Social Security Disability: Multiple Factors Affect Return to Work

Published by the Government Accountability Office on 1999-03-11.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                           United States General Accounting Office

GAO                        Testimony
                           Before the Subcommittee on Social Security, Committee
                           on Ways and Means, House of Representatives

For Release on Delivery
Expected at 10:00 a.m.
Thursday, March 11, 1999
                           SOCIAL SECURITY

                           Multiple Factors Affect
                           Return to Work
                           Statement of Cynthia M. Fagnoni, Director
                           Income Security Issues
                           Health, Education, and Human Services Division

Social Security Disability: Multiple Factors
Affect Return to Work

                Mr. Chairman and Members of the Subcommittee:

                Thank you for inviting me to testify on return-to-work issues facing the
                Disability Insurance (DI) and Supplemental Security Income (SSI)
                programs. The Social Security Administration (SSA) pays out about
                $5.1 billion in cash payments to DI and SSI beneficiaries each month. While
                providing a measure of income security, these payments, for the most part,
                do little to enhance work capacities and promote beneficiaries’ economic
                independence. Yet, as embodied in the Americans With Disabilities Act
                (ADA), attitudes have shifted toward goals of economic self-sufficiency and
                the right of people with disabilities to full participation in society.
                Moreover, medical advances and new technologies now provide more
                opportunities to work than ever before for people with disabilities.

                The DI and SSI programs, however, have not kept pace with the trend
                toward returning people with disabilities to the work place. Fewer than
                1 percent of DI beneficiaries, and few SSI beneficiaries, leave the rolls to
                return to work each year. Yet, even relatively small improvements in
                return-to-work outcomes offer the potential for significant savings in
                program outlays. For example, if an additional 1 percent of the
                working-age SSI and DI beneficiary population was to leave SSA’s disability
                rolls by returning to work, lifetime cash benefits would be reduced by an
                estimated $3 billion.1 To help improve return-to-work outcomes, Members
                of the Congress and advocates for people with disabilities have recently
                proposed various reforms—such as allowing working beneficiaries to
                keep more of their earnings, safeguarding medical coverage, and
                enhancing vocational rehabilitation.

                Today, I would like to focus my remarks on (1) structural and operational
                weaknesses in the current DI and SSI programs that impede return to work,
                (2) factors that working beneficiaries believe are helpful in becoming and
                staying employed, and (3) challenges that exist in improving program
                incentives to work. My testimony is based on a series of GAO reports on
                Social Security disability program design and implementation as well as a
                report on factors facilitating work for a group of DI beneficiaries. (A list of
                related GAO products appears at the end of this statement.)

                 The estimated reductions are based on data provided by SSA’s actuarial staff and represent the
                discounted present value of the cash benefits that would have been paid over a lifetime if the
                individual had not left the disability rolls by returning to work. These reductions, however, would be
                offset, at least in part, by rehabilitation and other costs that might be necessary to return a person with
                disabilities to work.

                Page 1                                                                              GAO/T-HEHS-99-82
             Social Security Disability: Multiple Factors
             Affect Return to Work

             In summary, program eligibility requirements and the application process
             encourage people to focus on their inabilities, not their abilities. Moreover,
             work incentives offered by the programs do not overcome the risk of
             returning to work for many beneficiaries, and the complexities of work
             incentives can make them difficult to understand and challenging to
             implement. Also, there is little encouragement to use rehabilitation
             services, which are relatively inaccessible to beneficiaries seeking them.
             Some DI beneficiaries who work despite these program weaknesses cited
             improved ability to function in the work place, resulting from successful
             health care, and encouragement from family, friends, health care
             providers, and coworkers as the most important factors helping them find
             and maintain work. Finally, our analysis of some of the proposed changes
             to work incentives—such as gradually reducing the DI cash benefit level as
             earnings increase—indicates that there will be difficult trade-offs in any
             attempt to change work incentives. Moreover, determining the
             effectiveness of any of these proposed policies in increasing work effort
             and reducing caseloads would require that major gaps in existing research
             be filled.

             DI and SSI—the two largest federal programs providing cash to people with
Background   disabilities—grew rapidly between 1988 and 1998, with the size of the
             working-age beneficiary population increasing from about 4.4 million to
             7.6 million. Administered by SSA and state disability determination service
             (DDS) offices, DI and SSI paid cash benefits totaling about $61.3 billion in
             1998. According to the law, to be considered disabled by either program,
             an adult must be unable “to engage in any substantial gainful activity by
             reason of any medically determinable physical or mental impairment
             which can be expected to result in death or has lasted or can be expected
             to last for a continuous period of not less than 12 months.”2 Moreover, the
             impairment must be of such severity that the person not only is unable to
             do his or her previous work but, considering his or her age, education, and
             work experience, is unable to do any other kind of substantial work

             Established in 1956, DI is an insurance program funded by Social Security
             payroll taxes. The program is for workers who, having worked long
             enough and recently enough to become insured under DI, have lost their
             ability to work—and, hence, their income—because of disability. In
             addition, Medicare coverage is provided to DI beneficiaries after they have

              Currently, individuals with disabilities are considered to be engaging in substantial gainful activities
             (SGA) if earnings exceed $500 per month. The monthly SGA level for persons who are blind is $1,110
             per month.

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Social Security Disability: Multiple Factors
Affect Return to Work

received cash benefits for 24 months. About 4.7 million working-age
people (aged 18 to 64) received about $39.9 billion in DI cash benefits in

In contrast, SSI is a means-tested income assistance program for disabled,
blind, or aged individuals, regardless of their prior participation in the
labor force.4 Established in 1972 for individuals with low income and
limited resources, SSI is financed from general revenues. In most states, SSI
entitlement ensures an individual’s eligibility for Medicaid benefits.5 In
1998, about 3.6 million working-age people with disabilities received SSI
benefits; federal SSI cash benefits paid to these and other disabled
beneficiaries amounted to $21.3 billion.6

The Social Security Act states that people applying for disability benefits
should be promptly referred to state vocational rehabilitation (VR)
agencies for services in order to maximize the number of such individuals
who can return to productive activity.7 Furthermore, to reduce the risk a
beneficiary faces in trading guaranteed monthly income and subsidized
health coverage for the uncertainties of employment, the Congress has
established various work incentives intended to safeguard cash and health
benefits while a beneficiary tries to return to work.

 Included among the 4.7 million DI beneficiaries are about 720,000 beneficiaries who were dually
eligible for SSI disability benefits because of the low level of their income and resources.
 References to the SSI program throughout the remainder of this testimony address blind or disabled,
not aged, recipients.
 States can opt to use the financial standards and definitions for disability they had in effect in
January 1972 to determine Medicaid eligibility for their aged, blind, and disabled residents, rather than
making all SSI recipients automatically eligible for Medicaid. Often, the Medicaid financial standards
used by states are more restrictive than SSI’s.
 This amount represents payments to all adult SSI blind and disabled beneficiaries, including those age
65 and over.
 State VR agencies also provide rehabilitation services to people not involved with the DI and SSI

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                                     Social Security Disability: Multiple Factors
                                     Affect Return to Work

                                     In a series of reports, we have discussed how DI and SSI design and
Structural and                       operational weaknesses do not encourage beneficiaries to maximize their
Operational                          work potential.8 The cumulative impact of these weaknesses, summarized
Weaknesses in DI and                 in table 1, is to understate beneficiaries’ work capacity and impede efforts
                                     to improve return-to-work outcomes.
SSI Impede Return to

Table 1: Summary of Program Design
and Implementation Weaknesses        Weakness                 Description
                                     Work capacity of DI      Medical conditions alone are generally a poor predictor of work
                                     and SSI beneficiaries    incapacity. While impairment has some influence over capacity to
                                     may be understated.      work, other factors—vocational, psychological, economic,
                                                              environmental, motivational—are often considered to be more
                                                              important determinants of work capacity.
                                     Disability               “All-or-nothing” decision gives incentive to promote inabilities and
                                     determination            minimize abilities. Lengthy application process to prove one’s
                                     process may              disability can also erode motivation and ability to return to work.
                                     encourage work
                                     Benefit structure can    The prospect of losing cash and health benefits can reduce
                                     provide disincentive     motivation to work and receptivity to VR and work incentives,
                                     to low-wage work.        especially when low-wage jobs are the likely outcome. People
                                                              with disabilities may have less time available for work than others,
                                                              further influencing a decision to opt for benefits over work.
                                     Work incentives are      Few beneficiaries are aware that work incentives exist.
                                     ineffective in           Regardless, work incentives are complex, difficult to understand,
                                     motivating people to     and poorly implemented, and they do not overcome the prospect
                                     work.                    of a drop in income for those who accept low-wage employment.
                                     VR plays limited role   Studies have questioned the effectiveness of state VR agency
                                     in disability programs. services. Access to VR services through DDS referrals is limited.
                                                             Restrictive state VR policies limit categories of people referred by
                                                             DDS offices, the referral process is not monitored (reflecting its
                                                             low priority and removing the incentive to spend time on
                                                             referrals), and the success-based VR reimbursement system is
                                                             ineffective in motivating VR agencies to accept beneficiaries as
                                                             clients. In addition, applicants and beneficiaries are generally
                                                             uninformed about and not encouraged to seek VR, affording little
                                                             opportunity to opt for rehabilitation and employment.

                                      SSA Disability: Program Redesign Necessary to Encourage Return to Work (GAO/HEHS-96-62, Apr.
                                     24, 1996); SSA Disability: Return-to-Work Strategies From Other Systems May Improve Federal
                                     Programs (GAO/HEHS-96-133, July 11, 1996); and Social Security: Disability Programs Lag in
                                     Promoting Return to Work (GAO/HEHS-97-46, Mar. 17, 1997).

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                            Social Security Disability: Multiple Factors
                            Affect Return to Work

                            In recent years, SSA has made efforts to better promote return to work.
                            Also, the Congress and others have proposed various alternatives at
                            program reform.

Work Capacity of DI and     The Social Security Act requires that the assessment of an applicant’s
SSI Beneficiaries May Be    work incapacity be based on the presence of medically determinable
Understated                 physical and mental impairments. SSA maintains a listing of impairments
                            for medical conditions that are, according to SSA, ordinarily severe enough
                            in themselves to prevent an individual from engaging in any gainful
                            activity. About 50 percent of new awardees are eligible for disability
                            because their impairment is listed or meets the severity of a listed
                            impairment.9 But findings of studies we reviewed generally agree that
                            medical conditions are a poor predictor of work incapacity.10 As a result,
                            the work capacity of DI and SSI beneficiaries may be understated.

                            While disability decisions may be more clear-cut in the case of people
                            whose impairments inherently and permanently prevent them from
                            working, disability determinations may be much more difficult for those
                            who may have a reasonable chance of work if they receive appropriate
                            assistance and support. Nonmedical factors may play a crucial role in
                            determining the extent to which people in this latter group can work.

Program Weaknesses          Because a disability determination results in either a full award of benefits
Impede Efforts to Improve   or a denial of benefits, applicants have a strong incentive to overstate their
Return-to-Work Outcomes     disabilities to establish their inability to work and thus qualify for benefits.
                            Conversely, applicants have a disincentive to demonstrate any capacity to
                            work because doing so may disqualify them for benefits. Furthermore,
                            many believe that the documentation involved in establishing one’s
                            disability can create a “disability mind-set,” which weakens motivation to
                            work. Compounding this negative process, the length of time required to
                            determine eligibility can erode skills, abilities, and habits necessary to

                             This percent is based on DI and SSI decisions made at the initial level of determination by the DDS
                            offices and subsequent decisions made by administrative law judges on appealed cases from
                            September 1992 through April 1995.
                             For example, S. O. Okpaku and others, “Disability Determinations for Adults With Mental Disorders:
                            Social Security Administration vs Independent Judgments,” American Journal of Public Health, Vol. 84,
                            No. 11 (Nov. 1994), pp. 1791-95; and H. P. Brehm and T. V. Rush, “Disability Analysis of Longitudinal
                            Health Data: Policy Implications for Social Security Disability Insurance,” Journal of Aging Studies,
                            Vol. 2, No. 4 (1988), pp. 379-99.

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                    Social Security Disability: Multiple Factors
                    Affect Return to Work

                    In addition, VR has played a limited role in the DI and SSI programs, in part
                    because of restrictive state VR policies and limits on alternatives to
                    providers in the state VR system. Beneficiaries have generally been
                    uninformed about the availability of VR services and have been given little
                    encouragement to seek them. Moreover, the effectiveness of state VR
                    services in securing long-term financial gains has been mixed, at best.

                    Work incentive provisions that are complex, difficult to understand, and
                    poorly implemented further impede return-to-work efforts. Because SSA
                    has not promoted them extensively, few beneficiaries have been aware
                    that work incentives exist. Despite providing some financial protection for
                    those who want to work, work incentives do not appear to be sufficient to
                    overcome the prospect of a drop in income for those who accept low-wage

                    For example, DI work incentives provide for a trial work period in which a
                    beneficiary may earn any amount for 9 months (which need not be
                    consecutive) within a 60-month period and still receive full cash and
                    health benefits. At the end of the trial work period, if a beneficiary’s
                    countable earnings are more than $500 a month, cash benefits continue for
                    an additional 3-month grace period and then stop, causing a precipitous
                    drop in monthly income from full benefits to no cash benefits.11 SSA
                    researchers have noted that such a drop in income is a considerable
                    disincentive to finishing the trial work period as well as to begin working.
                    It may be more financially advantageous for beneficiaries—especially
                    those with low earnings—to continue to receive disability payments by not
                    working or by limiting earnings than to earn more than $500 a month in
                    countable income.

Numerous Program    Our work has called for SSA to develop a comprehensive, integrated
Reforms Have Been   return-to-work strategy that includes intervening earlier, providing
Proposed            return-to-work supports and assistance, and structuring benefits to
                    encourage work. SSA has agreed that there are compelling reasons to try
                    new return-to-work approaches.

                    Recently, SSA told us that it has (1) contracted with over 400 public and
                    private VR providers, (2) trained state VR agency staff on SSA work
                    incentives and reimbursement procedures, and (3) positioned itself to
                    contract with state agencies to research ways to improve service

                     For 36 months after the trial work period ends, cash benefits will be reinstated for any month in
                    which the person does not earn more than $500 a month in countable income; this is referred to as the
                    extended period of eligibility.

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                        Social Security Disability: Multiple Factors
                        Affect Return to Work

                        integration for beneficiaries attempting to return work. In addition, SSA has
                        proposed to demonstrate the effectiveness of vouchers (or “tickets”) for
                        beneficiaries to obtain VR services from public or private providers
                        reimbursed on an outcome basis. SSA has also proposed increasing the
                        substantial gainful activities level for beneficiaries, thereby allowing them
                        to have a higher earned income before leaving the disability rolls.

                        In addition to SSA’s proposed reforms, the Congress and advocates for
                        people with disabilities have offered various reforms. Such reforms have
                        proposed allowing working beneficiaries to keep more of their earnings,
                        safeguarding medical coverage, and using tickets to enhance vocational

                        To understand how DI beneficiaries overcome the challenges and
Multiple Factors        disincentives to work, we conducted survey interviews with 69 people
Assist Beneficiaries’   who were receiving DI benefits and working in one of three metropolitan
Movement Into the       areas.12 The working DI beneficiaries we interviewed cited a number of
                        factors as helpful to becoming employed (see table 2). The two most
Workforce               frequently reported factors—health interventions and encouragement to
                        work by family members and others—appear to have been the most
                        critical in helping beneficiaries become employed. First, health
                        interventions—such as medical procedures, medications, physical therapy,
                        and psychotherapy—reportedly helped beneficiaries by stabilizing their
                        conditions and, consequently, improving functioning. Not only were health
                        interventions perceived as important precursors to work, they were also
                        seen as important to maintaining ongoing work attempts. Encouragement
                        to work from family, friends, health professionals, and coworkers was also
                        critical, according to respondents.

                        Although other factors were reported less frequently, any single factor can
                        be the key determinant in an individual’s becoming employed. These
                        factors include a flexible schedule (particularly to have time off to visit a
                        health professional), job-related training and vocational rehabilitation
                        services (especially job search and on-the-job training), the trial work
                        period and extended period of eligibility, and high self-motivation. To a
                        somewhat lesser extent, religious faith, job coaches, assistive devices and
                        equipment, and ADA provisions were useful. In general, similar proportions
                        of respondents with physical impairments and those with psychiatric

                         Our findings from these interviews are reported in Social Security Disability Insurance: Multiple
                        Factors Affect Beneficiaries’ Ability to Return to Work (GAO/HEHS-98-39, Jan. 12, 1998). Because
                        neither the metropolitan areas selected nor the people we interviewed constituted a random sample,
                        our results are not generalizable to the entire population of working DI beneficiaries.

                        Page 7                                                                         GAO/T-HEHS-99-82
                                               Social Security Disability: Multiple Factors
                                               Affect Return to Work

                                               impairments cited these factors as helpful to being employed. However,
                                               people with physical impairments found coworkers and the trial work
                                               period more helpful than did those with psychiatric impairments.

Table 2: Factors That Facilitated Working DI Beneficiaries’ Employment, by Frequency of Reporting
Factor           Description                                            Significance
Health            Health interventions provided medical stabilization and        Early return to work without health intervention may be
intervention      improved functioning.                                          difficult for some.
Encouragement Family, friends, coworkers, and health professionals               Desire to work can be influenced positively, and possibly
              provided encouragement and emotional support.                      negatively, by social forces.
Flexible work     Number of hours and work schedule were responsive to           Typical 5-day, 40-hour work week may be unrealistic for
schedule          respondents’ needs and capabilities.                           some beneficiaries.
Job-related       Training and services were directly related to finding and     This factor has implications for retaining workers in the
training and      performing a job.                                              labor force who otherwise might apply for Social Security
services                                                                         disability benefits.
Trial work        SSA provisions allowed beneficiaries to test their work        Trial work period reported as useful, although some felt
period/           capacity without jeopardizing benefits and to ease their       that 9 months is too short and $200 earnings level is too
extended          transition to the workforce.                                   low.
period of
High              Respondents strongly wanted or needed to work,                 Motivation to work may develop over time, as about 3 in
self-motivation   especially compared with disabled peers without jobs.          10 did not expect to work upon program entry.
Religious faith   Religious faith reported as providing source of strength       Interview did not specifically address religious faith; it
                  and guidance.                                                  may be more important than reported.
Job coaches       On-site job coach or similar specialist taught work skills.    This factor has implications for retaining workers in the
                                                                                 labor force who otherwise might apply for Social Security
                                                                                 disability benefits.
Assistive         Among most frequently mentioned items were back and            Usefulness of assistive devices and equipment is largely
devices and       leg braces, canes and crutches, adapted computers and          limited to people with physical impairments.
equipment         keyboards, and wheelchairs.
Provisions        Respondents reported that ADA provided rights,                 About one-third were aware of ADA, and over one-half of
provided by       accommodations, and hiring opportunities.                      those who were aware said ADA was not helpful.
                                               Note: Factors are categorized into three groups—primary, secondary, and tertiary—on the basis
                                               of how often all respondents reported them. In some instances, we combined related areas of
                                               support and services in developing the factors and assigning relative importance.

                                               Beneficiaries’ comments illuminate the importance of these factors in
                                               helping them return to work. For example, Carol, an administrative
                                               support worker in her thirties with a manic depressive disorder, pointed to

                                               Page 8                                                                      GAO/T-HEHS-99-82
                      Social Security Disability: Multiple Factors
                      Affect Return to Work

                      encouragement and medical intervention as factors that enabled her to
                      continue working:

                      My family members . . . encouraged me to go to work and not rely on disability income.
                      They were helpful to me in assessing the merits and benefits of potential job offers. . . . I am
                      using a combination of Prozac and lithium medications to control my condition and
                      [enable] me to work regularly where I don’t use my sick days. Therapy with my counselor
                      for over 4 years has really allowed me to work and function in a work environment.

                      Similarly, Mark, a maintenance worker in his thirties with epilepsy, said

                      Medications for [my] epilepsy help keep [my] condition under control, which minimizes
                      seizures and the risk of getting fired. . . . [My supervisor] checks from time to time to make
                      sure everything is okay [and] even suggests taking days off.

                      Stephen, a bartender in his thirties with HIV, identified various individuals
                      in the community who support him:

                      [My] infectious disease doctor [is] encouraging and is very supportive. He wrote a letter to
                      [my] employer explaining [my] condition and my capabilities. [My] parents are very
                      supportive [and my] medications have made me physically able to work. [Coworkers are]
                      providing emotional support.

                      Yvonne, a cashier in her forties with an anxiety disorder, found—in
                      addition to medical intervention and community support—ADA helpful:

                      Psychotherapy and group therapy [have] been helpful. Also, medication has been
                      helpful. . . . My psychotherapist has gone out of his way to help me. I can call him at any
                      time. The pastor of my church has also counseled me. At the college I attended, a director
                      of the disabled talks to my professors and tells them about my condition so that they can
                      take this into account when assigning work and evaluating my performance. . . . ADA has
                      helped because I believe that [my employer] would not have hired me because of my

Longer Term Work      Not surprisingly, personal health appears to be an overriding issue as
Decisions Were Also   beneficiaries consider their future status in the DI program and at the work
Affected by Health    site. Among the 44 respondents without employer-based health insurance
                      coverage, 29 plan to stay on the DI rolls into the foreseeable future or are
Concerns              unsure of their future plans. In contrast, 15 of 24 respondents with such
                      coverage plan to exit the rolls. Moreover, when asked if anything would
                      make it harder to work, about one-half of the 46 respondents who

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                            Social Security Disability: Multiple Factors
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                            responded affirmatively said that poorer health would inhibit employment.
                            Similarly, some said that improved health would facilitate work. We found
                            little difference in future work and program plans between people with
                            physical and psychiatric impairments.

Work Incentives and SSA     DI program incentives for reducing risks associated with attempting work
Staff Played Limited Role   appear to have played a limited role in beneficiaries’ efforts to become
                            employed. Although the trial work period was considered helpful by 31
                            respondents, others indicated it had shortcomings or were unaware that it
                            existed. For instance, several respondents indicated the amount signifying
                            a “successful” month of earnings ($200) was too low, an all-or-nothing
                            cutoff of benefits after 9 months was too abrupt, and having only one trial
                            period did not recognize the cyclical nature of some disabilities.13
                            Respondents’ mixed views of the design of the trial work period suggest
                            that while they value a transitional period between receiving full cash
                            benefits and losing some benefits because of work, they might be more
                            satisfied with a different design. Finally, over one-fifth were unaware of
                            the trial work period and therefore may have unknowingly been at risk of
                            losing cash benefits.

                            Moreover, many respondents were unaware of other work incentives as
                            well. Consequently, fewer respondents reported these incentives as
                            helpful than might have had they been better informed. For example, 41
                            respondents were unaware of the provision that allows beneficiaries to
                            deduct impairment-related work expenses from the amount SSA considers
                            the threshold for determining continued eligibility.14 Using the deduction
                            could make it easier for a beneficiary to continue working while on the
                            rolls without losing benefits. Moreover, 42 respondents were unaware of
                            the option to purchase Medicare upon leaving the rolls. As a result, some
                            of these beneficiaries may have decided to limit their employment for fear
                            of losing health care coverage, while others who planned to leave the rolls
                            may have thought they were putting themselves at risk of foregoing health
                            care coverage entirely upon program termination.

                            Generally, respondents told us that SSA staff with whom they interacted
                            provided neither much help in nor were much of a hindrance to

                              Similarly, some beneficiaries noted that the $500 monthly earnings threshold used in the formula to
                            determine if a person with a disability other than blindness is working at a gainful activity level (and
                            therefore no longer eligible for benefits) is set too low.
                             Examples of expenses likely to be deductible include attendant care services performed in the work
                            setting, structural modifications to a vehicle used to drive to work, wheelchairs, and regularly
                            prescribed medical treatment or therapy that is necessary to control a disabling condition.

                            Page 10                                                                             GAO/T-HEHS-99-82
                        Social Security Disability: Multiple Factors
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                        return-to-work efforts. Fifty-nine respondents answered “no” when asked
                        if people from SSA assisted them in becoming employed. However, 52 of
                        the 69 respondents told us that they did not have experiences with SSA that
                        made it difficult to become employed. For the 17 people reporting
                        difficulties, the most common examples cited were the limited assistance
                        offered and poor information provided by SSA.

                        Because the current work incentives have either impeded or played a
Difficult Challenges    limited role in helping beneficiaries return to work, the Congress and
and Trade-Offs          others have recognized the need to reform the current work incentives,
Involved in Improving   particularly those in the DI program. However, our work has found that
                        changing the work incentives involves difficult challenges and tradeoffs.
Work Incentives         Because of the complex interactions between earnings and disability
                        benefits, some types of work incentive changes may help some
                        beneficiaries more than others. Moreover, tradeoffs exist between trying
                        to increase the work effort of beneficiaries without decreasing the work
                        effort of people with disabilities who are not currently receiving disability

                        Two illustrations using data from Virginia Commonwealth University’s
                        Employment Support Institute underscore the complex interactions
                        between earnings and benefits.15 For example, figure 1 shows that under
                        current law, a DI beneficiary’s net income may drop at two points, even as
                        gross earnings increase. The first “income cliff” occurs when a person
                        loses all of his or her cash benefits because countable earnings are above
                        $500 a month and the trial work and grace periods have ended (which, in
                        figure 1, occurs when the individual earns $750 a month). A second
                        income cliff may occur if Medicare is purchased when premium-free
                        Medicare benefits are exhausted (which, in figure 1, occurs when the
                        individual earns $1,500 a month).

                          The Employment Support Institute at Virginia Commonwealth University developed WorkWORLD
                        software, which allows individuals to compare what happens to their net income (defined as an
                        individual’s gross income plus noncash subsidies minus taxes and medical and work expenses) as
                        earnings levels change under current law and when work incentives are changed.

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                                           Social Security Disability: Multiple Factors
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Figure 1: Comparison of Net Income for DI Beneficiaries Under Current Law and Under Proposed Tax Credit and Sliding
Scale Medicare Buy-In

Monthly Net Income







           0      250      500   750   1,000    1,250   1,500   1,750    2,000    2,250    2,500    2,750

                                        Monthly Gross Earnings

           Current Law

           Tax Credit/Buy-In               Source: Employment Support Institute, Virginia Commonwealth University.

                                           Figure 1 also illustrates what happens to net income when a tax credit is
                                           combined with a Medicare buy-in that adjusts premiums to earnings.16 In
                                           this particular example—although the tax credit may cushion the impact
                                           of the drop in net income caused by loss of benefits—it does not eliminate
                                           the drop entirely. However, as figure 2 shows, the income cliff is
                                           eliminated when benefits are reduced $1 for every $2 of earnings above
                                           the substantial gainful activity level.

                                            The tax credit used in this example assumes that the credit is refundable and supplements the
                                           existing Earned Income Tax Credit.

                                           Page 12                                                                         GAO/T-HEHS-99-82
                                                  Social Security Disability: Multiple Factors
                                                  Affect Return to Work

Figure 2: Comparison of Net Income for DI Beneficiaries Under Current Law and Under Proposed 50-Percent Benefit
Reduction Rate and Sliding Scale Medicare Buy-In

Monthly Net Income








          0       250       500   750    1,000    1,250   1,500   1,750   2,000    2,250   2,500   2,750

                                           Monthly Gross Earnings

              Current Law

              50% Benefit Reduction Rate/Buy-In

                                                  Source: Employment Support Institute, Virginia Commonwealth University.

                                                  In addition, changing work incentives may or may not increase the work
                                                  effort of current beneficiaries, depending on their behavior in response to
                                                  the type of change and their capacity for work and earnings. But even if
                                                  changes in work incentives increase the work effort of the current
                                                  beneficiaries, a net increase in work effort may not be achieved. This point
                                                  is emphasized by economists who have noted that improving work
                                                  incentives may make the program attractive to those not currently in it.17

                                                    See Hillary Williamson Hoynes and Robert Moffitt, “The Effectiveness of Financial Work Incentives
                                                  in Social Security Disability Insurance and Supplemental Security Income: Lessons From Other
                                                  Transfer Programs,” Disability, Work, and Cash Benefits, edited by Jerry L. Mashaw and others
                                                  (Kalamazoo, Mich.: W. E. Upjohn Institute for Employment Research, 1996), and Hillary Williamson
                                                  Hoynes and Robert Moffitt, “Tax Rates and Work Incentives in the Social Security Disability Insurance
                                                  Program: Current Law and Alternative Reforms” (May 1997), unpublished.

                                                  Page 13                                                                         GAO/T-HEHS-99-82
Social Security Disability: Multiple Factors
Affect Return to Work

Allowing people to keep more of their earnings would make the program
more generous and could cause people who are currently not in the
program to enter it. Such an effect could reduce overall work effort
because those individuals not in the program could reduce their work
effort to become eligible for benefits. Moreover, improving work
incentives by allowing people to keep more of their earnings could keep
some in the program who might otherwise have left. Decreases in the exit
rate could reduce overall work effort because people on the disability rolls
tend to work less than people off the rolls. The extent to which increased
entry occurs and decreased exit occurs will affect how expensive these
changes could be in terms of program costs.

The costs of proposed reforms are difficult to estimate with certainty
because of the lack of information on entry and exit effects. Although our
work sheds additional light on this issue, the lack of empirical analysis
with which to accurately predict outcomes of possible interventions
reinforces the value of testing and evaluating alternatives to determine
what strategies can best tap the work potential of beneficiaries without
jeopardizing the availability of benefits for those who cannot work.

Mr. Chairman, this concludes my prepared statement. At this time, I will be
happy to answer any questions you or the other Members of the
Subcommittee may have.

Page 14                                                     GAO/T-HEHS-99-82
Page 15   GAO/T-HEHS-99-82
Related GAO Products

              Social Security Disability Insurance: Factors Affecting Beneficiaries’
              Return to Work (GAO/T-HEHS-98-230, July 29, 1998).

              Social Security Disability Insurance: Multiple Factors Affect Beneficiaries’
              Ability to Return to Work (GAO/HEHS-98-39, Jan. 12, 1998).

              Social Security Disability: Improving Return-to-Work Outcomes Important,
              but Trade-Offs and Challenges Exist (GAO/T-HEHS-97-186, July 23, 1997.)

              Social Security: Disability Programs Lag in Promoting Return to Work
              (GAO/HEHS-97-46, Mar. 17, 1997).

              People With Disabilities: Federal Programs Could Work Together More
              Efficiently to Promote Employment (GAO/HEHS-96-126, Sept. 3, 1996).

              SSADisability: Return-to-Work Strategies From Other Systems May
              Improve Federal Programs (GAO/HEHS-96-133, July 11, 1996).

              Social Security: Disability Programs Lag in Promoting Return to Work
              (GAO/T-HEHS-96-147, June 5, 1996).

              SSADisability: Program Redesign Necessary to Encourage Return to Work
              (GAO/HEHS-96-62, Apr. 24, 1996).

              PASS Program: SSA Work Incentive for Disabled Beneficiaries Poorly
              Managed (GAO/HEHS-96-51, Feb. 28, 1996).

              Social Security Disability: Management Action and Program Redesign
              Needed to Address Long-Standing Problems (GAO/T-HEHS-95-233, Aug. 3,

              Supplemental Security Income: Growth and Changes in Recipient
              Population Call for Reexamining Program (GAO/HEHS-95-137, July 7, 1995).

              Disability Insurance: Broader Management Focus Needed to Better
              Control Caseload (GAO/T-HEHS-95-164, May 23, 1995).

              Social Security: Federal Disability Programs Face Major Issues
              (GAO/T-HEHS-95-97, Mar. 2, 1995).

(207059)      Page 16                                                     GAO/T-HEHS-99-82
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