Overpayments
Understanding Long-Term Disability Overpayments: What You Need to Know
Receiving an unexpected notice of overpayment letter from your disability insurance company can be anxiety inducing if you don’t understand why or how it happened. Your insurance company may have given you a deadline to repay a large sum of money that could be tens of thousands or sometimes hundreds of thousands of dollars. If you did not plan for this or this catches you completely by surprise, you may not be in the financial position to handle reimbursing the insurance company immediately, or possibly ever.
Fortunately, there are steps that can be taken to ease the burden of a long-term disability (“LTD”) overpayment and with the right help your overpayment balance can be handled.
What Is a Long-Term Disability Overpayment?
An LTD overpayment occurs when your insurance provider gives you more benefits than they believe you’re entitled to. This situation can arise due to several factors, including miscalculations by the insurance company, delays in the approval of Social Security Disability Insurance (SSDI), or changes in other income sources.
Once an overpayment is identified, the insurance company will request repayment of the excess amount. While the idea of paying back a large sum of money can be stressful, understanding the process and your options can help ease the burden.
Common Causes of LTD Overpayments
Here are the main causes of LTD overpayments:
Social Security Disability Insurance (SSDI) Approval: Many LTD policies require you to apply for SSDI if you qualify. If your SSDI application is approved, the LTD insurer will typically reduce your monthly LTD benefits by the amount of SSDI you receive. Often, SSDI approval comes with a lump-sum payment covering months (or even years) of retroactive benefits. This can result in an overpayment, as the insurer may have already paid you during that period.
In addition to claiming an overpayment for your primary social security disability benefits, your insurance company may also claim an additional overpayment for family disability benefits awarded for your eligible dependents.
Income From Other Sources: Many LTD policies reduce your benefit amount based on income you receive from other sources, such as workers' compensation, pensions, state disability benefits, retirement benefits or part-time employment. If you receive additional income that wasn’t factored into your LTD benefits, it can result in an overpayment.
Administrative Errors: Sometimes, an overpayment occurs due to a mistake by the insurance company, such as incorrect calculations of your benefit amount or eligibility period. This is common in situations where your disability policy allows you to work in a limited capacity and the insurance company has to retroactively calculate the proper offset amount. Sometimes the insurance company admits it’s error and waives an overpayment. However, some disability policies specifically account for such possible errors and still make it your responsibility to repay overpayments resulting from an error caused by an insurance company. This can seem grossly unfair and may not matter to the insurance company even if the error ads up to hundreds of thousands of dollars. A good attorney can hold the insurance company accountable.
How Disability Insurance Companies Handle Overpayments
Once the insurance company discovers an overpayment, they will likely send you a notice detailing the amount owed and requesting repayment. There are several ways this could be handled:
Lump-Sum Repayment: The insurance company may ask you to pay back the full amount immediately. This is often impossible unless the overpayment is the result of a retroactive award of benefit which caused the overpayment. However, if you were not aware this would cause an overpayment and spent the money then you may still not be in a position to present a lump-sum repayment for the repayment of long-term disability benefits already paid.
Deducting From Future Benefits: Many insurers will offer to deduct the overpaid amount from your future monthly benefits. This can ease the burden by spreading out the repayment over time. However, this can be a financial stress if the insurance company withholds your monthly benefit against your will. If this is the case, Victor Peña Law may be able to help you.
Negotiation and Settlement: In some cases, you may be able to negotiate a reduced repayment amount or arrange a settlement with the insurer. This is where having the right attorney is key.
What Should You Do If You Receive an Overpayment Notice?
Receiving an overpayment notice can be stressful and it’s important to understand your rights and responsibilities before you make any decisions. If you receive an overpayment notice, then you should:
Review the Notice Carefully: Verify the amount of the overpayment and how it was calculated. Make sure it aligns with your records, including any SSDI or other benefits you’ve received. (This can sometimes be confusing because the dates may not align perfectly)
Address the Overpayment Immediately: Don’t ignore the overpayment notice. Failure to address the notice immediately could lead to the insurance company sending the debt to collections to pursue recovery from you. You could also end up going further into debt if a proper adjustment of your benefit is not made.
Avoid Further Overpayments: To prevent future overpayments, promptly report any changes in your income or disability status to your insurer. Keep detailed records of any correspondence and payments related to your LTD benefits.
Consult a Professional: If you’re unsure about the details or think the overpayment is incorrect, consult with a lawyer experienced in reviewing and assessing disability overpayment letters. They can help you understand your rights and options. The right lawyer may be able to help you deal with an overpayment that you are not able to repay or an overpayment balance with which you disagree.
Can You Dispute an Overpayment?
Yes, you have the right to dispute an overpayment if you believe it was calculated incorrectly or if the insurer made an error. You may need to provide evidence, such as proof of other income or documentation related to your SSDI approval. Consulting a disability benefits attorney can be helpful in navigating the dispute process.
In an ERISA governed disability claim, the insurance company should give you the right to submit an administrative appeal regarding the overpayment. Like any ERISA Appeal, it is important to speak with an experienced ERISA disability attorney before deciding to submit your own appeal.
It is not uncommon for the insurance company to make a mistake in calculating an overpayment. The error can be addressed in the appeal.
Is There a Long-Term Disability Overpayment Statute of Limitations?
The statute of limitations on a debt is the time frame within which a creditor or collection agency can legally take legal action to collect an unpaid debt. The statute of limitations varies by state but is typically between three and six years.
What happens when the statute of limitations expires?
If the statute of limitations has expired, the overpayment debt is not eliminated, but the insurance company can no longer take legal action to collect it. The insurance company will usually still be able to contact you by phone, email, or letter.
How the statute of limitations begins
The statute of limitations normally begins on the date of the most recent payment or the last missed payment, depending on where you live.
How the statute of limitations can be reset
In most disability overpayment cases, the debt is very recent. If it is an older debt and the insurance company is only now reaching out to you due for a debt they are claiming retroactively, it is important to understand that a statute of limitations can be reset depending on certain actions. So never discuss an old overpayment balance with the insurance company without speaking with an experienced disability overpayment attorney first.
Conclusion
LTD overpayments are an unfortunate reality for many individuals receiving disability benefits. While the idea of repaying the overpaid amount can be daunting, having the right help can ease the process. Most disability lawyers will not help claimants dealing with a disability overpayment. If you need help dealing with a long-term disability overpayment, contact Victor Peña Law for a free initial consultation. We help people with disability overpayments nationwide.
Always seek professional advice if you’re unsure about how to handle an overpayment and be proactive in handling an overpayment demand letter as soon as it is received.