NCPA - National Center for Policy Analysis

Disability Overpayments: Low-Hanging Fruit

July 1, 2016

Research Associate Laura Wiltshire writes in the NCPA Retirement Taxes and Blog:

According to the most recent Trustees Report, the Social Security Disability trust fund, which would have been depleted by the end of this year, will now run dry in 2019, thanks to a little finagling of the payroll tax. But this is a short-term solution to a program that is in desperate need of real reform.

According to National Affairs, the rate of approval for Social Security Disability Insurance (SSDI) applications has remained fairly constant, the program has grown from serving 0.2 percent of the population age 50 to 65 (at which time only this age group was eligible) in 1956 to 5 percent of all adults in 2012. The increased presence of women in the workforce and the aging baby boomer generation explains part of this rise in dependence on the SSDI, but certainly fails to explain the trends in diagnoses and the failure to rehabilitate workers and send them back into the fray. The program's structure arguably creates a perverse incentive for workers to not even attempt to return to work -- beneficiaries often go through a two-year application process that drains their savings, and being approved requires applicants to prove they cannot work in order to benefit, thus nullifying the Social Security Administration's attempts to convince beneficiaries that they can return to work in some capacity under the Ticket to Work program.

In addition to the perverse work incentives, a major source of contention regarding Social Security's Disability Insurance that does not get much media attention is the amount of fraud and overpayments that occur. The rate of successful fraudulent applications gaining benefits from the SSDI, according to the White House, is only 1 percent.  However, fraudulent applications are not the only way claimants receive "bonus funds" from the government.

The Government Accountability Office (GAO) has examined the problems with overlapping payments -- some of them perfectly legal -- as a result of joint disability benefits received from multiple federal offices, such as the Department of Defense, Veterans Affairs, or the Department of Labor and Federal Employees Compensation Act (FECA).

  • According to a GAO report, in fiscal year 2013, 68 percent of veterans benefitting from the Department of Defense, VA, and SSDI concurrently received between $25,000 and $74,999 annually, with about 2,000 veterans receiving over $100,000 a year.
  • In another GAO report, auditors found that federal employees were receiving workers' compensation payments through the Federal Employee Compensation Act (FECA) and full disability payments at the same time, resulting in $371.5 million in overpayments from 2009 through 2013.  FECA payments provide compensation for wage-loss, medical, and rehabilitation costs for federal employees who suffered from work-related injuries and illness.  However, federal law requires that disability payments must be offset if the sum of disability and FECA payments exceed a certain statutory amount.  Sadly, their reported overpayments were a mere 6 percent of the estimated $6.1 billion in overpayments (for various reasons) from SSDI.
  • The report also noted that at least 1,040 overpayment recipients receiving FECA and SSDI concurrently were not identified by the Social Security Administration from July 2011 to June 2014, which accounts for at least a 13 percent failure to detect overpayments in this instance during that time period.

Even if Congress and the administration do not have the political will to reform Social Security Disability, might we suggest that perhaps the Social Security Administration could start with low-hanging fruit and address billions of dollars in improper payments.  With so many government benefit programs that overlap, surely there must be a way for different entities to share information electronically.  Or is that too much to ask?

 

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