but they are struggling with a confusing mass of paperwork as they try to collect their benefits.
That’s why it is vital for people to know their rights as the rules and laws regarding disability continue to change.
Last month, for example, the Labor Department announced new regulations that will shorten the time during which insurance companies must respond to claims for benefits. And if the company rejects the claim, people will have more time to file an appeal. The new rules, which go into effect in January 2002, should provide considerable help for millions of Americans who file for disability benefits.
Before the law goes into effect, the Labor Department is taking steps to strengthen consumer protections. Labor Department officials are publicizing and emphasizing an aggressive approach to help make consumers aware that they are entitled to see material regarding their claim in insurance company files. This data includes reports by doctors, vocational experts and others consulted in the process of handling a claim.
“We want to make sure there is no ambiguity, that people know they have a right to all information pertinent to their benefit claims,” said Robert Doyle, director of regulations and interpretations for the Pension and Welfare Benefits Administration, a branch of the Labor Department. Here is a short primer to clear up some of the confusion about disability coverage.
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Disability insurance has one simple purpose: to replace your income if you can’t work.
Many employers offer short-term coverage in which the company pays for a policy that will provide income replacement for six months while the employee is unable to work.
Another option for employees is long-term disability policies that many companies offer as a benefit. The premiums are paid with after-tax dollars, which are deducted from the paycheck. Most experts recommend long-term disability coverage, which is widely offered by California employers. “Should you take it? Absolutely,” said Jacques Chambers, a benefits consultant in Los Angeles. It is relatively cheap protection against a truly catastrophic event, the inability to earn a living. Unlike health insurance, which involves millions of people filing small claims that can drive up the cost of running an insurance system, disability insurance is a rare but expensive occurrence. In any group of employees, few will ever need it. But those who do could require years of replaced salaries.
Disability can stem from a variety of causes--a devastating accident, a chronic physical condition, a prolonged mental ailment or anything that prevents a person from performing his, or her, regular job for a prolonged period of time.
Typically, a long-term disability policy will replace 55% to 60% of a worker’s income at the time he or she becomes disabled, up to age 65. If the worker pays the premium, the benefits will be tax-free. The combination of short-term and long-term policies gives an individual a complete web of protection, assuring income during the period when he or she cannot work.
Self-employed people, independent contractors and the owners of small businesses should make the purchase of a personal long-term disability policy a top financial priority.
“Disability coverage is a basic building block of any financial plan,” said Lewis Walensky, a financial planner in Century City. “You should have quality life insurance in case you die and quality disability insurance to provide an income stream in case you cannot work,” he said.
Lots of entrepreneurs load up on life insurance coverage while ignoring disability coverage, according to Walensky. It is a bad mistake. Good life insurance coverage will give the spouse and other survivors some degree of financial security. But there is nothing but disaster if the income disappears because the breadwinner can’t work and doesn’t have disability insurance. Many people lose their homes this way because they can no longer pay the mortgage.
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To keep costs lower, the experts say, look for a policy with a longer “elimination period,” the time someone must wait before the coverage becomes effective. If a person can use savings to replace regular income for six months, or even a year, while disabled, that would bring substantial savings in the premium charge for a long-term disability policy.
Policy costs vary widely, depending on an individual’s age, health and occupation.
When a protracted illness or a devastating accident strikes, the task of collecting benefits from a disability policy can be a challenge. The best advice is: Get expert medical help and advice, make copies of all documents and be persistent.
The first ally is an individual’s primary care doctor, someone who is familiar with your basic state of health and any ongoing medical problems. Specialists also should be consulted to provide expert opinion on the health problem that has precipitated the disability.
Get complete copies of everything, X-rays, laboratory reports, evaluations by doctors. “You may be spending a lot of time at Kinko’s,” said Virginia Cerello, a Washington, D.C., lawyer who specializes in disability issues.
All this material should be included with the application for benefits. Surprisingly, she said, some workers simply send a note to the boss saying, “I’m hurt, and I can’t work.”
Even when a doctor’s report is included, it sometimes falls short of making a persuasive case. Too often, the injured person doesn’t provide the kind of details needed to prove a claim, noted Cerello.
For example, Cerello told of a woman working as a management analyst who came down with chronic fatigue syndrome, was unable to work and filed for benefits. She was rejected initially, with a ruling that she still could work in that job even with her condition.
In appealing the ruling, Cerello’s client pointed out that her job required extensive travel around the country. The appeal was successful because the doctors reviewing the case determined that the women’s condition made frequent air travel impossible, Cerello said.
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Understanding exactly why an application was rejected may be the key to making a successful appeal. If you ask for, and receive, the documents from the insurance company, you can better understand why they turned you down. Don’t hesitate to request the file with all the medical reports compiled by the insurer.
Also, federal regulations require that your appeal be handled by a different person than the one who made the initial decision to reject your application, according to Leslie Kramerich, acting assistant secretary of labor in charge of the Pension and Welfare Benefits Administration.
“People should know they have rights, and we want to help them understand those rights,” said Kramerich.
Publications on benefits issues are available at (800) 998-7542. The Web site is https://www.dol.gov/dol/pwba. If you have a specific complaint, consult the phone book for the local office of the Pension and Welfare Benefits agency.
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Bob Rosenblatt welcomes your questions, suggestions and tips about coping with the changing world of health care. You can contact him by writing Bob Rosenblatt, Health, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or by e-mailing bob.rosenblatt@latimes.com. Health Dollars & Sense runs the second Monday of each month.
