The Absurdity of Long-Term Disability Offsets

How offsets undermine LTD coverage

On paper, offsets sound reasonable. In practice, they distort what disability insurance was designed to do. Instead of protecting injured workers, offsets protect insurers from paying the full benefits they’re contracted to pay.

Once an offset applies, the “income replacement” that an injured worker thought they purchased disappears. What should have been a fixed benefit becomes a moving target that shrinks whenever another source of aid becomes available. And because those other programs often take months or even years to finalize, the surprises come late—well after an injured worker has relied on the consistent payments their LTD policy provides.

What’s even worse is that when an injured worker’s SSDI claim is finally approved and they receive SSDI payments, LTD insurers often recalculate past payments and demand reimbursement for “overpayments.” The very checks that kept an injured worker’s household running while waiting for the federal government to determine their eligibility for SSDI payments are suddenly deemed “overpayments,” which LTD insurers want to be reimbursed for.

Imagine telling someone still too injured or sick to work that they now owe their insurer $20,000 because their SSDI claim was approved. It’s ridiculousness that borders on cruelty.

The clawback practice highlights the one-sided nature of the LTD insurance system. Workers are required to report every outside benefit immediately. But insurers face no comparable duty to ensure clarity or consistency in their calculations. And because the Employee Retirement Income Security Act (ERISA) gives insurers broad discretion when LTD insurance coverage is part of a worker’s employment benefits, insurers can interpret policy language however it suits them, with courts often deferring to them under the “arbitrary and capricious” standard.

Offsets also create uncertainty where there should be stability. LTD insurance should provide a predictable income. Instead, the amount an injured worker will receive will fluctuate based on government timelines or shifting interpretations of what counts as an offset. Most families will struggle to budget around a fluctuating monthly income. It’s hard enough to live with a serious illness or injury. Adding financial whiplash just compounds the stress.

And at the macro level, offsets distort the economics of LTD insurance coverage. Every time an LTD insurer reduces its payments because an injured worker receives SSDI payments, the insurer’s liability drops while the public program shoulders more of the cost. Taxpayers end up subsidizing private insurers’ obligations. That’s not risk-sharing; it’s cost-shifting.

The false narrative of the “double recovery”

LTD insurers often emphasize the importance of avoiding a “double recovery.” The phrase sounds principled. It’s not.

No worker is getting rich off LTD and SSDI combined. Most LTD policies promise to replace around 60% of prior earnings. SSDI payments are a fraction of an injured worker’s previous income. Even when receiving both benefits, injured workers typically receive combined payments that are well below their pre-disability income. Once the offset hits, they’re receiving a smaller percentage of that figure.

The so-called double recovery is a myth. But even if an injured worker ended up slightly ahead, it’s hard to see the moral or economic justification for letting an LTD insurer pocket the difference.

The double-recovery narrative also conceals a deeper, darker incentive. Because offsets reduce what insurers must pay, carriers actually benefit when claimants qualify for SSDI. That’s why many insurers “assist” claimants with their Social Security applications: Every dollar paid by SSDI is a dollar less that an LTD insurer owes.

In other words, insurers have created a closed loop where they can both pressure and punish the same injured worker: Pressure them to apply for SSDI, then punish them financially when they secure SSDI benefits.

Injured workers need not look any further than their pay stub for a reminder of how insurers have gamed the system. If they check the withheld taxes and deductions on their stub, they’ll see one for FICA (that is, Social Security), one for their LTD premiums, and think they’re buying two separate safety nets.

But that’s an illusion, especially for workers making less than $50,000 per year. Because Social Security covers almost the entire 60% of their income replacement, their LTD insurance carrier will pay peanuts—maybe just $50 or $100 a month—while pocketing a worker’s full premium. If more workers understood this math, they would never have signed an LTD insurance contract. Because of offsets, they’re paying for a benefit that taxpayers are essentially covering for the insurer.

Offsets come at a human price

Lawyers representing injured workers often hear the shock in their voices when they first learn about offsets. That’s because the impact of offsets isn’t theoretical; they can derail households. Injured workers use their LTD benefits to cover rent, groceries, and medical copays—often with nothing left over. When an LTD insurer claws back past payments, that money is long gone. Some injured workers negotiate payment plans; others lose ongoing benefits altogether. The psychological blow can be just as severe as the financial one.

And the imbalance of power is stark. Insurers have large corporate law firms, actuaries, politicians, and insurance policy language all on their side. An injured worker has an illness or injury, confusion, and limited leverage. ERISA’s deferential review standard ensures that even the most unreasonable arguments for collecting an offset often stand. It’s a rigged system designed for insurers to win by default.

That’s why worker-side advocacy is so important. Attorneys representing injured workers may be unable to rewrite their LTD insurance policies, but we can push back against the worst abuses by challenging unsupported overpayment demands, exposing arbitrary calculations, and pushing courts and policymakers to recognize how far offsets have drifted from fairness and who this drift adversely affects.

Injured workers need advocates who will call out LTD insurers on offsets

Offsets may be legal, but that doesn’t make them legitimate.

When an LTD insurer markets LTD insurance products as income protection and then systematically reduces payments by exploiting other systems a worker has paid into, that’s a shell game. Offsets let insurers have it both ways: collecting premiums as if they bear the risk, then shedding that risk the moment an insured receives a public benefit.

For those who represent injured workers, the task is straightforward. We must keep shining a light on how offsets gut the very purpose of LTD coverage. We must keep calling out the hypocrisy of private insurers profiting from public programs. And, we must keep reminding judges and policymakers that just because LTD insurers can take certain actions without violating ERISA doesn’t mean that they should be permitted to do so without consequences.

Until the current system changes, LTD insurers will continue taking advantage of offsets to the detriment of injured workers—the same injured workers whose premiums and public benefits help line the pockets of those insurers’ executives and board members.