Answers to Common Questions About Handling Disability Insurance Payments
When you certify or recertify households, some members may tell you that they’re getting disability payments through a short-term or long-term disability insurance plan. These payments replace part of the wages household members lose when they can’t work due to illness or injury. The household member may be getting short-term disability payments for a limited amount of time through a private insurance company or statewide insurance fund. Or the member may be getting long-term disability payments that may continue until he reaches retirement age, if he remains disabled that long.
At first glance, handling disability payments seems easy. But the rules aren’t always clear. We spoke with the experts to get answers to the questions managers typically ask when dealing with household members who get disability payments.
Counting Disability Payments in Household Income
Q Should I count disability payments in household income?
A Yes. HUD says disability payments are income that you must verify [Handbook 4350.3, exh. 5-1]. Count the full amount of payments the household member gets. And don’t deduct any premiums or payroll taxes that the household member may have paid toward the disability insurance.
Treating Lump-Sum Payments as Assets
Q Suppose a household gets a lump-sum disability payment. Do I treat that amount as income or an asset?
A The answer depends on whether the lump sum was a one-time payment or a delayed periodic payment.
One-time, lump-sum payment. Generally, lump-sum amounts from insurance settlements are considered assets, not income [HUD Handbook 4350.2, par. 5-6(Q)(1)].
Delayed periodic payment. Sometimes, due to processing delays, a household member doesn’t start getting payments until several weeks after qualifying for benefits. So she may get several weeks of payments in one lump sum before her regular weekly payments begin. Count this lump sum in annual income [HUD Handbook 4350.3, par. 5-6(Q)(4].
According to Exhibit 5-1 from the HUD Handbook, the full amount of periodic amounts received from insurance policies including a lump-sum amount or prospective monthly amounts for the delayed start of a periodic amount is included in income. An exception for including deferred periodic amounts in income would be payments from Supplemental Security income and Social Security benefits that are received in a lump-sum amount or in prospective monthly amounts or, for Section 8 tenants only, any deferred Department of Veterans Affairs disability benefits that are received in a lump sum or in prospective monthly amounts [HUD Handbook 4350.3, par. 5-6(Q)(2) and (3)].
Counting Short-Term Disability Payments
Q How do I count short-term disability payments?
A Even though short-term disability payments are typically paid for less than a year, HUD requires you to calculate household income as if the member will be getting the payments for the entire year. The HUD Handbook states, “Generally, the owner must use current circumstances to anticipate income. The owner calculates projected annual income by annualizing current income. Income that may not last for a full 12 months should be calculated assuming current circumstances will last a full 12 months. If changes occur later in the year, an interim recertification can be conducted to change the family’s rent” [HUD Handbook 4350.2, par. 5-5(A)(1)].
This means you must “annualize” the member’s disability payments. To do this, multiply the gross weekly payment shown on the verification form or printout by 52. Include the total in your calculation of household income. Then, instruct household members to tell you when their disability payments end, so that you can do an interim recertification to reduce their rent and increase their assistance based on the lower income.
Verifying Disability Payments
Q Can I verify the disability payments using a check stub?
A Yes. However, checks or automatic bank deposit slips may not provide the gross amount of benefits. These would show only the net amount of payments after deducting taxes and Medicare. A written verification of the disability payments from the insurer that pays them or the agency that provides them would be a better form of verification. If you can’t get verification directly from a third party, you can also use the household member’s disability benefit notification letter prepared and signed by the insurer or agency representative.
When verifying the payments, verify the amount, the date the payments began or will begin, and how many weeks the household member will be eligible for coverage.
Treating Premiums as Medical Expenses
Q Does HUD permit a medical expense deduction for disability insurance premiums?
A No. Disability insurance doesn’t cover medical care or pay for medical expenses. It’s intended to replace wages lost due to illness or injury. So the cost of the insurance isn’t an eligible expense that you include in the household’s medical expense allowance. Even though HUD allows you to include premiums paid for other types of insurance that also cover nonmedical expenses, such as long-term care insurance, it doesn’t permit you to do this for disability insurance premiums.
It’s important to note that disability insurance premiums aren’t eligible expenses for the disability assistance deduction. Deductions for disability assistance are generally limited to attendant care or auxiliary apparatus expenses for each family member who is a person with disabilities, to the extent these expenses are reasonable and necessary to enable any family member 18 years of age or older who may or may not be the member who is a person with disabilities to be employed [HUD Handbook 4350.3, par. 5-10(C)(1)].