U.S. Department of Health and Human Services

Federal Programs for Persons with Disabilities

Task II

Brian O. Burwell, Bonnie Preston and Sarah Bailey

Systemetrics/McGraw-Hill

January 1990

This report was prepared under contract #HHS-88-0047 between the U.S. Department of Health and Human Services (HHS) and Mathematica Policy Research. SysteMetrics/McGraw-Hill was a subcontractor for the project. For additional information about the study, you may visit the DALTCP home page at http://aspe.hhs.gov/daltcp/home.htm or contact the Office of Disability, Aging and Long-Term Care Policy at HHS/ASPE/DALTCP, Room 424E, H.H. Humphrey Building, 200 Independence Avenue, SW, Washington, DC 20201. The e-mail address is: webmaster.DALTCP@hhs.gov. The DALTCP Project Officer was Michele Adler.

TABLE OF CONTENTS

PREFACE

CHAPTER 1. INTRODUCTION

CHAPTER 2. THE SOCIAL SECURITY DISABILITY INSURANCE (DI) PROGRAM

2.1 Overview and Purpose

2.2 Authorization, History, and Funding

2.3 Definition of Disability

2.4 Administrative Structure

2.5 Eligibility for Benefits

2.6 Benefit Levels

2.7 Cost of Living Adjustments

2.8 Recent Program History and Legislative Changes

2.9 Program Interactions

2.10 Special Program Issues

2.11 Program Data

CHAPTER 1. INTRODUCTION

CHAPTER 1. INTRODUCTION

CHAPTER 1. INTRODUCTION

CHAPTER 1. INTRODUCTION

CHAPTER 1. INTRODUCTION

CHAPTER 1. INTRODUCTION

CHAPTER 1. INTRODUCTION

CHAPTER 1. INTRODUCTION

NOTES

EXHIBITS

EXHIBIT 2-2. Disability Determination and Appeals, FY 1988

EXHIBIT 2-3. Beneficiaries, Payments and Average Benefits in the DI Program: January 1989

EXHIBIT 2-4. Disabled Workers and Dependents Receiving Monthly SSDI Cash Benefits: 1980-1988

EXHIBIT 2-5. SSDI Disabled Workers by Age and Sex

EXHIBIT 2-6. Adult Disabled Children Receiving Monthly SSDI Cash Benefits: 1980-1987

PREFACE

This report was prepared under Contract No. HHS-88-0047 to the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation. The overall purpose of the project, Disability Profiles and Policy Analyses, was to produce a series of analytical reports and policy analyses of the working-age disabled population using data from the 1984 Panel of the Survey of Income and Program Participation (SIPP). This report, Federal Programs for Persons with Disabilities, constitutes one report of the series, and is intended to serve as a compendium of the major Federal assistance programs for persons with disabilities.

The Federal project officer was Michele Adler of the Office of the Assistant Secretary for Planning and Evaluation (ASPE), Office of Social Services Policy, Division on Disability, Aging and Long-Term Care. This report was prepared by SysteMetrics/McGraw-Hill under subcontract to Mathematica Policy Research, which was the prime contractor. The Project Director at Mathematica Policy Research was Pat Doyle, Ph.D.

The authors would like to thank Michele Adler and Lowell Ayre of ASPE, and Pat Doyle and Craig Thornton of Mathematica Policy Research, for their comments on previous drafts of this report. Administrative support at SysteMetrics/McGraw-Hill was provided by Kipp Gabriel. The statements contained in the report are solely those of the authors and do not necessarily reflect the views or policies of the Department of Health and Human Services. The authors assume sole responsibility for the accuracy of the information contained in the report. The authors confess to instances of outright plagiarism of other government publications which also describe the various disability programs presented in this report, particularly when it was felt that no improvements in presentation were possible.

CHAPTER 1. INTRODUCTION

Federal assistance to persons with disabilities is provided through a wide variety of programs throughout the Federal government. Indeed, the development of Federal policies concerning the provision of assistance to persons with disabilities is hampered by the fact that there are a bewildering array of Federal programs which provide financial assistance, health insurance coverage and direct supportive services to people who have various types of disabling conditions. These programs often interact, or overlap, with regard to eligibility rules, services provided, and benefit levels in complex, not to mention confusing, ways.

The purpose of this report is to provide an overview of some of the major Federal programs which provide assistance to persons with disabling conditions. The report is by no means a complete compendium of Federal assistance programs. There are many other Federal programs, not included here, which provide financial assistance or services to disabled people. The report focuses on the larger Federal programs, in terms of persons served and annual expenditure levels, with a particular focus on the four major sources of cash assistance and health insurance coverage: Social Security Disability Insurance (SSDI), the Supplemental Security Income (SSI) program, Medicare and Medicaid.

In the report, we focus on programs, or components of programs, which provide assistance to persons with disabilities who are under the age of 65. Many persons with disabling conditions have conditions which are strongly associated with the aging process, and many Federal programs are designed to provide assistance to persons who develop disabling conditions during their later stages of life. This report makes a distinction between Federal programs which provide assistance to persons under age 65 with disabilities, and to persons with disabilities over the age of 65, whenever the data are available to make such a distinction. For example, in our descriptions of Medicare and Medicaid, we have focused on the components of these programs which provide health insurance coverage for persons under the age of 65 only.

The program descriptions included in this report also focus only on those programs which involve the direct expenditure of resources from the Federal budget. We have not included descriptions of legislation and programs which are designed to protect the legal and civil rights of persons with disabilities with regard to education, housing, transportation, access, civil liberties and protection from victimization. The report also does not include descriptions of Federal tax expenditures for persons with disabilities relating to various provisions of the Internal Revenue code. These expenditures include such provisions as the exclusion of Social Security and Medicare benefits from Federal income tax, exclusion of workmen's compensation benefits paid to disabled coal miners, and special tax credits for persons with disabilities.

The report is divided into three major sections. The first section describes programs which provide direct financial assistance to persons who are not able to support themselves through work as a result of a disabling condition. The second section describes programs which provide health insurance and direct medical care to persons who are disabled, and because they are not in the work force, do not have access to employer-sponsored health care benefits. The third section describes some of the major Federal programs which finance direct supportive services to persons with disabilities.

We have tried to make all of the program descriptions comparable in format and structure, although this was sometimes difficult due to the fundamental differences between disability insurance programs and direct services programs, entitlement versus discretionary programs, and so on. One key feature we have tried to focus on is how each program defines the concept of "disability" and what eligibility rules and administrative procedures are established in each program to determine whether an applicant for benefits meets that program's operational definition of "disabled." In our review of these programs, it has become clear to us that the concepts of "disabled" and "not disabled" are not ones that are easily operationalized in the development of equitable and judicious program policies which, on the one hand, assist persons with disabling conditions to live productive and independent lives, but which, on the other hand, do not reinforce cultural barriers which have historically excluded, and continue to exclude, persons with disabling conditions from participating in the mainstream of business, sports, recreation, family life, entertainment, transportation, and educational opportunities available to persons without disabling conditions.

The Federal programs described in this report provided over $85 billion in cash assistance, medical care, and direct services to persons with disabilities under the age of 65 in FY 1989, constituting about 7.7% of total Federal outlays for the year. It is hoped that this report will provide readers with some understanding of how these resources are being spent, who is being served, and how these various Federal programs contribute, or fail to contribute, to a comprehensive Federal policy towards non-elderly persons with disabling conditions.

CHAPTER 2. THE SOCIAL SECURITY DISABILITY INSURANCE (DI) PROGRAM

2.1 Overview and Purpose

The Social Security Disability Insurance (DI) program provides monthly cash benefits to insured disabled workers under age 65 and their dependents. Like the Old-Age and Survivors Insurance Program (OASI), the purpose of the DI program is to replace income lost when a wage-earner is no longer able to work. It is the primary social insurance program in the United States for protecting workers from the potential loss of income due to a mental or physical disability that results in an inability to work. In FY 1989, an estimated $23.6 billion in cash benefits were paid to 4.1 million disabled workers and their dependents under the DI program.

2.2 Authorization, History, and Funding

The Disability Insurance (DI) was originally authorized under Title II of the Social Security Act in 1956. Initially, benefits were provided only to disabled workers age 50 and older. Benefits for dependents of disabled workers were added under the 1958 Social Security Amendments, and benefits were extended to disabled workers under age 50 under the 1960 amendments.

DI program benefits and administrative costs are financed primarily by a portion of the Federal Insurance Contribution Act (FICA) payroll tax on wages covered by Social Security. In January 1989, the FICA tax paid by both the employer and employee was 7.51 percent of the first $48,000 of earnings. In 1989, 0.53 percent of the tax was allocated to the Disability Insurance Trust Fund, which is the source of payment for monthly DI benefits and for administrative expenses. In addition, the revenue derived from the taxation of disability benefits is also credited to the Trust Fund.

2.3 Definition of Disability

To be considered disabled, an applicant for DI benefits must demonstrate the inability 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.

This definition is the foundation of the Social Security disability determination process. The actual process by which Social Security determines whether an applicant meets this definition is significantly more complicated. A more detailed description of the disability determination process is provided in Section 2.5.1. This definition of disability is the same for the DI program and for disability benefits provided under the Supplemental Security Income (SSI) program.

2.4 Administrative Structure

Unlike the OASI program, which is administered entirely by Federal employees of the Social Security Administration (SSA), the DI program is administered both by SSA and by State Disability Determination Services (DDDs), which are responsible for determining which applications should be awarded benefits. DDSs make disability determinations based on uniform regulations promulgated by SSA. The costs of making disability determinations for DI applicants are born entirely by the Federal government, but the personnel making the determinations are State employees.

To apply for DI benefits, a disabled worker must file an application at one of the Social Security Administration's more than 1,300 field offices. If a disabled worker is incapable of filing an application in person, then an application may be filed by phone or by mail, or if necessary, a Social Security worker will come to the disabled worker’s home. In processing a claim for benefits, an SSA claims representative first determines whether the applicant meets the "nondisability" eligibility requirements, primarily whether the claimant has achieved insured status. If the claimant has insured status, then the application is sent to the State Disability Determination Service (DDS), where the claim is evaluated and the determination of disability is made.

A multi-layered administrative structure has been developed by SSA for dealing with appeals of denied disability claims. If a disabled worker's claim for DI benefits is denied by the State Disability Determination Services (DDS) agency, he or she may request a reconsideration of the claim within 60 days of denial. The reconsideration is also conducted by the State DDS agency, but by different personnel from those who made the initial determination. If the application is again denied, then the claimant is allowed a hearing before an administrative law judge (ALJ). If the claim is denied by the administrative law judge, then the claimant has 60 days to request a review by the Appeals Council. The Appeals Council may review, affirm, modify or reverse the decision of the ALJ, or it may remand it to the AW for further development. After a decision by the Appeals Council, a claimant may seek further review of his or her claim only by a filing a civil action within 60 days in a United States district court.

2.5 Eligibility for Benefits

2.5.1 Eligibility for disabled workers' benefits

To be eligible for disabled workers' benefits, a worker must: (1) have achieved insured status; and (2) be determined disabled according to criteria established by the Social Security Administration. There is a 5-month waiting period between the time that a claimant is determined entitled to benefits and the time in which benefits begin.

(1) Insured status

As an insurance program, benefits under the DI program are only available to disabled persons who have previously worked, and to their dependents. A person builds disability protection through work in employment covered under Social Security. "Insured status" needed to qualify for disability benefits differs somewhat from that needed to qualify for retirement and survivors' (OASI) benefits. To achieve insured status for disability benefits, a person must:

1. Have at least one quarter of coverage for each calendar year after the year in which he or she attained the age of 21 (e.g. a person of age 53 must have earned at least 32 quarters of coverage); AND

2. Have no fewer than 20 quarters of coverage during the 40-quarter period prior to the first month in which his or her disability is determined to have begun; OR

3. If determined disabled prior to age 31, have earned coverage for at least half of all quarters occurring after he or she turned age 21 and prior to the quarter in which he or she were first disabled. A minimum of six (6) quarters of coverage is required.

For persons who are determined to be blind, only the first condition listed above (A) is required to achieve insured status; neither the second nor third conditions apply.

To be credited with a quarter of coverage, workers must earn a minimum amount of covered earnings. Since 1978, the crediting of quarters of coverage has been on an annual rather than a quarterly basis. In 1989, one quarter of coverage is earned for each $500 of covered earnings, up to a maximum of four quarters of coverage per year. The amount of annual earnings needed to earn a quarter of coverage is updated annually based on increases in average wages.

(2) Determination of disability

“The essential problem In disability is that it is not possible to construct a set of medical and vocational standards that will distinguish perfectly between those who are able to work and those who are not able to work.”
--1979 Advisory Council on Social Security

The statutory definition of disability used in both the Social Security Disability Insurance (DI) program and the Supplemental Security Income (SSI) program is intentionally stringent and has been left largely unchanged since the enactment of the DI program in 1956. In order to be considered disabled, an applicant for DI or SSI disability benefits must demonstrate the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which 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. This definition is the cornerstone of the SSA disability determination process. Only persons who are totally disabled, whose disability is expected to be long-term, and who are unable to work at any substantial level, are eligible for disability benefits. Short-term, temporary disabilities, no matter how severe, are not covered under the DI or SSI programs.

The administrative structure for conducting disability determinations involves a joint partnership between SSA and State agencies. State agencies, generally known as disability determination services (DDSs) are responsible for determining which applicants should be awarded benefits. However, DDSs make disability determinations based on uniform regulations prescribed by SSA. although DDSs are staffed by State employees, the States are fully reimbursed by the Federal government for all administrative costs of conducting disability determinations. There is no State flexibility in the conduct of disability determinations; in theory anyway, the disability determination process should be administered uniformly across all fifty States.

If a person wishes to file for DI or SSI disability benefits, they must first file an application at one of SSA's more than 1,300 field offices. For DI, an SSA claims representative first determines whether the applicant has insured status, and meets other nondisability criteria for benefits. If insured, initial disability determinations are then conducted in a five-step sequential evaluation process, as described below:

Step One: Is the claimant engaging in substantial gainful activity (SGA)?

The first step in the disability determination process is generally conducted by SSA field office staff. This involves a determination of whether the applicant is currently working at a level of substantial gainful activity. In 1988, regulations defined SGA as monthly earnings of over $300 for persons with disabilities and over $700 for persons who are blind.¹ If a person is earning more than the SGA limit, this is considered to be evidence that he or she is capable of work, regardless of other evidence of physical or mental disability. In such cases, the applicant is found not to be disabled, and medical and vocational factors are not evaluated.

Step Two: Does the claimant have a severe impairment?

If a claimant is not working, or working at the SGA level, then the application is forwarded to the State DDS. At the DDS, a team consisting of a disability examiner and a physician is assigned to the case. The team gathers medical and vocational evidence concerning the applicant's disability from available records. If the medical evidence of record is incomplete or conflicting, then the disability examiner may set up a medical examination and/or specialized tests, at no cost to the applicant. After obtaining sufficient medical evidence, the DDS team then determines whether the applicant's impairment (or combination of impairments) is severe, and if the impairment is expected to result in death or is expected to last for at least 12 months. If the applicant's impairment is found not to be severe, or if the impairment is not expected to result in death or to last for at least 12 months, then the applicant is determined not to be disabled for purposes of receiving DI or SSI benefits.

Step Three: Is the impairment so severe as to meet or equal the requirements of the medical listing in the regulations?

Those applicants whose claims are not denied at the first two steps of the disability determination process, have their conditions compared with those described in the Listing of Impairments, a document promulgated in regulations by SSA. The Listing of Impairments includes over 300 medical conditions--described in terms of specific signs, symptoms, and laboratory findings-- which are disabling on medical grounds alone. If the claimant's condition is determined to meet or equal in severity the medical conditions included in the Listing of Impairments, then the claimant is determined to be unable to perform substantial gainful activity, and is awarded benefits. Those whose conditions fall short of the severity described in the Listing of Impairments are evaluated further, as described in Step Four.

Step Four: Does the claimant have the functional capacity to do past relevant work?

For claimants whose impairments do not meet or equal the severity level described in the Listing of Impairments, the DDS team then determines whether claimants are functionally able to do their former jobs. At this step, a claimant's residual functional capacity (RFC) is assessed. This assessment must take into account the claimant's alleged symptoms, especially pain. In this assessment process, a program medical consultant determines whether the claimant is capable of performing his or her past work. If so, the applicant is found not disabled.

Step Five: Can the claimant do other types of work?

If the claimant is determined not able to do his or her former job, then a determination is made whether there are other jobs in the national economy that he or she could perform. At this point, the applicant's disability is assessed in conjunction with her or her age, education, and vocational experience. A determination is made whether the applicant's skills can be transferred to other types of work in the national economy. Persons who are determined unable to perform their previous jobs, or other work in the national economy, or determined disabled, and are awarded DI benefits.

Although the disability determination process has been structured to apply reliable, consistent, and uniform criteria in determining whether someone is or is not capable of working. it is widely recognized that it is extremely difficult to develop criteria for determining the ability to work that can be uniformly applied to every individual case. As stated in the 1988 Report of the Disability Advisory Council:

"One-reason that claims for disability benefits are so difficult to adjudicate is that medical conditions are not the sole cause of work incapacity. Work incapacity is not the direct result of physical or mental impairments alone, but rather is attributable to a variety of additional factors-- psychological, economic, environmental and, perhaps most importantly, motivational. Incontrovertible evidence for this can be found in the many people with severe disabilities who work and never apply for benefits under the DI or SSI programs."

2.5.2 Eligibility of dependents and other disabled persons

Certain dependents of disabled workers are eligible for auxiliary benefits under the DI program. Spouses are eligible for benefits if: (1) they are 60 years of age or older, or (2) they have one or more entitled children under age 16 in their care. A divorced spouse is eligible if he or she is 62 years of age or older and was married to the disabled worker for at least 10 years. Unmarried dependent children of disabled workers who are under age 18 are also eligible for monthly benefits. In June 1989, there were 276,000 dependent spouses and 972,000 dependent children of disabled workers receiving auxiliary benefits under the DI program.

In addition to disabled workers and their dependents, certain disabled persons who would otherwise not be eligible for OASDI benefits are made eligible as a result of their disability. These persons include:

Disabled widows and widowers between the ages of 50 and 59. Generally, surviving spouses of deceased Social Security beneficiaries are not eligible for survivor benefits until they reach age 60. Surviving spouses who are determined disabled are eligible for survivor benefits beginning at age 50.

Adult disabled children. Generally, childhood benefits cease once a dependent child reaches age 18. However, disabled children of retired, disabled or deceased Social Security beneficiaries, who were disabled prior to age 22, are eligible for OASDI benefits as long as they remain disabled, even though they themselves have not achieved insured status. The majority of these persons are persons with developmental disabilities such as mental retardation, autism, and cerebral palsy. Cash benefits for these persons may begin at age 18, without a five-month waiting period, and may continue as long as the person remains a dependent adult.

It is important to note that monthly cash benefits for disabled widows and widowers, and for adult disabled children are paid either from the OASI trust fund or the DI trust fund depending upon the status of the insured beneficiary to whom the adult disabled child or widow(er) is related. For example, benefits for adult disabled children of disabled workers are paid from the DI trust fund while benefits for adult disabled children of OASI beneficiaries are paid from the OASI trust fund.

2.5.3 Continuing Disability Reviews

The Social Security Act requires that every person receiving DI benefits undergo a periodic review of their continuing eligibility for benefits. The process for conducting a continuing disability review is somewhat different from the process for determining initial eligibility. In determining continuing eligibility for benefits, a medical improvement review standard is used. The medical improvement review standard was adopted in the 1984 amendments to the Social Security Act. Under this standard, once an individual is determined eligible for disability benefits, substantial evidence must show that medical improvement related to his or her ability to work has occurred and that the person is able to work before disability benefits can be terminated.

The frequency of continuing disability reviews depends upon the type of case. At the initial eligibility process, some persons are determined eligible for disability benefits but are identified as having a disability which is likely to improve. These cases are generally scheduled to be reviewed within 18 months of the initial determination. Cases which are more severe, but in which disability is not expected to be permanent, are scheduled for review every 3 years. Cases in which the disability is expected to be permanent are reviewed every 5 to 7 years.

Like the initial eligibility determination process, the continuing review process involves an orderly sequential evaluation process to determine whether an individual is still disabled and incapable of work. The continuing review process is similar to the initial determination process, but includes additional steps to determine if medical improvement has occurred, and if so, if that improvement has reached the point where the individual is now capable of performing his or her former job or other jobs in the national economy. If the individual is assessed as capable of doing work, then the DDS team will determine that the beneficiary's disability has ceased, and benefits are discontinued.

2.5.4 Termination of DI benefits

Cash benefits to disabled workers are generally terminated for one of two reasons: (1) the worker is determined by a continuing disability review to be no longer disabled; or (2) the worker reaches age 65.

A continuing disability review may find that a DI beneficiary is no longer disabled if either there has been a medical improvement in his or her condition that permits the beneficiary to participate in substantial gainful activity, or the beneficiary is participating in substantial gainful activity, regardless of his or her continuing medical condition. However, as an incentive to DI beneficiaries to attempt work without fear of losing benefits, the program provides for a nine- month "trial work period." Under this provision, most DI beneficiaries may work and earn any amount of income for up to 9 months without losing their DI cash benefits. A month of trial work is defined as any month in which earnings are more than $75; earnings of less than $75 per month are not counted as a trial work period.² After an individual completes the 9-month trial work period, work performed during the trial work period can be considered in determining the beneficiary's ability to engage in substantial gainful activity (SGA) if the individual has worked for one or more month at the SGA level.

The trial work period only applies to beneficiaries who work while still disabled, not to beneficiaries who have medically recovered from their disabilities. Thus, DI benefits can be terminated at any time that a determination is made that a medical improvement in the beneficiary's condition permits him or her to participate in work, regardless of whether the beneficiary is in a trial work period or not.

Once a disabled worker reaches the age of 65, a disabled worker is automatically transferred to the OASI program, and he or she starts receiving retirement benefits. At transition to the OASI program, monthly benefits generally remain the same.

DI benefits can be withheld at any time from disabled workers who refuse to participate, without good cause, in a vocational rehabilitation program to which he or she has been referred.

2.6 Benefit Levels

Monthly benefits paid to disabled workers are related to the past earnings of the insured worker. Disability benefits are computed in much the same manner as benefits paid to retired workers, and are based on the insured worker's Primary Insurance Amount (PIA). The PIA is based on an individual's taxable earnings averaged over his or her working lifetime. In June 1989, the average monthly benefit paid to disabled workers was $530.

Benefits to dependents and survivors of disabled workers are paid on the same basis as benefits paid to families of retired workers. Dependents of disabled workers receive benefits equal to 50% of the disabled worker's PIA. Disabled widows or widowers receive benefits equal to 71.5% of the insured worker's PIA. In June 1989, the average monthly benefit paid to dependent spouses was $137; the average benefit paid to dependent children was $151.

There is a limit on the total amount of monthly benefits that may be paid to a disabled worker and his or her dependents. The purpose of this provision is to ensure that no family is considerably better off financially after a worker becomes disabled than it was while he or she was working, The limitation of family benefits for disabled-worker families is somewhat more stringent than for retired-worker families.

2.7 Cost of Living Adjustments (COLAs)

Under current law, DI benefits, like all Social Security and Federal SSI benefits, are automatically increased annually to adjust for increases in the cost of living. Cost of Living Adjustments (COLAs) are based on increases in the cost of living as measured by the Bureau of Labor Statistics' Consumer Price Index (CPI). A COLA is provided in any year in which there is a measurable (0.1 percent) increase in consumer prices. If there is a year of price deflation and no COLA is provided, then a 2-year change in the CPI of at least 0.1 percent is needed before a COLA is provided.

The annual COLA is reflected in DI checks mailed in January of each year. The COLA is based on the CPI increase from the third quarter of the base year through the third quarter of the year in which the benefit increase becomes effective. Thus, the COLA provided in January 1989 DI checks reflected changes in the CPI between the third quarter of 1987 and the third quarter of 1988. In addition, the COLA is based on the CPI in which the housing component is measured on a rental equivalence basis.

If the assets of the combined OASI and DI trust funds fall below a certain reserve ratio (20 percent) and wages increase at a rate lower than inflation, the automatic benefit increase will be based on wage growth rather than inflation.

2.8 Recent Program History and Legislative Changes

The most important legislative changes to the DI program in recent years occurred under the Social Security Disability Benefits Reforms Act of 1984 (Public Law 98-460). This Act was enacted largely out of Congressional concerns over the implementation of continuing disability reviews in the early 1980s which led to the termination of benefits for thousands of DI beneficiaries, and the perceived need to assure more accurate, consistent, and uniform disability decisions in the DI program. Among the provisions of the Act were:

Medical improvement standard

The Act established a medical improvement standard which specified the conditions under which disability benefits can be terminated and the evidence required in making a determination that a beneficiary is no longer disabled.

Evaluation of pain

The Act required the Secretary of HHS to conduct a study concerning the evaluation of subjective pain in disability determinations. This study was completed in 1986 and basically supported the existing treatment of subjective pain in the DDS process.

Moratorium on mental impairment reviews

A moratorium was placed on all continuing disability reviews of cases involving mental impairment until the Listing of Impairments was revised and updated to reflect current professional knowledge on the diagnosis, treatment, and evaluation of mental impairments. The revised criteria were published in 1985.

Continuation of benefits during appeals

The Act mandated the continuation of DI benefits for beneficiaries whose benefits are terminated in accordance with a finding by the continuing disability review process that the beneficiary is no longer disabled, if the beneficiary elects to appeal the decision, and at the election of the beneficiary. If the administrative law judge (ALJ) affirms the decision of the continuing disability review, then the benefits paid during the appeal process must be repaid.

The Disability Benefits Reform Act of 1984 also made various other changes to the manner in which disability determinations are initially made and continuously reviewed, and also included provisions requiring greater public dissemination of SSA procedures for conducting disability determinations.

More recently, the Budget Reconciliation Act of 1987 (Public Law 100-203) lengthened the extended period of eligibility (from 15 months to 36 months) during which a disabled beneficiary can return to work and not lose their entitlement to benefits. If the disabled beneficiary stops work during this period, then DI benefits are immediately reinstated without the beneficiary having to file a new application (at least until the next continuing disability review decision is made).

2.9 Program Interactions

2.9.1 Offsets for other public disability benefits

When a disabled worker is receiving disability benefits from more than one Federal, State or local government program, including worker's compensation, DI benefits to the worker and his family are reduced by the amount, if any, that the combined benefits from all sources exceed 80 percent of his average current earnings before he became disabled. Needs-tested benefits program (such as SSI), Veteran's Administration disability benefits, and benefits based on public employment covered by Social Security are not subject to this provision. Neither does the offset provision apply if a State worker's compensation law provides for an offset against Social Security disability benefits, provided that the State law was enacted prior to 1981.

There is no offset of DI benefits for workers who also receive private disability insurance payments. Conversely, however, most private disability insurance programs are structured to adjust benefits in accordance with the level of benefits received from DI and other public programs.

2.9.2 Eligibility for Medicare

Disabled workers receiving DI benefits are eligible for coverage under the Hospital Insurance (HI) component of Medicare, also referred to as Medicare Part A. However, there is a 24-month waiting period between the month in which the disabled worker becomes entitled to DI benefits and the month in which the worker becomes eligible for Medicare. Since there is a 5-month waiting period for DI benefits, an individual may have to wait 29 months from the onset of their disability until Medicare coverage begins. Once a disabled beneficiary becomes eligible for the HI (Part A) component of Medicare, he or she is also eligible for the Supplementary Medical Insurance (SMI) program, or Part B, which covers physician and ancillary services. As with other Medicare beneficiaries, participation in Medicare Part B is voluntary, and requires the payment of a Part B premium, which in 1989 is set at $31.90 per month.

If a disabled worker loses entitlement to DI benefits because his or her impairment ceases, Medicare eligibility is generally terminated at the end of the month following the month in which DI benefits are terminated. There are provisions in the law which extend Medicare benefits to disabled workers who attempt to return to work under a "trial work" program or whose DI benefits cease due to earnings which exceed the SGA level. For these beneficiaries, Medicare coverage is extended for not less than 39 months after the end of the trial work period, and possibly longer. It is often argued that the threatened loss of health insurance coverage is more of a work disincentive for disabled workers than the threatened loss of cash benefits, since health care expenses are more unpredictable. For those beneficiaries who have completed the two-year waiting period and who come back onto the DI rolls after a period of work, there is no additional two-year waiting period for Medicare coverage.

Disabled widows and widowers and adult disabled children who receive either DI or OASI benefits are also eligible for Medicare coverage after the mandatory two-year waiting period.

Persons who receive DI benefits as dependents or survivors of disabled workers (who are not themselves disabled) are not eligible for Medicare coverage. Thus, a disabled worker who can no longer work may receive health insurance coverage from Medicare after a two-year waiting period, but may have no health insurance coverage for his or her dependent family members.

2.10 Special Program Issues

2.10.1 Variation in allowance rates across States

State DDSs are required to apply uniform regulatory criteria in making disability determinations. However, data show wide variation in allowance rates for new DI claims across the 50 States and the District of Columbia. In FY 1986, the national average allowance rate was 39 percent for initial determinations, but this rate varied from 28.3 percent to 52.6 percent across States. While these variations in allowance rates suggest that States are not making disability determinations in a uniform manner, it is also known that differences in allowance rates are also related, in some part, to differences in filing rates. For example, the number of applications for DI benefits is related to local economic and workforce conditions. Areas of high unemployment, with high numbers of poorly educated and low-skilled workers, have more applications for DI benefits per thousand population than areas where economic conditions are better. Workers with marginal impairments obviously have more opportunities to find other kinds of work in areas where workers are in high demand than in areas where there is greater competition for jobs. In addition, some States require applicants for welfare benefits (e.g. AFDC benefits) to first apply for DI or SSI disability benefits.

Nonetheless, developing a disability determination system that exhibits nationwide uniformity in the application of disability criteria is an ongoing objective of the Social Security Administration. A number of initiatives have been implemented in recent years to increase uniformity in the review process. Many other initiatives have been recommended, but because the disability determination process always retains a subjective component, it is difficult to achieve national uniformity. One recommendation for achieving increased uniformity has been Federalize the review process entirely, so that Federal, rather than State, agencies conduct disability reviews. However, there are legitimate arguments for maintaining a decentralized system, including the desire to link the disability determination process with State vocational rehabilitation programs.

2.10.2 Disability determinations appeals process

As previously discussed, SSA has established a multi-layered system for handling appeals of denied disability claims and terminations of DI benefits. There is still some controversy concerning the equity and uniformity of this system. Although all levels of the disability determination system are required to apply the same criteria and standards in making determinations, it does not appear that all levels of the system apply the same criteria uniformly. For example, of denied initial applications which were appealed to the administrative law judge level in 1987, 57% of denials were reversed by ALJ dispositions.³ Of terminated continuing disability reviews, 51% of appealed decisions were reversed.

Exhibit 2-2 shows the number of cases allowed at appeal at various levels of appeal for both initial applications and continuing disability reviews in 1988. For initial applications, 36% were initially allowed, while 64% were denied. However, after all levels of appeal had been exhausted, some 49% of initial applications were eventually allowed. For continuing disability reviews, 88% of current cases were continued, and 12% terminated. Subsequent appeals of terminated cases eventually led to a reversal of 21% of cases initially terminated. In all, after all levels of appeal are considered, about 9% of DI beneficiaries undergoing a continuing disability review are eventually terminated. In 1988, DDSs conducted 290,942 continuing disability reviews, about 8.3 percent of the active disability caseload.

2.10.3 Vocational rehabilitation of disabled workers

The Social Security Administration also administers a program which reimburses States for 100% of the cost for reasonable and necessary vocational services for DI beneficiaries if the services result in savings and is successful. A successful rehabilitation is defined by law as the completion o a continuous 9-month period of employment at the SGA level.

The present VR reimbursement program was enacted as part of the Omnibus Budget Reconciliation Act of 1981. This legislation changed SSA's VR program from a grant program to one in which States VR agencies are reimbursed only for successful rehabilitations. Under the old grant program, known as the Beneficiary Rehabilitation Program, SSA provided State VR agencies with a lump sum advance. Several studies questioned the cost effectiveness of this program, and in 1981 it was replaced with the current program. In 1988, SSA reimbursed State VR agencies $16 million from the Disability Trust Fund for the costs of successfully rehabilitation DI beneficiaries.

Under guidelines developed by SSA, State DDS workers refer persons awarded disability benefits to State Vocational Rehabilitation (VR) Agencies. Under these guidelines, only those beneficiaries who are considered good candidates for rehabilitation, and who could potentially benefit from State VR services, are referred. If referred, a DI beneficiary may lose his or her benefits for refusing rehabilitation services without good cause.

A recent GAO study of the rehabilitation of DI beneficiaries found that State VR programs have very little effect on rehabilitating disabled workers in the DI program.⁴ In a ten-State study, GAO found that about 12 percent of DI beneficiaries were evaluated by State VR agencies. Only 1 percent of the beneficiaries had been removed from the DI rolls after three years as a result of working, and only about one-third of these had been served by a State VR agency. Thus, only about 3 DI beneficiaries in 1,000 had returned to work and been removed from the DI rolls as a result of State VR efforts. In the study, State VR counselors indicated that many DI beneficiaries do not participate in rehabilitation programs because of their fear of losing cash benefits and Medicare coverage. Many felt that more disabled workers would try to work if they could continue to keep their Medicare coverage and if their cash benefits were continued on a sliding scale basis.

2.10.4 Work incentives in the DI program

Less than 1 percent of disabled workers leave the DI rolls because they return to work. In recognition of the fact that beneficiaries will be more likely to return to work if their cash benefits and health insurance coverage are not jeopardized by their work efforts, a number of work incentive provisions have been built into the DI program. These provisions, as previously discussed, include:

• Entitlement to DI benefits is never terminated during the trial work period due to earnings as long as the person remains disabled (does not medically recover), regardless of the amount of earnings;

• The extended period of eligibility (EPE) permits the prompt reinstatement of DI benefits to persons who stop performing SGA within the 36 consecutive-month period immediately following the trial work period, provided they remain disabled. During the extended period of eligibility, a new application or a new disability determination is not required before DI benefits are reinstated;

• There is no 5-month waiting period for DI benefits for a worker who becomes reentitled to benefits within 5 years of a prior period of disability.

• For disabled workers who return to work, certain impairment-related work expenses can be deducted in determining whether the worker is engaging in substantial gainful activity;

• For persons who medically recover while participating in a State VR program, cash benefits are continued until their rehabilitation program is completed; and

• Medicare benefits are extended for beneficiaries who return to work, plus Medicare coverage is automatically reinstated for beneficiaries who return to the DI rolls after a period of work, without a 24-month waiting period.

Despite these work incentives, many believe that the program does not go far enough in encouraging DI beneficiaries to return to work. For example, the Disability Advisory Council noted that the SGA level has not increased since 1980, and recommended that it be adjusted annually to reflect average wage growth. The Council also recommended that the monthly earnings amount that counts toward the trial work period be raised from the current level of $75. The Council also noted that adequate evaluations of the various work incentives in the DI program, and of possible alternative incentives, have not been conducted.

2.11 Program Data

2.11.1 Current DI recipients expenditures and benefit levels

Exhibit 2-3 presents the number of disabled workers and dependents receiving DI benefits in June 1989, the total amount of cash benefits paid, and the average benefit amount for each beneficiary. In January 1989, there were approximately 2.8 million disabled workers receiving $1.5 billion in cash benefits, and 1.2 million dependents of disabled workers receiving $184 million in cash benefits.

2.11.2 Recent Trends in the DI Program

As shown in Exhibit 2-4, the number of disabled workers receiving DI benefits declined by 10.2% between 1980 and 1983, from about 2.9 million to about 2.6 million. Since 1983, the number of disabled workers has again increased to about 2.9 million beneficiaries in June 1989.

The number of dependents of disabled workers receiving DI benefits has declined from about 1.8 million in 1980 to about 1.2 million in June 1989.

The application rate for DI benefits (number of applications per 1,000 insured workers) has been gradually declining, while the percentage of applications awarded has been increasing gradually. This may reflect an increased awareness among potential applicants of the likelihood of receiving an award. In 1988, 1,017,900 application were filed and 409,490 new awards approved, for an overall approval rate of 40 percent. The number of awards per 1,000 insured workers declined from 4.0 in 1980 to 3.0 in 1983, but then increased to 3.6 in 1988.

2.11.3 Characteristics of DI Beneficiaries

Approximately two-thirds of disabled workers are men. However, the proportion of female beneficiaries has been increasing gradually, reflecting the growing participation of women in the workforce.

As shown in Exhibit 2-5, the majority of disabled worker beneficiaries are between the ages of 55 and 64. However, the median age of disabled workers has been declining in recent years. In 1988, the median age of disabled workers was 52.4 years.

Mental, psychoneurotic and personality disorders are the major disabling condition of disabled workers granted new awards, accounting for 22 percent of all disabling conditions among new awards. This is twice the rate among new awards in 1982, when mental, psychoneurotic and personality disorders accounted for 11 percent of disabling conditions among new awards. Neoplasms (16 percent), diseases of the circulatory system (18 percent) and skeletal-muscular conditions (14 percent) accounted for almost half of disabling conditions among new awardees in 1988.

Additional data on the characteristics of disabled workers are available from the New Beneficiary Survey (NBS) conducted in 1982.⁵ The survey sample consisted of a nationally representative sample of persons who were newly awarded benefits between July 1980 and June 1981. With regard to financial status, DI beneficiaries who were married were significantly better off than unmarried beneficiaries. Overall, 66 percent of new DI beneficiaries were married, but this percentage differed greatly by sex. Among male beneficiaries, 74 percent were married, compared to only 49 percent of female beneficiaries. Median monthly household income for married men in 1982 was $1,230 and for married women, $1,360. This contrasted sharply with the average median household income for unmarried men, which was $490, and for unmarried women, which was $460.

The primary reason that families of married DI beneficiaries are better off financially than unmarried beneficiaries is the presence of earnings from the disabled worker's spouse. Social Security benefits (of all types, not just disabled workers benefits) accounted for 43 percent of total income for married disabled workers, but for 65 percent of total income for unmarried beneficiaries.

2.11.4 Adult disabled-children and disabled-widows and widowers

In addition to disabled workers who receive cash benefits exclusively under the DI program, there were an additional 561,276 adult disabled children and 104,991 disabled widows and widowers receiving OASDI benefits in December 1987. Most of these persons receive their cash benefits from the OASI trust fund, not the DI trust fund, since they are eligible as children or spouses of retired or deceased beneficiaries. Over half of all adult disabled children, about 299,000, also received SSI benefits in 1987.

Adult disabled children are one of the fastest growing benefit populations in the Social Security program. The number of beneficiaries increased by 25% between 1980 and 1987, from 450,169 to 561,276 (Exhibit 2-6). Total cash benefits paid to adult disabled children in 1987 were just under $2.0 billion.

On the other hand, the number of disabled widows and widowers receiving OASDI benefits declined from 127,580 in 1980 to 104,991 in 1987. Total cash payments to disabled widows and widowers in 1987 were approximately $415 million.

2.11.5 Total outlays of the DI trust fund

Total outlays from the DI trust fund were $22.5 billion in 1988. This included $21.7 billion in benefit payments to disabled workers and their dependents, approximately $16 million in payments for the vocational rehabilitation of DI beneficiaries, and $737 million in administrative expenses.

Total outlays from the DI trust fund are projected to increase at annual compound rate of 6.6 percent between 1988 and 1994, rising to $32.8 billion. Like the OASI trust fund, the DI trust fund is expected to generate significant surpluses through the first part of the 21st century, after which outlays will start to exceed surpluses indefinitely.

NOTES

1. At the time of this writing, new regulations effective January 1, 1990 will raise the SGA level for persons with disabilities other than blindness from $300 to $500 per month.

2. Effective January 1, 1990, a trial work period will be defined as any month in which earnings exceed $200. Earnings of less than $200 per month will not be counted as a trial work period.

3. In some cases, reversals of initial denials reflect a deterioration of the applicant's functional abilities during the period of the appeal, and new medical evidence submitted to support that deterioration.

4. General Accounting Office: Social Security: Little Success Achieved in Rehabilitation Disabled Beneficiaries. HRD-88-11, Washington, D.C., December 1987.

5. Packard, M.: "Income of New Disabled-Worker Beneficiaries and Their Families: Findings from the New Beneficiary Survey." Social Security Bulletin Vol. 50(3):5-23, March 1987.