Allsup Gets Sued For Breach Of Fiduciary Duty

     A lawsuit has been filed in St. Clair County, Illinois against Allsup, a large non-attorney group that represents Social Security disability claimants, as well as Aetna Life Insurance Company. The lawsuit alleges "breach of fiduciary duty, fraudulent misrepresentation and concealment—failing to disclose conflicts of interest and material facts, and striving to reduce or eliminate the plaintiff’s bargaining power, as well as failing to refund" money owed the plaintiff.
     Allsup does most of its work for Social Security disability claimants at the behest of large insurance companies like Aetna. These companies write Long Term Disability (LTD) insurance policies which are mostly provided as part of an employee benefits program. LTD policies always contain an offset for Social Security disability benefits. This gives a big incentive for LTD insurers to demand that LTD recipients file Social Security disability claims and pursue them aggressively with representation, with providers such as Allsup.
     If a claimant who has been drawing LTD is approved for retroactive Social Security disability benefits, the claimant's LTD is reduced not just for the future but also retroactively. The LTD insurer wants to recoup some or all of the money it has already paid the claimant.
     The insurance company has a problem in collecting money out of the claimant's retroactive Social Security disability benefits. The Social Security Act forbids attachment of Social Security benefits for this reason. Allsup came up with a plan to get around this obstacle. They would use their representational relationship to cajole claimants into allowing their back benefits to be deposited into a bank account. In theory, it was a joint account but as a practical matter Allsup has complete control over the account. Allsup would quickly siphon off the money owed to the LTD insurer as soon as the deposit came in from Social Security. Allsup is so proud of this scheme that they patented the idea! Social Security has acquiesced in this dubious practice even though the Federal Deposit Insurance Company (FDIC) has found that a bank which participated in a similar scheme was engaging in an "unsafe and unsound bank practice." It's not hard to figure out why LTD insurers like Allsup far more than law firms. Law firms wouldn't engage in this sort of behavior. At least, I hope they wouldn't!
     Michael Garavalia of Flynn, Guymon & Garavalia in Belleville, IL is representing the plaintiff.

Help For Claimants With Ancient Overpayments

     There have been news reports about the Social Security Administration attempting to collect decades old overpayments by seizing benefit payments and tax refunds. Often the alleged debtor had no idea there was an overpayment. Social Security has just put out an "Emergency Message" which says that in determining whether to grant waiver of an overpayment that if the agency is "unable to locate and review documentation of the relevant facts to support the finding of the overpayment, [the agency should] assume the debtor is without fault and approve the waiver request."

     I think this Emergency Message is significant. To explain why I'll have to give a boring explanation of how Social Security deals with cases in which a claimant objects to an alleged overpayment. Once an overpayment is alleged, the claimant can do two things. One is to appeal the overpayment, saying that they really weren't overpaid or that the overpayment isn't as much as claimed. I have one of these cases now. By the time it's over, there will probably be no overpayment and Social Security will probably owe money to my client. One big problem with appealing an overpayment is that the claimant only has 60 days to appeal. In the ancient overpayment cases, the time period to appeal was over many years ago, assuming the agency properly notified the claimant of the overpayment, which the agency will assume it did. The other way for a claimant to deal with an overpayment is to request waiver of the overpayment. To oversimplify the waiver process, the claimant has to prove that he or she wasn't at fault and that paying it back would cause hardship. One important fact about waiver requests is that there's no time limit on filing the waiver request. A claimant isn't limited to either contesting the fact of the overpayment or requesting waiver. The claimant can do both, either at the same time or sequentially.
     When a claimant wishes to contest an ancient overpayment, they will have a hard time appealing the overpayment itself since the agency will say that the time period for appealing ended many years ago. As a practical matter, this limits the claimant to the waiver process. This new policy eases the waiver process for ancient overpayment cases since the agency will usually lack documentation of the overpayment. To get waiver, the claimant will merely have to show that repayment would cause hardship.

The Wealthy Get More Out Of Social Security Than The Poor

     The National Academies of Sciences, Engineering and Medicine has issued The Growing Gap In Life Expectancy By Income: Implications For Federal Programs And Policy Responses. It's well known that persons with higher incomes live longer than those with low incomes. As an example, for those born in 1960, life expectancy at age 50 was 28.3 years for those in the lowest 20% of income but 41.9 years for those in the highest 20% of income. Naturally, if you live longer, you're going to receive more Social Security and Medicare benefits. The effect of this is that the value at age 50 of those benefits for males was $391,000 for those in the lowest 20% of earnings but $522,000 for those in the highest 20% of earnings. For females, the comparable numbers were somewhat less dramatic, $452,000 for those in the lowest 20% of earnings and $480,000 for those in the highest 20% of earnings.

     It would be possible to correct this bias in favor of persons with high incomes by reducing their Social Security benefits but that's unlikely to happen. The other possible way would be to increase benefits for lower income people. I'd say that while that's unlikely, it's not out of the question. Populist campaigns seem to be in vogue this campaign season.

Variability In Social Security Reserve Fund Performance

     You may not have heard of it but there's an International Social Security Association (ISSA). It recently released a report on the performance of larger social security reserve funds, most of which are mostly invested in stocks and non-governmental debt obligations. The nations involved aren't identified by name. I'm not sure if the U.S. Social Security Trust Funds are included in the report. In any case, what the report shows to me is huge variability. Note that the time period selected is after the 2008 crash. This was a time period in which stock and bond markets went up significantly. Below is a table from the report.

Not Happening Here

     There have been suggestions that the United States should emulate the Netherlands which was able to dramatically "cut" the costs of the disability benefits it pays. Elaine Fultz, at the Center on Budget and Policy Priorities (CBPP), has done a report showing how implausible this is. Dutch disability expenses were several times higher than in the U.S., leaving far more space for cutting than would be possible in the U.S. Even after the Dutch "cuts", their costs remain vastly higher than in the U.S. The biggest problem is that the Dutch "cuts" weren't really cuts. The most important way that the Netherlands "cut" costs was by shifting the costs from the government to private employers. Employers were also burdened with the trouble and expense of trying to rehabilitate disabled workers. This had the effect of making it harder for people with health problems to find employment. Many with health problems were shifted to temporary jobs to get around the rules.

     I think there are those on the right who read that the Netherlands dramatically cut its expenditures for disability benefits and read no further. That's the problem. All they were interested in was cutting. They had no concern for the details. Just cut. The right has no Social Security experts much less Social Security disability experts to warn them off something so unworkable in the U.S.

Hearings Begin Today For Eric Conn's Former Clients

     From WYMT in Kentucky:

Starting Thursday, as many as 1,787 people in our region who receive federal disability benefits will be required to participate in hearings to redetermine their eligibility.

They were represented by Floyd County lawyer Eric C. Conn, who Congressional investigators believe used fraudulent information to help secure the benefits. ...

Matty Slone has received disability benefits since a spine condition forced him to stop working seven years ago.

Slone, who lives in the Betsy Layne community of Floyd County, received a letter from the Social Security Administration mandating he attend a hearing Oct. 8 to determine whether the financial assistance will continue.

"My heart beats really fast, the nerves, the stress ...I go to bed crying every night," Slone said. "I've got so much riding on my back with this."

Slone said he would have "no hope" if his benefits are taken away. 

Lawyers for the hundreds of people who had their benefits temporarily suspended earlier this year have sued the SSA, asking a federal judge to stop the hearings.
There's no timetable for the judge's decision. ...

The Number Keeps Growing

     The word had been that Social Security was trying to cut 1,470 people who had been clients of Eric Conn off disability benefits. Social Security is now saying the number is 1,787. The hearings are beginning even as a motion for preliminary injunction is pending in U.S. District Court.

     So far, the only instructions I've seen for how these hearings are supposed to progress were issued last summer. Those instructions seem less than comprehensive to me. I keep wondering if there are more instructions that haven't been released to the public, perhaps some instructions issued just to the St. Louis National Hearing Center office that will be handling most of these cases. If there are such additional instructions, I'd love to see them. They shouldn't be a secret. 

     And, by the way, some of these claimants have moved out of the Kentucky-West Virginia area where they were living at the time they went on benefits. I assume that those hearings will be conducted by an Administrative Law Judge in the area where they now live, rather than by the St. Louis National Hearing Center, right?

Republican Candidates On Social Security -- I'm Noticing A Wedge Issue

     Take a look at the views of the Republican Presidential candidates on Social Security:

• Jeb Bush: Increase full retirement age, possibly to 70
• Ben Carson: Wants people who don't need the money to opt out of receiving Social Security
• Chris Christie: Increase full retirement age to 69 and means-test benefits
• Ted Cruz: Partially privatize Social Security, increase full retirement age and cut cost of living adjustment 
• Carly Fiorina: Increase full retirement age 
• Jim Gilmore:  Put a cap on benefits; praised George W. Bush for proposing partial privatization of Social Security
• Lindsey Graham: Increase full retirement age to 70 and cut benefits for some recipients
• Mike Huckabee: Does not favor Social Security changes.
• Bobby Jindal: Partially privatize Social Security
• John Kasich: Partially privatize Social Security 
• George Pataki: Increase full retirement age
• Rand Paul: Increase full retirement age to 70 and means test benefits 
• Marco Rubio: Increase full retirement age by one year; also believes that benefits should "grow more slowly" 
• Rick Santorum: Privatize Social Security, increase full retirement age, means test benefits
• Donald Trump: Does not favor Social Security changes
• Scott Walker: Increase full retirement age

     Every Republican Presidental candidate other than Carson, Huckabee and Trump supports either raising full retirement age or partially privatizing Social Security. Carson may want such changes but he hasn't yet spoken on Social Security issues in any meaningful way. Encouraging people to voluntarily forego their Social Security benefits? Few people can afford to do so and far fewer would do so. I think he'll be asked specific questions about Social Security in the near future.

     What's going to happen when the Republican race starts narrowing down? If Trump remains the front runner, we can expect to see negative ads from his opponents. How does Trump respond? Social Security seems to be a wedge issue he could use to attack almost any of his Republican opponents. Raising full retirement age and partially privatizing Social Security may be popular ideas with big Republican donors but these ideas are unpopular with rank and file Republicans. The polling we have shows 62% of Republicans in favor of increasing Social Security benefits and 74% of Republicans willing to preserve Social Security even if it means raising taxes. Only 26% of Republicans favor increasing full retirement age to 70. An intra-party debate on Social Security could be devastating for Republicans.