LOUIS W. SULLIVAN, SECRETARY OF HEALTH AND HUMAN SERVICES, ET AL.,
PETITIONERS V. SANDRA EVERHART, ET AL.

   No. 88-1323

   In The Supreme Court Of The United States

   October Term, 1989

   On Writ Of Certiorari To The United States Court Of Appeals For The
Tenth Circuit

   Brief For The Petitioners

                       PARTIES TO THE PROCEEDING

   Petitioners are the Secretary of Health and Human Services and the
Commissioner of Social Security.  Respondents are plaintiffs Sandra
and Thomas Everhart and Myron Zenick and intervenors Emil Zweizen and
Berline Wise, representing a Tenth Circuit-wide class of Title II and
Title XVI beneficiaries, certified by the district court, whose
erroneous payments "were recovered pursuant to the Secretary's netting
regulations on or after December 8, 1986" and who "have made or will
make a claim to the Secretary not to have the netting policy applied
in their cases" (Pet. App. 27a).

            TABLE OF CONTENTS
   Question Presented
   Parties To The Proceeding
   Opinions below
   Jurisdiction
   Statutory and regulatory provisions involved
   Statement
        A. Statutory and regulatory scheme
        B. The proceedings in this case
   Summary of argument
   Argument:
       A. Because the Secretary has broad authority to issue
          regulations to implement the payment correction provisions
          of Title II and Title XVI, and because the regulations
          promulgated under that authority have been consistently
          maintained over a long period of time, they are entitled
          to great deference
       B. The language, structure, and history of the provisions
          for correction of past payment errors make clear that the
          netting of past errors is consistent with the Act
       C. The Secretary's regulations are a reasonable
          implementation of the statute and are faithful to Congress's
          evident purpose in providing for a waiver of any adjustment
          or recovery of overpayments
   Conclusion

                            OPINIONS BELOW

   The opinion of the court of appeals (Pet. App. 1a-16a) is reported
at 853 F.2d 1532.  The order and ruling of the district court (Pet.
App. 17a-25a), and the district court order certifying a class on
remand (Pet. App. 26a-27a) are unreported.

                             JURISDICTION

   The judgment of the court of appeals was entered on August 12,
1988.  A petition for rehearing with suggestion for rehearing en banc
was denied on October 24, 1988.  On January 13, 1989, Justice White
extended the time for filing a petition for a writ of certiorari to
February 7, 1989.  The petition was filed on that date and was granted
on May 22, 1989.  The jurisdiction of this Court is invoked under 28
U.S.C. 1254(1).

             STATUTORY AND REGULATORY PROVISIONS INVOLVED

   Section 204(a) and (b), 42 U.S.C. 404(a) and (b) and Section
1631(b)(1), 42 U.S.C. 1383(b)(1) (Supp. IV 1986) of the Social
Security Act are reproduced at App., infra, 1a-4a.  Social Security
reglations 20 C.F.R. 404.504 and 416.538 are set forth at App., infra,
4a-5a.

                          QUESTION PRESENTED

   Whether Social Security regulations that require netting of all
payment errors to a recipient in a past period to determine whether
there has been an underpayment (subject to reimbursement) or an
overpayment (subject to recovery or waiver of recovery) are within the
agency's statutory authority.

                               STATEMENT

   A. Statutory and Regulatory Scheme

   1. Title II of the Social Security Act, 42 U.S.C. 401 et seq. (1982
& Supp. IV 1986), originally enacted in 1935, establishes an insurance
program to pay cash benefits to elderly and disabled workers and their
survivors and dependents.  Title XVI of the Act, 42 U.S.C. 1381 et
seq. (1982 & Supp. IV 1986), also known as the Supplemental Security
Income (SSI) program, was enacted in 1972 and went into effect on
January 1, 1974.  The SSI program provides for the payment of benefits
to financially needy individuals who are aged, blind, or disabled.

   Each month, the Social Security Administration (SSA), a unit of the
Department of Health and Human Services (HHS), issues more than 40
million payments to beneficiaries under the Title II and Title XVI
programs.  All but a small percentage of these payments correctly
reflect the amount of benefits to which the recipients are entitled.
Mistakes are inevitable, however, in programs of this magnitude and
complexity.  For example, overpayments can result under Title II if a
beneficiary underestimates or fails to report the amount of actual or
estimated earned income (see 42 U.S.C. 403(a) and (h), 415);  fails to
inform the Secretary of an award of workers compensation benefits (42
U.S.C. 424a);  neglects to report, in the case of a minor child
receiving survivor's benefits, that he is no longer a full-time
student (see 42 U.S.C. 402(d));  or neglects to report, in the case of
a widow or divorced wife, either that she has remarried (42 U.S.C.
402(e) and (f)) or that a child is no longer under her care (42 U.S.C.
402(g)).  Similarly, under Title XVI, there are parallel factors that,
if incorrectly or belatedly reported, can result in an inaccurate
payment.  See, e.g., 42 U.S.C. 1382a (describing the effect of outside
income on the level of benefits);  42 U.S.C. 1382(b) (providing that
the level of benefits is dependent on a spouse's benefits under the
program);  42 U.S.C. 1382c(b)-(f) (describing the effect of family
composition, age and number of children, and family members' resources
on eligibility).  Even if the information furnished to the Secretary
is correct, administrative delays, miscalculations, and misapplication
of applicable statutes and regulations contribute to errors in the
amount of a monthly benefit payment.  /1/

   2. Recognizing that errors would be made in administering these
massive entitlement programs, Congress enacted provisions under both
Titles that empower the Secretary to rectify such mistakes.  These
provisions, Section 204 of Title II and Section 1631(b)(1) of Title
XVI, 42 U.S.C. 404 and 1383(b)(1) (Supp. IV 1986), require the
Secretary to correct errors in past payments whenever the beneficiary
has received "more or less" than the amount to which he is entitled.
The Title II provision, Section 204, is divided into two subsections.
Section 204(a)(1) states that "(w)henever the Secretary finds that
more or less than the correct amount of payment has been made to any
person under (Title II), proper adjustment or recovery shall be made,
under regulations prescribed by the Secretary." If the Secretary
determines that "less than the correct amount" has been paid, the
recipient is entitled to reimbursement of that amount.  Section
204(a)(1)(B), 42 U.S.C. 404(a)(1)(B) (Supp. IV 1986).  If the
recipient has received "more than the correct amount," Section
204(a)(1)(A) requires the Secretary to "decrease any payment" under
Title II to the recipient or to "require such overpaid person * * * to
refund the amount." However, Section 204(b) directs that "there shall
be no adjustment of payments * * * or recovery by the United States"
if the recipient was "without fault" and if "such adjustment or
recovery would defeat the purpose of (Title II) or would be against
equity and good conscience." 42 U.S.C. 404(b).  In Califano v.
Yamasaki, 442 U.S. 682 (1979), this Court held that recipients who
request a waiver under this section are entitled to an oral hearing
prior to any recovery or adjustment of benefits.

   The parallel SSI provision is worded and arranged somewhat
differently, but is similar in purpose and effect.  /2/ Section
1631(b)(1)(A) of Title XVI, 42 U.S.C. 1383(b)(1)(A) (Supp. IV 1986)
states that whenever the Secretary finds "that more or less than the
correct amount of benefits has been paid" to a recipient, the
Secretary shall make "proper adjustment or recovery." The "adjustment
or recovery" is to be made "by appropriate adjustments in future
payments to such individual or by recovery from such individual (or
his eligible spouse or estate), * * * or by payment to such
individual." In the event that a beneficiary has been overpaid,
however, Section 1631(b)(1)(B), 42 U.S.C. 1383(b)(1)(B) (Supp. IV
1986) requires the Secretary to "make such provision as he finds
appropriate * * * with a view to avoiding penalizing such individual *
* * who was without fault," if "adjustment or recovery * * * would
defeat the purpose of this subchapter, or be against equity and good
conscience, or (because of the small amount involved) impede efficient
or effective administration."

   3. This case concerns the validity of regulations, known as the
"netting" regulations, promulgated by the Secretary to implement the
foregoing statutory provisions.  20 C.F.R. 404.504 (Title II);  20
C.F.R. 416.538 (Title XVI);  see App., infra, 4a-5a.  /3/ These
regulations authorize the Secretary to add together, or "net," all
past overpayments and underpayments of benefits that a beneficiary has
received up through the month before the Secretary becomes aware of a
mistaken payment.  If the netting process reveals a net underpayment,
then the Secretary pays the beneficiary what is due.  If, however, the
process reveals a net overpayment, the Secretary must then decide if
the statute requires waiver of the debt before any "adjustment or
recovery" may take place.  Although the Secretary is entitled under
the regulations to take into account all past errors in computing the
total amount of payment error, the regulations do not permit the
Secretary to hold open the netting period to offset past errors
against any future shortfalls or excesses that may occur.  Once the
Secretary discovers a mistake in a payment in some previous month, he
can only look "backwards" from the month he first discovers the error
to the "first month for which there is a difference" between the
amount paid and the correct amount due.  20 C.F.R. 416.538.

   B. The Proceedings in this Case

   1. Respondents in this case -- the three original plaintiffs and
two intervenors in the proceedings below -- all received benefits
under Title II or Title XVI during some period prior to commencement
of this lawsuit.  /4/ The Secretary found that each of the respondents
had received too much money during some past months and too little
money in other months.  He therefore applied the netting regulations
to calculate a net past payment error for each.  The three original
plaintiffs were found, after netting, to have incurred net
underpayments.  Pet. App. 3a.  Accordingly, the Secretary paid them
the net amount due.  In accordance with the regulations, however, the
Secretary did not segregate overpayments from underpayments, or give
separate consideration to the excess amounts they received for months
in which they were overpaid.  Thus, the named plaintiffs were not
afforded an opportunity to request a waiver of repayment with respect
to their overpayments considered separately from their underpayments.

   Respondents filed a class action in the United States District
Court for the District of Colorado seeking declaratory and injunctive
relief against the Secretary and the Commissioner of SSA.  They
claimed that the Secretary's netting procedure violated the Social
Security Act and denied them due process of law.  /5/ In their view,
the statute required the Secretary to segregate past overpayments and
past underpayments into separate accounts, to pay over the total
amount of all past underpayments, and then to apply the waiver of
recoupment procedures to the total of all past overpayments.

   Ruling from the bench, the district court (Pet. App. 20a-25a)
granted respondents' motion for summary judgment.  Expressly
disagreeing with the decision of the Third Circuit in Lugo v.
Schweiker, 776 F.2d 1143 (1985), which had upheld the netting
regulations against a similar challenge, the court adopted the view
set forth in Judge Gibbons' dissenting opinion in Lugo to the effect
that the Secretary's regulations had accomplished an "end run * * *
around both the waiver statutes and the Supreme Court's decision in
Califano v. Yamasaki." The court reiterated Judge Gibbons' conclusion
that "the netting regulations permit the Secretary to accomplish what
the waiver provisions plainly and unequivocally forbid;  namely a
recovery by the United States of overpayments without a hearing on
waiver." Pet. App. 22a (quoting Lugo v. Schweiker, 776 F.2d at 1156
(Gibbons, J., dissenting)).  The court remanded the respondents'
claims to the Secretary for recalculation of their payment errors
without employing the netting method, and further enjoined the
Secretary from applying that method to any Title II and Title XVI
beneficiaries in the State of Colorado.  Pet. App. 17a-19a.

   2. The court of appeals affirmed the judgment as to the named
respondents.  /6/ The court acknowledged (Pet. App. 9a-10a) that its
ruling was at odds with the decisions of the Third Circuit in Lugo v.
Schweiker, supra, and the Eighth Circuit in Webb v. Bowen, 851 F.2d
190 (1988).  The court further acknowledged that Sections 205(a) and
1631(d)(1) of the Social Security Act, 42 U.S.C. 405(a), 1383(d)(1)
(1982 & Supp. IV 1986), explicitly grant discretion to the Secretary
to establish procedures implementing the Act's provisions (Pet. App.
11a), and that "the Act does not specify over what past time period
there must be a determination of payment errors" (ibid.).  The court
nevertheless concluded that "the statute is not silent regarding the
differential treatment of overpayments and underpayments and the
mandatory waiver of recovery in appropriate instances" (ibid.).
Relying on Judge Gibbons' dissent in Lugo v. Schweiker, 776 F.2d at
1154, the court explained that "(a)lthough the disputed regulations
treat overpayments and underpayments equally in providing the
methodology for computing a single net amount, the statute makes a
clear differentiation.  * * * While the provisions relating to
underpayments mandate payment without qualification, the recovery of
overpayment provisions are qualified by the waiver of recoupment
procedures" (Pet. App. 10a).

   In the court's view, the Secretary had "overlook(ed) the
inescapable fact that by offsetting overpayments against
underpayments, the SSA has effectively recovered overpayments without
complying with the statutorily mandated waiver of recoupment
procedures" (Pet. App. 10a).  This had resulted in "the deprivation of
recipients' rights to notice and a waiver hearing prior to recoupment
or adjustment" (ibid.), in violation of this Court's decision in
Califano v. Yamasaki, 442 U.S. 682, 697 (1979).  According to the
court, it was clear after Yamasaki that there could be no recovery
"when waiver is proper" (id. at 693-694).  Because, the court
expained, "(n)o recovery means no recovery by setoff, and no recovery
by suit;  no recovery at all'" (Pet. App. 11a (quoting Lugo v.
Schweiker, 776 F.2d at 1154 (Gibbons, J., dissenting))), the failure
to consider waiver before applying the netting procedure was
inconsistent with the Act.  The court concluded that there were
"inherent conflicts between the regulations and the recoupment and
waiver of recoupment provisions" (Pet. App. 10a) and held the
regulations invalid for failing to require the Secretary to make a
separate calculation of total overpayments and total underpayments
before applying the Act's remedial procedures (id. at 13a).

   The court of appeals rejected the Secretary's argument that
elimination of the netting methodology would "result in a much more
complex system for dealing with payment errors" (Pet. App. 11a n.5).
Instead, the court found "reasonable" respondents' position that one
notice containing a separate list of all overpayments and
underpayments would comport with the statute, and concluded that such
a requirement would impose on the Secretary "no greater burden to
provide notices and hearings than that already imposed under the
statute and the Supreme Court's interpretation of the waiver
provisions" (id. at 12a n.5).  The court noted, in addition, that even
if netting "may be an acceptable practice in a business context,"
business entities "are not constrained by mandatory statutory
provisions." Although acknowledging that netting might be "desirable
from an administrative standpoint," the court admonished that
"administrative convenience cannot be countenanced when the netting
regulations contravene the plain language of the statute" (id. at
11a).

                          SUMMARY OF ARGUMENT

   The court of appeals in this circuit-wide class action invalidated
a procedure that has been used by the Secretary of Health and Human
Services for more than fifteen years to correct errors in payments
made to beneficiaries under two of the largest federal entitlement
programs.  The regulations that prescribe this procedure fairly and
efficiently resolve hundreds of thousands of claims each year under
the Title II and SSI programs that arise from errors involving both
excessive and deficient monthly payments to the same individual.

   In holding that the netting procedure is inconsistent with the
statutory payment correction provisions, the court of appeals struck
down regulations that implement programs Congress has entrusted to the
Secretary's administration, and that represent the considered product
of the Secretary's administrative judgment.  Congress has granted the
Secretary, by an express delegation of authority, especially broad
discretion to choose procedures to administer the Title II and Title
XVI programs.  See 42 U.S.C. 405(a), 1383(d)(1) (1982 & Supp. IV
1986).  Indeed, in the Title II error provision itself, 42 U.S.C. 404,
Congress explicitly delegated authority to promulgate regulations to
implement that section.  This Court has repeatedly stressed that under
these circumstances the scope of review of an agency's regulations is
narrowly circumscribed.  See Batterton v. Francis, 432 U.S. 416, 425
(1977);  Schweiker v. Gray Panthers, 453 U.S. 34, 43 (1981);  Heckler
v. Campbell, 461 U.S. 458, 466 (1983);  Bowen v. Yuckert, 482 U.S.
137, 145 (1987).

   In overturning the Secretary's longstanding practice, the court of
appeals stated that the "plain language" of the payment correction
provisions of the statute forbids application of the netting
methodology prior to consideration of waiver.  The court (Pet. App.
10a) pointed to the statute's "differential treatment" for
overpayments and underpayments -- that is, the provision for automatic
reimbursement of shortfalls, as opposed to the requirement of a waiver
inquiry prior to any "adjustment" or "recovery" of excesses -- to
justify its rule that the two types of error must be strictly
segregated.  The court concluded that the process of offsetting
underpayments and overpayments is a form of "adjustment of recovery"
that may not take place until the Secretary has considered waiver.

   There is, however, nothing in the history of Sections 204 and
1631(b)(1) to suggest that the terms "adjustment or recovery" were
intended to refer to offset of past overpayments against past
underpayments, and much to suggest otherwise.  The evolution of the
statutory language indicates that the terms "adjustment" and
"recovery" refer only to certain types of affirmative measures the
Secretary is authorized to take to collect excess amounts mistakenly
paid out -- that is, to an "adjustment" of future benefit payments or
a "recovery" in the form of legal demand for a refund from the estate
of the recipient or from assets in the recipient's possession.  The
current version of the waiver provisions buttresses this view by
describing "adjustment" as an "appropriate adjustment() in future
payments to such individual" (42 U.S.C. 1383(b)(1)(A) (Supp. IV 1986)
(emphasis supplied)), and "recovery" as the requirement that such
overpaid person or his estate * * * refund the amount in excess of the
correct amount" (42 U.S.C. 404(a)(1)(A) (Supp. IV 1986) (emphasis
supplied)).

   Moreover, even assuming that Congress did not definitively resolve
the meaning of the key statutory terms "adjustment" and "recovery,"
there is no doubt that the netting procedure is consistent with a
permissible and reasonable construction of the statutory language.
The statutes direct the Secretary to determine whether "more or less
than the correct amount" of benefits has been paid.  The term "more or
less" is not defined in any provision of the Social Security Act, and
the statute places no restriction on the method by which that
determination is to be made, or the period over which errors may be
considered in making the determination.

   It is only after the Secretary determines that "more * * * than the
correct amount" has been paid under Section 204(a)(1) or
1361(b)(1)(A), that he is ready to make an "adjustment or recovery" of
the excess payment, and must consider whether waiver is appropriate.
Thus, the netting procedure is fully consistent with the statutory
design.

   In directing the Secretary to waive recovery from overpaid
beneficiaries under certain circumstances, Congress was concerned to
ensure that, in the course of rectifying past mistakes, the Secretary
would not undermine the underlying purpose of the entitlement programs
by intentionally inflicting future hardship on program beneficiaries.
The Secretary's practice of aggregating all errors made in the past
honors that concern by guaranteeing that subsistence beneficiaries
receive an opportunity for a hearing on waiver before the Secretary
attempts any affirmative recovery.  At the same time, in contrast to
the separate accounting procedure mandated by the Tenth Circuit, the
practice of netting all past errors avoids imposing a requirement that
the Secretary in effect overpay thousands of individuals who have
received all the benefits to which they are entitled, and relieves the
agency of the obligation to then attempt to recover excess payments
that have been deliberately paid out in this manner.

   The Tenth Circuit's rule would require HHS to set aside large
reserves of cash for paying the much larger amounts that the Secretary
would owe to previously netted beneficiaries in order to reimburse
them for all underpayments considered separately.  And, by creating a
huge new class of overpaid beneficiaries (who previously would have
owed nothing because the government's debt to them would have been
applied against their debt to the government) the court of appeals
rule would inundate the agency with additional paperwork and demands
for processing, monitoring, and collecting overpayments that do not
qualify for waiver.  HHS could also expect an upsurge in applications
for forgiveness, requiring intensive and detailed case-by-case
investigation and face-to-face hearings.  The agency is ill-equipped
to handle this extra workload, and nothing in the court of appeals
decision, or the Social Security Act itself, justifies the imposition
of these onerous and unreasonable responsibilities.

                               ARGUMENT

   THE SECRETARY'S REGULATIONS REQUIRING THE "NETTING" OF PAST
OVERPAYMENTS AND UNDERPAYMENTS OF BENEFITS UNDER TITLE II AND TITLE
XVI ARE FULLY CONSISTENT WITH THE STATUTORY PROVISIONS FOR THE
CORRECTION OF PAST PAYMENT ERRORS

   A. Because the Secretary has Broad Authority to Issue Regulations
to Implement the Payment Correction Provisions of Title II and Title
XVI, and Because the Regulations Promulgated under that Authority Have
Been Consistently Maintained over a Long Period of Time, They are
Entitled to Great Deference.

   The benefits programs under Title II and Title XVI are of
monumental proportions.  Indeed, the Secretary's task is formidable:
billions of dollars must be paid to millions of beneficiaries under a
statute that is "among the most intricate ever drafted by Congress."
Schweiker v. Gray Panthers, 453 U.S. 34, 43 (1981);  see also Atkins
v. Rivera, 477 U.S. 154, 162 (1986).  To accomplish this task, the
Secretary must formulate regulations that faithfully carry out the
statutory mandate, and yet are capable of practical administration by
a large nationwide bureaucracy.

   "Perhaps appreciating the complexity of what it had wrought,"
Schweiker v. Gray Panthers, 453 U.S. at 43, Congress "conferred on the
Secretary exceptionally broad authority to prescribe standards for
applying certain sections of the (Social Security) Act." Heckler v.
Campbell, 461 U.S. 458, 466 (1983).  The Secretary's authority to
adopt procedures implementing the payment correction provisions at
issue here derives from two express statutory grants.  First, both
Title II and Title XVI contain general provisions expressly delegating
to the Secretary "full power and authority to make rules and
regulations and to establish procedures, not inconsistent with the
provisions of (the Act), which are necessary or appropriate to carry
out such provisions." See 42 U.S.C. 405(a);  42 U.S.C. 1383(d)(1)
(1982 & Supp. IV 1986) (making Section 405(a) applicable to the SSI
program).  Second, the payment correction provision of Title II,
Section 204(a), directs that proper adjustment or recovery of payment
errors shall be made "under regulations prescribed by the Secretary."
Taken together, these express grants of authority reveal that Cogress
conferred especially broad discretion upon the Secretary to devise
practical procedures for the implementation of the provisions at issue
here.

   "In a situation of this kind, Congress entrusts to the Secretary,
rather than to the court, the primary responsibility for interpreting
the statutory term(s)." Batterton v. Francis, 432 U.S. 416, 425
(1977).  Of course, whenever regulations are challenged on the ground
that they are inconsistent with the statute they implement, the first
question is "whether Congress has directly spoken to the precise
question at issue." Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837,
842 (1984).  In answeringg this question, the court is to employ
"traditional tools of statutory construction" (id. at 843 n.8),
including an examination of "(t)he words, structure, and history" of
the statutory provisions in question.  NLRB v. United Food &
Commercial Workers Union, Local 23, 108 S.Ct. 431, 421 (1987);  Young
v. Community Nutrition Institute, 476 U.S. 974, 980-981 (1986);  INS
v. Cardoza-Fonseca, 480 U.S. 421, 446-449 (1987).  But if application
of the traditional methods of statutory construction reveals that
"Congress has not directly addressed the precise question at issue,"
the court may not simply impose its own interpretation of the
statutory language.  Where, as here, "there is an express delegation
of authority to the agency to elucidate a specific provision of the
statute by regulation," the courts must defer to the agency's
interpretation as long as it is not "arbitrary, capricious or
manifestly contrary to the statute." Atkins v. Rivera, 477 U.S. at 162
(quoting Chevron, 467 U.S. at 844).

   The Secretary's regulations at issue here are also entitled to
deference because they have been consistently maintained over a long
period of time.  See, e.g., Udall v. Tallman, 380 U.S. 1, 16-17
(1965);  FEC v. Democratic Senatorial Campaign Comm., 454 U.S. 27,
32-38 (1981).  The netting policy was first expressly incorporated
into the Title XVI regulation at the outset of the SSI program in
January 1974.  See 39 Fed. Reg. 2,012-2,013 (1974) (proposed rule);
40 Fed. Reg. 47,761-47,763 (1975) (final rule).  Although the Title II
regulation, as originally promulgated in 1955 (see 20 Fed. Reg. 2,662)
and revised in 1969 (see 34 Fed. Reg. 14,888), did not expressly
define the netting period, it is nonetheless clear that the Secretary
interpreted the Title II regulation to require netting long before
adoption of the Title XVI regulation.  See 40 Fed. Reg. 47,762 (1975)
(noting that the netting procedure described in the Title XVI
regulation, 20 C.F.R. 416.538, "reflect(s) the existing practice of
the Social Security Administration and (is) essential to the
operation" of the payment error provisions).  /7/ Hence, the
Secretary''s regulations have expressly embodied the netting procedure
for fifteen years, and the agency has informally followed the netting
procedure under Title II for an even longer period of time.  As such,
the Secretary's interpretation is entitled to great deference.

   In this case, the court of appeals articulated the correct standard
of review and acknowledged that its role in reviewing the Secretary's
netting regulations was narrow.  See Pet. App. 5a.  However, the
court's application of this standard, and its conclusion that the
netting regulations are inconsistent with the statute," are seriously
flawed.  Contrary to the lower court's conclusions, the regulations
are entirely consistent with the language and history of the Social
Security Act and with Congress's equitable goals in providing for a
waiver of recoupment scheme.  Even assuming that some ambiguity can be
found in the statute, see e.g., Young v. Community Nutrition
Institute, 476 U.S. at 980-981, it is clear that the Secretary's
prescribed method for correcting payment errors represents a
permissible and reasonable implementation of the statute.

   B. The Language, Structure, and History of the Provisions for
Correction of Past Payment Errors Make Clear that the Netting of Past
Errors is Consistent with the Act.

   The central issue of statutory interpretation in this case is
whether the provision for waiver of overpayments applies whenever a
beneficiary receives an overpayment, as respondents maintain and the
court of appeals held, or whether that provision comes into play only
when the Secretary seeks to collect an overpayment, as the netting
regulations provide.  In resolving this issue, the key question of
statutory construction concerns the meaning of the phrase "adjustment
or recovery." Both Section 204(b), which sets forth the entitlement to
a waiver of recoupment in certain circumstances under the Title II
program, and the parallel language in Section 1631(b)(1)(B) (Supp. IV
1986) of Title XVI, provide that a beneficiary may request a waiver
only when the Secretary seeks to make an "adjustment or recovery" of
overpayments.  Respondents contend that the netting of past
overpayments against past underpayments is itself a form of
"adjustment or recovery." The Secretary's position, on which the
netting regulations are premised, is that the phrase "adjustment or
recovery," as used in the Social Security Act, refers only to
affirmative methods for collecting past overpayments, either through
"adjustments" in future payments or a "recovery" in the form a demand
for repayment from the beneficiary or his estate.  For the reasons set
forth below, we believe the Secretary's construction of the phrase
"adjustment or recovery" is not only a permissible one, but is the
only reasonable reading of the statute.

   1. The statutes make clear that the correction of past payment
errors proceeds in two steps.  First, the Secretary must determine if
there has been a payment error, and if so, what kind and in what
amount.  Second, the Secretary must determine how, if at all, to
rectify that error.  With respect to the first inquiry -- the
ascertainment and calculation of the payment error -- the Title II
provision simply directs the Secretary to determine whether "more or
less than the correct amount of payment has been made to any person
under this subchapter." The Title XVI provision uses virtually
identical language.  See 42 U.S.C. 1383(b)(1)(A) ("more or less than
the correct amount of benefits has been paid with respect to any
individual").  Clearly, nothing in the directive that the Secretary
determine whether "more or less than the correct amount" of benefits
has been paid is inconsistent with the netting procedure.  To the
contrary, the disjunctive "or" implies that the Secretary is expected
to find only one or the other type of error for each beneficiary, and
to compute no more than a single error amount in each case.  This is,
of course, precisely what the netting procedure does.

   Nor does the statute specify any particular period of time over
which the Secretary must conduct the inquiry into whether "more or
less than the correct amount" has been paid.  Judge Gibbons,
dissenting in Lugo v. Schweiker, 776 F.2d at 1153, suggested that the
netting procedure, in permitting the Secretary to aggregate all past
overpayments and underpayments, was inconsistent with "the basic
statutory accounting period," which he identified as resting on the
"entitlement to monthly benefits." But although Title II insurance
programs specify that benefits are to be paid monthly, see 42 U.S.C.
402(a) (describing entitlement to "an old-age insurance benefit for
each month"), 42 U.S.C. 423(a) (speaking of entitlement to "a
disability insurance benefit * * * for each month"), the provision
requiring correction of payment errors, and providing an opportunity
for a waiver in cases of overpayment, makes no mention of a monthly or
any other accounting period.  See 42 U.S.C. 404(a)(1).  And although
certain provisions of Title XVI require the Secretary to make a
determination of eligibility for SSI benefits on a monthly basis, see
42 U.S.C. 1382(c)(1) (Supp. IV 1986) (describing factors affecting an
individual's "eligibility for a benefit under this subchapter for a
month"), that statute permits the Secretary to fix by regulation the
frequency of benefit payments to SSI recipients.  See 42 U.S.C.
1383(a)(1) ("benefits under this subchapter shall be paid at such time
* * * and in such installments * * * as determined under
regulations").  Thus, neither Title II nor Title XVI provides any
basis for concluding that the determination whether "more or less than
the correct amount" has been paid must be undertaken using a monthly
accounting period.  See Lugo v. Schweiker, 776 F.2d at 1147.  /8/

   The only possible basis in the statute for questioning the netting
procedure is found in the provisions describing the second stage of
the process -- where the Secretary determines how, if at all, he will
rectify any payment error that has been identified.  With respect to
Title II errors, if the threshold inquiry reveals the payment "of less
than the correct amount," then under subsection (B) of Section
204(a)(1), that amount is automatically reimbursed to the beneficiary.
 On the other hand, if the threshold inquiry reveals a payment of
"more than the correct amount," then subsection (A) provides that the
Secretary shall seek adjustment or recovery.  However, Section 204(b)
qualifies the Secretary's authority to recoup past overpayments as
follows (42 U.S.C. 404(b)):

      In any case in which more than the correct amount of payment has
      been made, there shall be no adjustment of payments to, or
      recovery by the United States from, any person who is without
      fault if such adjustment or recovery would defeat the purpose of
      this subchapter or would be against equity and good conscience.

The Title XVI provision contains a similar qualification (see p.5,
supra).

   It is the language of these provisions for a waiver of recovery of
overpayments that the court of appeals identified as being in conflict
with the netting regulations.  In particular, the court found that the
netting procedure is a method of securing a "recovery" of
overpayments, and thus is inconsistent with the language directing
that the beneficiary be given an opportunity to seek a waiver before
any attempt is made to effectuate an "adjustment or recovery" of
overpaid benefits.  Pet. App. 10a-11a, 12a.  It is to this contention
that we now turn.

   2. If, as respondents contend and the court of appeals held,
netting is a form of "adjustment or recovery" under Section 204(a)(1)
or 1631(b)(1)(A), then it follows that no netting may take place until
the Secretary has afforded the beneficiary the opportunity to request
waiver of the entire amount of the excess monthly payments considered
separately.  The language and history of the waiver provisions clearly
indicate, however, that the terms "adjustment or recovery" do not have
this inclusive meaning.  When these provisions are considered
together, and read in light of Congress's reason for providing for
forgiveness of the beneficiary's obligation to repay, it is clear that
Congress did not intend to bar the Secretary's practice of netting all
past errors together.

   a. The language of the correction and waiver provisions themselves
makes clear that the words "adjustment or recovery" were intended to
refer only to (1) the withholding of future program benefits
("adjustment") or (2) a demand for payment from assets in the
possession of the recipient or his estate ("recovery").  Under Section
204(a)(1) of Title II, the Secretary is directed to make "proper
adjustment or recovery" of excess disbursements by "decreas(ing) any
payment under this subchapter to which such overpaid person * * * is
entitled," or by "requir(ing) * * * (a) refund." "Adjustment"
therefore clearly corresponds to future withholding, and "recovery"
corresponds to seeking a refund.  Similarly, under Section
1631(bb)(1)(A) of Title XVI, "proper adjustment or recovery" is to be
made by means of "appropriate adjustments in future payments" or
"recovery" from the individual or his estate.

   Plainly, the Title XVI definition of "adjustment" contains no
ambiguity.  In that provision, Congress expressly described an
"adjustment" more fully as "an appropriate adjustment() in future
payments." Although the Title II provision uses a slightly different
formulation -- authorizing "adjustment" by means of a reduction in
"any payment under this subchapter" to which the beneficiary is
entitled -- that phrase also strongly suggests that the term
"adjustment" refers to the withholding of future benefits.

   On the other hand, Title II uses the word "recovery" in a manner
incompatible with the suggestion that this term was intended to
include administrative offsets.  Section 204(a)(1)(A) describes a
"recovery" more fully as "requir(ing) such overpaid person or his
estate to refund the amount in excess of the correct amount * * *."
Congress's direction to require a "refund" from "such overpaid person
or his estate" is not the sort of language that would naturally be
used to refer to methods of recovering overpayments by administrative
offset.  Clearly, what was contemplated was a demand for repayment of
monies in the possession of the beneficiary of his estate -- a
collection action.  Although the corresponding Title XVI provision,
Section 1631(b)(1)(A), does not expressly define "recovery" as a
refund, its overall structure, and the fact that it was modelled so
closely on the parallel Title II provision, indicates that the two
Sections should be read in para materia.

   In sum, there is nothing in the choice of language in either Title
to indicate that Congress understood either the term "adjustment" or
the term "recovery" to refer to an offset against past underpayments.
Indeed, because the term "adjustment" plainly refers to a reduction in
future social security benefits, and the term "recovery" so obviously
refers to the collection of money by affirmative demand for payment,
it is only these two methods of recouping past overpayments that
cannot proceed without consideration of waiver.

   b. An examination of the history of the payment error provisions
under both Titles reinforces the inferences drawn from the statutory
text.  As originally enacted, the Social Security Act of 1935
authorized the SSA to correct payment errors by two methods.  First,
both underpayments and overpayments could be corrected in certain
circumstances after the death of a beneficiary by a lumpsum payment to
the beneficiary's estate, or by a demand for repayment from the
estate.  See Social Security Act, ch. 531, Sections 203(c), 206, 49
Stat. 624.  /9/

   Second, Section 202(c) provided

      If the (Social Security) Board finds at any time that more or
      less than the correct amount has theretofore been paid to any
      individual under this section, then, under regulations made by
      the Board, proper adjustments shall be made in connection with
      subsequent payments under this section to the same individual.

   Several features of these original provisions are worth noting.  In
authorizing either a lump-sum payment to, or recoupment from, the
estate of the beneficiary, the 1935 Act applied only if the Social
Security Board found that "the total amount paid to a qualified
individual under an old-age benefit during his life" was less or more
than "the correct amount" (Sections 203(c), 206, 49 Stat. 624
(emphasis supplied)).  The amount to be paid to or collected from the
recipient's estate was thus calculated by subtracting the "correct
amount" of benefits the recipient should have received from the "total
amount paid." In expressly defining payment errors in this fashion,
Congress took for granted that overpayments that were made in some
months would be combined with underpayments in others.  In short, in
formulating one original progenitor of the present overpayment
provision, Congress contemplated that all types of errors made during
the beneficiary's lifetime would be added together, or "netted," in
calculating the amount owed to the government.  In 1935, Congress
surely did not understand the process by which excess payments were
recovered to have anything to do with the offset of past excesses and
shortfalls necessary to deciding whether the provision applied in the
first instance.

   This conclusion is buttressed by the language of Section 202(c), in
which Congress authorized the Board to determine whether "more or
less" than the correct amount had been paid, and to make "adjustments
* * * in connection with subsequent payments under this section to the
same individual." This provision reveals that, when the original Act
was promulgated, Congress understood the term "adjustment" to refer to
increases or decreases that would be made in the amount of subsequent
benefit payments.  There is no indication that the term 'adjustment"
referred to offsets of past payments against each other.

   The subsequent history of the Act indicates that Congress's
understanding of the pertinent terms did not change throughout several
revisions of the Title II provision, and that it informed the
formulation of the payment correction provision under Title XVI.  The
basic framework for payment error correction established under the
1935 Act was preserved in subsequent amendments.  In 1939, the
repayment provision amendment, Section 204(a), expressly reiterated
the authorization for correcting excess or deficient payments by
"proper adjustment," and again made explicit that this was to be
accomplished by "increasing or decreasing subsequent payments to which
such individual is entitled" (emphasis supplied).  See Social Security
Amendments of 1939, ch. 666, 53 Stat. 1368.  /10/ By defining an
"adjustment" to correct an over payment as a deduction from
"subsequent payments," Congress once again plainly indicated that the
term "adjustment" referred only to the withholding of future benefits,
not to the process of offsetting past overpayments against
underpayments.

   The provisions for payment correction were modified in another
important respect.  In order to alleviate the possible hardship that
the withholding of future benefits to correct overpayments might
create, Congress in 1939 also added Section 204(b) to allow a waiver
in appropriate circumstances.  In so doing, Congress introduced the
critical phrase "adjustment or recovery" into the statute.  Since the
only two methods for correcting payment errors that Congress had
recognized up to and including that time were increasing or decreasing
subsequent payments to the beneficiary and a lump-sum payment to, or a
demand for payment from, the recipient's estate, "adjustment" clearly
referred to the first method, and "recovery" to the second.  /11/
Hence, under Section 204(b), it was only these procedures that SSA
could not carry out without first considering waiver.

   In 1967, Congress amended Section 204 again, incorporating the
present language.  See Pub. L. No. 90-248, Sections 152, 153(a), 81
Stat. 860, 861.  The revised provision expanded the government's power
to collect erroneous overpayments during the beneficiary's lifetime.
See S. Rep. No. 744, 90th Cong., 1st Sess. 257 (1967).  The prior
version, by authorizing only one method of recouping overpayments
during the recipient's lifetime -- the withholding of future benefits
paid to the individual himself -- had created a loophole in cases
where the recipient was still alive but no longer receiving benefits.
It also failed specifically to authorize collection from other
individuals receiving benefits on the earnings record of an ovepaid
beneficiary who was still alive.  Ibid.

   The new provision therefore added another method for recovery of
excess payments during a beneficiary's lifetime -- a demand for a
"refund" -- and also expanded the category of individuals from whom
recovery could be obtained.  As explained in the Senate Report, "new
subsection (a) provides that where a person is paid more than the
correct amount, the overpayment shall be adjusted, or recovered * * *
by requiring the overpaid person or his estate to make a refund, or by
decreasing any social security benefits payable to the overpaid person
or to any other person on the earnings record that served as the basis
of the benefit payments to the overpaid person." S. Rep. No. 744,
supra, at 257;  see also id. at 94 ("Under the bill the Secretary
would have authority in any case where there has been an overpayment
of cash benefits, to recover the overpayment by requiring a refund or
by withholding the cash social security benefits (to anyone) getting
benefits on the same earnings record, whether or not the overpaid
person is alive.").  By enumerating the methods by which overpayments
could be "adjusted, or recovered", -- that is, by "requiring a refund"
or by "decreasing any social security benefits" that had yet to be
paid -- the Senate Report again makes plain that those terms were
confined to a refund of assets in the recipient's possession or a
reduction in future benefit payments.  /12/

   In sum, there is no suggestion in the legislative materials that
either of the terms used in the waiver of recoupment sections was
intended to encompass reductions of overpayments by offsets against
underpayments.  On the contrary, Congress's choice of language, the
logic of the statute's evolution, and the remarks accompanying the
successive revisions in the provisions all point to one conclusion:
that in providing an opportunity to waive "adjustment or recovery,"
Congress did not intend to place limits on the practice of offsetting
past overpayments and underpayments through netting.

   3. Even if it were possible to regard the statutory language and
legislative history as leaving unresolved the correct interpretation
of the terms "adjustment" and "recovery," the court of appeals should
not have substituted its own preferred construction for that of the
agency charged with administering the statute.  This Court has made
clear that the "view of the agency charged with administering (a)
statute is entitled to considerable deference;  and to sustain it, we
need not find that it is the only permissible construction that (the
agency) might have adopted but only that (the agency's) understanding
* * * is a sufficiently rational one * * *." Young v. Community
Nutrition Institute, 476 U.S. at 981 (citing Chemical Manufactures
Ass'n v. NRDC, Inc., 470 U.S. 116, 125 (1985)).

   There can be no doubt that the Secretary's netting regulations are,
at a minimum, a "permissible" construction of the statute sufficient
to warrant deference.  First, even if the standard interpretive
materials fall short of demonstrating conclusively that the terms
"adjustment" and "recovery" were intended to refer only to withholding
of future benefits and demands for refunds, they certainly contain
nothing to rule out an interpretation of those terms compatible with
the Secretary's netting procedure.  At the least, there is no "clear
meaning of (the) statute, as revealed by its language, purpose, and
history" (Southeastern Community College v. Davis, 442 U.S. 397, 411
(1979)) that leads inexorably to the conclusion that the terms
"adjustment" and "recovery" must refer to offset of past payments as
well as to the measures enumerated in the language of the statutes.

   In addition, the operative terms that define the threshold inquiry
-- whether there has in fact been a past payment error -- clearly
permit the Secretary to use the netting method described in the
regulations.  Section 204(a) states that "(w)henever the Secretary
finds that more or less than the correct amount of payment has been
made" to a beneficiary, proper adjustment or recovery shall be made by
the Secretary as prescribed.  Neither the statute nor the legislative
history addresses the meaning of "more or less." These terms are not
defined in Section 204(a) or 1631(b)(1), or in any other provision of
the statute.  The statute is likewise silent concerning the period
over which past errors can be taken into account in deciding whether
more or less than the correct amount has been paid.  As we have
pointed out above, Sections 204(a) and 1631(b)(1), unlike certain
other provisions of Title II, contain no express requirement that a
determination of payment be made "for each month." Indeed, the court
of appeals acknowledged that the statute did not indicate explicitly
"over what past time period there must be a determination of payment
errors" (Pet. App. 11a).

   The netting regulations are likewise valid as a permissible
construction of the phrase "correct amount of payment." The Secretary
has chosen to construe the phrase "correct amount of payment' to mean
the amount of benefits to which the claimant is entitled, overall, up
to the time the Secretary reviews the payments.  It is not only
plausible, but sensible, to read Section 204(a) as permitting the
Secretary to decide if the total amount the beneficiary received
during the entire period preceding the present represents "more * * *
than the correct amount of payment" that is currently due.

   Since Congress chose to leave undefined the terms "more or less"
and "correct amount of payment," and placed no restrictions on the
time period over which the Secretary could take past errors into
account, deference to the Secretary's construction is in order.  See
Chevron, 467 U.S. at 843;  see also Webb v. Bowen, 851 F.2d 190, 192
(8th Cir. 1988).

   4. The court of appeals, following the dissenting judge in Lugo v.
Schweiker, supra, suggested that the Secretary's regulations were at
odds with this Court's decision in Califano v. Yamasaki, 442 U.S. 682
(1979).  See Pet. App. 10a-11a.  Yamasaki, however, was concerned only
with the narrow question whether either the statute or due process
requires that a beneficiary be afforded an opportunity for an oral
hearing when the Secretary attempts to make an "adjustment or
recovery" of past overpayments.  No issue was presented in Yamasaki as
to the proper interpretation of the phrase "adjustment or recovery."

   Indeed, as the majority pointed out in Lugo, Yamasaki confirms the
reasonableness of the Secretary's reading of the statute.  In
Yamasaki, 442 U.S. at 693, 695-697, the Court indicated that disputes
concerning the amount of an error as determined under Section 204(a)
/13/ require less stringent procedures than determinations as to
whether there should be a waiver of recovery under Section 204(b).
While the Court "required a hearing for determination of imprecise
(Section 204(b) standards such as 'fault,' it noted that disputes may
arise over the (Section 204(a)) calculation of overpayment but there
need be no hearing to resolve them." Lugo v. Schweiker, 776 F.2d at
1149.  The Yamasaki Court thus made clear than an oral hearing is not
a necessary prerequisite to a determination whether "more or less"
than the correct amount has been paid.  In holding that the
Secretary's method for ascertaining error deprives recipients of a
hearing to which they are entitled, the Tenth Circuit's ruling
interposes a procedural requirement that this Court has determined
does not apply.

   At bottom, the assertion that Yamasaki is incompatible with the use
of the netting methodology rests entirely on an assumption that the
offsetting of past excess payments against past shortfalls is a form
of "adjustment or recovery." As the previous discussion demonstrates
(see pp. 22-29, supra), that assumption is wrong.  In any event, the
Yamasaki Court did not address -- and perforce did not impose any
restrictions on -- the method the Secretary could use to compute a
past error.  Accordingly, there can be no claim that the netting
procedure -- which was adopted more than five years before this
Court's decision in Yamasaki (see p. 17, supra) -- represents an
effort by the Secretary to make an "end run" around this Court's
decision.  See Lugo v. Schweiker, 776 F.2d at 1156 (Gibbons, J.
dissenting).

   C. The Secretary's Regulations are a Reasonable Implementation of
the Statute and are Faithful to Congress's Evident Purpose in
Providing for a Waiver of any Adjustment or Recovery of Overpayments.

   When considered in light of the equitable goals of the waiver of
recoupment scheme and the underlying purpose of the benefits programs,
the Secretary's netting practice is entirely reasonable.  The overall
objective of the Social Security system is "the protection of its
beneficiaries from some of the hardships of existence." United States
v. Silk, 331 U.S. 704, 711 (1947).  The commentary accompanying the
passage of the original 1935 Social Security Act reveals that the
income and retirement insurance system was created to guarantee a
regular source of income sufficient to maintain a minimum standard of
living, and to protect against "dependency." See H.R. Rep. No. 615,
74th Cong., 1st Sess. 2, 4 (1935).  See also Report of the Committee
on Economic Security, H.R. Doc. NO. 81, 74th Cong., 1st Sess. 2
(1935);  Message of the President Recommending Legislation on Economic
Security, H.R. Doc. No. 81, 74th Cong., 1st Sess. 1 (1935).
Similarly, in enacting Title XVI, Congress repeatedly stressed that
the principal goal of the SSI program was to "set a Federal guaranteed
minimum income level for aged, blind, and disabled persons" who were
incapable of supporting themselves.  S. Rep. No. 1230, 92d Cong., 2d
Sess. 12 (1972);  see also H.R. Rep. No. 231, 92d Cong., 1st Sess.
147, 155 (1971);  Schweiker v. Wilson, 450 U.S. 221, 223 (1981).

   Congress's motive in permitting selective waiver of the
beneficiary's obligation to repay must be understood in light of these
fundamental objectives.  The evident purpose of the waiver provisions
is to ensure that beneficiaries do not incur financial obligations
that deprive them of the resources or income needed to maintain a
minimum standard of living.  That goal is fully accomplished under the
Secretary's regulations.  Under the netting procedure, the Secretary
may never reduce future benefits or take steps to collect a refund
without first affording the beneficiary the opportunity to seek a
waiver, and to demonstrate that repayment would be inequitable or
would defeat the statute's purpose.  Thus, the netting practice
effectively guarantees that a beneficiary who is without fault will
not be forced to live on less than a minimally adequately income.
/14/

   On the other hand, the Tenth Circuit's mandated system of separate
accounting is unwieldly and unreasonable.  A system of separate
accounting would require the Secretary automatically to reimburse all
underpayments, whether or not the beneficiary has already been repaid
in the form of mistaken overpayments.  In many instances, this will
result in making additional payments to beneficiaries who have already
been "paid up," because they have received the entire amount due under
the statute up to and including the time the Secretary becomes aware
of payment errors.  And in some instances, the Secreatary would be
required to "reimburse" an individual for underpayments under one
program, even though the beneficiary has already been overpaid for the
same period under the same or a different program.  /15/ In effect,
the Tenth Circuit's system of separate accounting would turn a method
for correcting errors into a method for making errors.

   If forced to apply the Tenth Circuit's rule, the Secretary would
also exacerbate many pre-existing disparities between the amount paid
and the amount actually due.  In all cases involving mixed payment
errors, the Secretary would automatically be required to reimburse
beneficiaries for any underpayments, even if they had previously
received incorrect overpayments that were solely the fault of the
beneficiary.  Congress surely could not have intended this anomalous
result.  As we have seen, Congress's purpose in enacting the waiver
provisions was to prevent the Secretary from deliberately inflicting
present and future hardship on program beneficiaries. not to mandate
the overcompensation of beneficiaries regardless of the circumstances
surrounding the error.  Nor can it be thought that Congress's purpose
in enacting the waiver provisions was to undermine the Secretary's
attempt to make payments that reflect the actual amount of benefits to
which an individual is entitled as precisely as possible.

   In addition to imposing on the Secretary the paradoxical,
counterintuitive requirement to pay money to beneficiaries who have
already been paid too much, the Tenth Circuit's rule burdens SSA with
a needless and expensive multiplication of procedural obligations.
The Secretary would be required to calculate at least two error
amounts in all cases in which netting would result in a single amount.
 Because the government would be entitled to no credit for past
overpayments in computing past underpayments (which must be
automatically reimbursed), the total amount the Secretary would be
required to pay out would substantially increase.  /16/ Those who
would otherwise be overpaid after netting would now be entitled to
reimbursement;  those who would be underpaid after netting would now
be entitled to even larger amounts of reimbursement than they would
have received if their underpayments had been offset against
overpayments.  /17/ Whether or not these sums would be recovered
eventually in the form of recoupment of overpayments, the Secretary
would be obliged to set aside considerable fiscal reserves to cover
the larger and more numerous reimbursement checks.  And even if a
significant portion of the additional amounts that are reimbursed are
eventually recovered by the Secretary, the government would have lost
the interest earned on these funds during the period from payment to
recovery.

   Even more perversely, if netting is foreclosed, many thousands of
individuals each year who are currently found to be underpaid after
netting (because their total underpayments exceed their overpayments)
will be converted into beneficiaries with outstanding overpayments
(because their underpayments will be automatically paid, leaving only
overpayments).  The multi-step task of processing this large new pool
of ovepaid beneficiaries will demand considerable administrative
effort.  Even if an overpaid beneficiary does not request waiver, SSA
must still notify recipients of their right to request a waiver,
answer inquiries and requests for explanations, review and resolve
requests for reconsideration as to the fact or amount of overpayment,
complete overpayment recovery questionnaiers, establish payback or
future benefit adjustment schedules, monitor or suspend repayment on
the basis of pending appeals, and institute collection actions.  See
Program Operations Manual System (POMS) GN 02201.004 et seq., GN
02210.150 et seq. (1989) (describing procedures for processing and
recovering overpayments).  In addition, according to HHS, the payment
of large sums that must affirmatively be recouped as overpayments will
result in a significant and permanent net loss of funds from the
benefits pool.  /18/ And, even if overpaid beneficiaries continue to
request waiver at the present rate, /19/ the absolute number of
recipients who are entitled to an elaborate case-by-case-consideration
of their requests for forgiveness will increase dramatically, placing
a significant new burden on "an already overburdened agency." Heckler
v. Campbell, 461 U.S. 458, 468 (1983).  /20/

   The procedures for processing overpayments and evaluating requests
for waiver serve an important and appropriate function in protecting
subsistence-level beneficiaries against the loss of future benefits
due to past mistakes that are no fault of their own.  But, as the
Court observed in Mathews v. Eldridge, 424 U.S. 319, 348 (1976),
government funds spent on superfluous procedures "in the end come out
of the pockets of the deserving since resources available for any
particular program of social welfare are not unlimited." The Secretary
has a fiduciary responsibility to all present and future participants
in the Social Security programs to guard against the pointless and
unnecessary expenditure of the funds allotted to these programs.  He
has a corresponding interest in averting the imposition of cumbersome
and redundant procedural requirements for the recovery of Social
Security overpayments.  It is perverse to adopt a rule that in effect
requires that beneficiaries be deliberately overpaid or paid twice for
the same period and then subject to elaborate procedures before the
Secretary may attempt recoupment.  Congress did not contemplate such a
result, and the Social Security Act does not require it.  The
Secretary's sensible and longstanding regulations should be sustained.

                              CONCLUSION

   The judgment of the court of appeals should be reversed.

   Respectfully submitted.

   KENNETH W. STARR

      Solicitor General

   STUART E. SCHIFFER

      Acting Assistant Attorney General

   THOMAS W. MERRILL

      Deputy Solicitor General

   AMY L. WAX

      Assistant to the Solicitor General

   WILLIAM KANTER

   MARY DOYLE

      Attorneys

   JULY 1989

   /1/ In 1982, SSA identified 1.5 million overpayment errors under
the Title II Retirement, Survivors, and Disability Insurance (RSDI)
program, and over 500,000 overpayment errors under the SSI program.
See Hearing Before the Subcomm. on Social Security of the House Comm.
on Ways and Means, 97th Cong., 2d Sess. 35 (1982).  According to a
more recent estimate by the General Accounting Office, payment errors
of various types affected between 4 and 5 million beneficiaries in the
Title II RSDI program per year between 1980 and 1986.  See Social
Security:  Payment Accurad\cy Rates Are Overstated, United States
General Accounting Office Report to the Chairmen, U.S. Senate Subcomm.
on Labor, Health and Human Services, and Education, Comm. on
Appropriations 19 (Oct. 1987).

   /2/ The Title XVI payment error provision, enacted as part of the
Social Security Amendments of 1972 creating the SSI program, was
closely modeled on the corresponding Title II provision, which had
been revised in 1967 to incorporate the language presently in force.
See pp. 28-29, infra.  See Pub. L. No. 92-603, Section 301, 86 Stat.
1475.  In 1980, the Title XVI payment error correction provision was
revised slightly, redesignated as Section 1631(b)(1), and divided into
subsections ((A) and (B)) to create the present version of the
provision.  See Technical Corrections Act of 1979, Pub. L. No. 96-222,
Section 101(a)(2)(C), 94 Stat. 195;  Act of Oct. 19, 1980, Pub. L. No.
96-473, Section 6(h), 94 Stat. 2266 (correcting a numbering error in
subsection (b)).

   /3/ The netting procedure is expressly set forth only in the Title
XVI regulation, 20 C.F.R. 416.538.  However, Social Security Ruling
(SSR) 81-19a (1981) provides that the netting methodology prescribed
under the Title XVI regulation also applies to the calculation of
payment error amounts under the Title II regulation.

   /4/ For example, Sandra Everhart was receiving Social Security
disability benefits and SSI benefits, and Thomas Everhart was
receiving SSI benefits at the time of their marriage in September
1984.  See Pet. App. 3a.  Because of mistakes in the couple's
estimates of their earnings and delays in the adjustment of levels of
benefits to take into account their change in matrimonial status, both
Thomas and Sandra were paid too little in some months and too much in
other months immediately before and after their marriage.  In January
1985, the errors were discovered and the Secretary determined that
from August 1984 to January 1985, the Everharts together had incurred
a net underpayment of $407, based on total underpayments of $596 and
total overpayments of $189.  The net underpayment was paid to them.
Ibid.  Gov't C.A. Br. 8 n.8.  HHS informs us that as a result of this
litigation, their payment errors were recomputed without using the
netting method.  They received a check for the remaining amount of
total underpayments considered separately, and HHS abandoned efforts
to recoup the total overpayments.

   /5/ Because both courts below held that the regulations contravened
the statute, neither considered the constitutional challenge.

   /6/ The court reversed the district court's grant of statewide
injunctive relief on the ground that no class had been certified, and
remanded for further proceedings (Pet. App. 16a & n.7).  On remand,
the district court certified a circuit-wide class of Title II and
Title XVI beneficiaries whose erroneous payments "were recovered
pursuant to the Secretary's netting regulations on or after December
8, 1986" (Pet. App. 27a) and who "have made or will make a claim to
the Secretary not to have the netting policy applied in their cases"
(ibid.).  The Secretary was ordered to identify all class members by
February 20, 1989 (ibid.).

   On February 17, 1989, petitioners filed a Motion for a Stay of
Proceedings pending this Court's response to the government's petition
for a writ of certiorari.  Following the grant of certiorari on May
22, 1989, the district court ordered a partial stay of its original
class certification order.  The new Order incorporated an agreement of
the parties that HHS would prospectively preserve the records of Title
II and Title XVI cases in the Tenth Circuit in which the netting
methodology was applied, but did not otherwise compel the Secretary to
comply with the Tenth Circuit's decision pending this Court's
consideration and decision.  Stipulation and Order for Partial Stay
and For Prospective Identification of Class Members, Civ. No.
85-Z-2590 (D. Colo. June 19,1989).

   /7/ The internal Social Security Manual revised in 1974 directs
administrators to use the offset procedure under Title II.  See Social
Security Claims Manual Section 600.04 (rev. Feb. 12, 1974)
("Simultaneous Underpayments and Overpayments").  We have been
informed by HHS that the netting of mixed errors was standard
procedure under Title II as far back as the late 1960s.

   /8/ The Tenth Circuit placed reliance on what it termed the
"differential treatment of overpayments and underpayments" in the
statute in concluding that separate treatment was prescribed for
"overpayments." Pet. App. 11a.  But, neither Section 204(a)(1) nor
Section 1631(b)(1) uses the terms "overpayment" and "underpayment" in
the text of the statute.  The terms appear only in the headings of the
subsections, where they play no role in defining the Secretary's
obligations under the provisions.  Thus, contrary to the Tenth
Circuit's conclusion, the payment error correction provisions do not
prescribe "differential treatment" -- indeed, they prescribe no
treatment at all -- for overpayments and underpayments.  Instead, both
provisions refer to the payment of "more or less than the correct
amount" of benefits.

   /9/ Section 203(c) of the 1935 Act (49 Stat. 624) provided, in
pertinent part:

      If the (Social Security) Board finds that the total amount paid
      to a qualified individual under an old-age benefit during his
      life was less than the correct amount to which he was entitled
      under section 202 * * * then there shall be paid to his estate a
      sum equal to the amount, if any, by which the correct amount of
      the old-age benefit exceeds the amount which was so paid to him
      during his life.

   Section 206 of the 1935 Act (49 Stat. 624) provided, in pertinent
part:

      If the (Social Security) Board finds that the total amount paid
      to a qualified individual under an old-age benefit during his
      life was more than the correct amount to which he was entitled
      under section 202 * * * then upon his death there shall be
      repaid to the United States by his estate the amount, if any, by
      which such total amount paid to him during his life exceeds * *
      * the correct amount to which he was entitled under section 202.

   /10/ The version of Section 204(a) and (b) enacted in 1939 reads as
follows

         (a) Whenever an error has been made with respect to payments
      to an individual under this title (including payments made prior
      to January 1, 1940), proper adjustment shall be made, under
      regulations prescribed by the Board, by increasing or decreasing
      subsequent payments to which such individual is entitled.  If
      such individual dies before such adjustment has been completed
      adjustment shall be made by increasing or decreasing subsequent
      benefits payable with respect to the wages which were the basis
      of benefits of such deceased individual.

         (b) There shall be no adjustment or recovery by the United
      States in any case where incorrect payment has been made to an
      individual who is without fault (including payments made prior
      to January 1, 1940), and where adjustment or recovery would
      defeat the purpose of this title or would be against equity and
      good conscience.

   For reasons that are unexplained, the 1939 amendments appear to
have deleted the sections of the 1935 Act providing for payments to or
recovery from the estate of the beneficiary following death.  However,
the legislative history implies that Congress contemplated the
continued use of legal action against the beneficiary's estate, as
well as adjustment of future benefits during life, by explaining that
the new Section 204(b) "waives any right of the United States to
recover by legal action or otherwise" if recoupment would be
inequitable.  See S. Rep., No. 734, 76th Cong., 1st Sess. 51 (1939);
H.R. Rep. No. 728, 76th Cong., 1sdt Sess. 42 (1939), and note 11,
infra.  In any event, the language authorizing recovery from the
estate of the beneficiary reappeared in the 1967 version of the
payment correction provisions.  See p. 23, infra.

   /11/ The meaning Congress attached to these terms was confirmed by
the Senate and House Reports, which explained that Section 204(b) was
intended to "waive() any right of the United States to recover by
legal action or otherwise in any case of incorrect payment" to
individuals without fault if recoupment would be inequitable.  See
note 10, supra, citing Senate and House Reports.

   /12/ The history of the Title XVI provision, which has been only
slightly revised since its enactment as part of the amendments
creating the SSI program, is less revealing.  However, the legislative
remarks accompanying its passage contain not the slightest suggestion
that Congress incorporated the terms "adjustment or recovery" -- which
were borrowed directly from the parallel and previously enacted Title
II provisions -- with any different understanding of their meaning.

   /13/ The regulations permit beneficiaries to question the accuracy
of the amount of an underpayment or an overpayment of which they have
been notified by requesting reconsideration of the Secretary's
determination.  See 20 C.F.R. 404.907 (Title II);  20 C.F.R. 416.1407
(Title XVI).  Beneficiaries notified of overpayments may request
reconsideration or waiver, or both.

   /14/ See 20 C.F.R. 404.508(a) (adjustment or recovery is deemed to
"(d)efeat the purpose" of Title II if it would "deprive a person of
income required for ordinary and necessary living expenses.  This
depends upon whether the person has an income or financial resources
sufficient for more than ordinary and necessary needs, or is dependent
upon all of his current benefits for such needs");  20 C.F.R. 416.553
(adjustment or recovery is considered to "(d)efeat the purpose" of
Title XVI if "the individual's income and resources are needed for
ordinary and necessary living expenses").

   /15/ For example, intervenor Berline Wise received underpayments as
well as overpayments during an overlapping period.  Because she had
failed to report outside earnings, Ms. Wise received almost $25,000 in
disability benefits to which she was not entitled from August 1976 to
May 1983.  However, she had not claimed $10,500 in retirement benefits
to which she was entitled for the period September 1980 to December
1983.  In December 1983, the Secretary determined that errors had been
made, applied the netting method, and informed Ms. Wise that she owed
a net overpayment of $14,500.  Gov't C.A. Br. 9-10.

   As the result of the decision below reversing the Secretary's
netting of the errors under both programs and granting relief to named
plaintiff-intervenors, Ms. Wise was paid the full amount of retirement
benefits due in the pertinent period, even though she had already been
paid disability benefits to which she was not entitled for a
significant part of the period in question.  See also Everhart v.
Bowen, 694 F. Supp. 1518, 1523 (D. Colo. 1988) (reversing on other
grounds the Appeals Council's decision upholding the Secretary's
netting determination in Ms. Wise's case).

   /16/ Moreover, the logic behind the dissent in Lugo would appear to
require separate treatment for each monthly error.  See pp. 19-20,
supra (discussing Judge Gibbons' reliance on the purported "basic
statutory (monthly) accounting period").  This would result in a
cumbersome procedure whereby the Secretary would reimburse each
underpayment on a month by month basis, and afford each beneficiary a
discrete opportunity to request waiver for each monthly overpayment.
Such a strict monthly accounting system would undoubtedly result in
even larger total amounts of waived overpayments.  Under Title XVI,
for example, recoupment is waived if the cost of recovery exceeds the
overpayment amount.  See 20 C.F.R. 416.555.  Obviously, overpayments
that are considered on a monthly basis will more frequently qualify
for waiver under this provision than overpayments that represent the
sum of errors over several months.

   /17/ For example, a beneficiary with $1000 total deficiencies and
$500 total overpayments during a past period would be entitled to
reimbursement of $500 after netting.  Under a separate accounting
system, he would be entitled to reimbursement of $1000 -- $500 more
than he would have received under the netting regulations.  This extra
$500 -- which previously would have been netted against his
underpayment -- is now considered an overpayment that the Secretary
must recover separately.

   A beneficiary found to have a net past overpayment of $500 based on
$500 total past underpayments and $1000 past overpayments would be
entitled to no reimbursement under netting, but would owe the SSA
$500.  Under the system of separate accounting, the recipient would be
immediately entitled to $500 in reimbursement, and the SSA would be
forced to recover a larger amount -- $1000 -- representing
overpayments considered separately.  In sum, the disallowance of
netting would affect the distribution of funds in three ways:  1) the
Secretary would disburse a larger amount of money to all beneficiaries
with past "mixed" errors 2);  the SEcretary would have to make efforts
to collect overpayments from a new class of beneficiaries not
previously considered overpaid;  and 3) the total amount outstanding
as uncollected overpayments, and the average amount the Secretary must
attempt to collect from beneficiaries with "mixed" errors who were
previously considered overpaid, will increase.

   /18/ According to the agency's most recent estimate, about 11
percent of excess benefits owed by beneficiaries under Title II are
never collected (due to terminated collection efforts or a grant of
waiver).

   /19/ According to HHS' most recent estimate, about six percent of
Title II RSI beneficiaries who are overpaid request a waiver.
Although exact figures are not available, the rate of requests among
individuals receiving disability benefits under both Titles is
estimated to be higher, probably because these beneficiaries are more
likely to depend exclusively on their benefits, especially under the
SSI program, and thus are particularly unlikely to be in the financial
position to repay the goverment.

   In any event, the invalidation of netting may well generate a
higher percentage of waiver request by creating a greater incentive to
seek forgiveness.  As pointed out above, see note 17, supra, separate
accounting will lead to an increase in the amount owed to the
government by those beneficiaries whose past overpayments would
otherwise have been reduced by offset.  Because, for this group, the
obligation to repay will become more onerous than it would have been
after netting, it is reasonable to expect that these beneficiaries
will more frequently request relief from the obligation to repay.

   /20/ If waiver is requested, the agency must inquire
comprehensively into the beneficiary's personal circumstances and the
reasons for the mistaken payment in order to assess "fault" and to
determine if recovery would "defeat the purpose" of the statute or be
against "equity and good conscience." The multiple criteria for a
finding that a beneficiary is without fault are set forth at 20 C.F.R.
404.507, 404.510, 404.510a, 404.511 (Title II) and 416.552 (Title
XVI).  These regulations provide that a beneficiary is "at fault" in
receiving or retaining an overpayment if he knew or should have known
that the payment was incorrect or was based on incomplete or
inaccurate information.  That determination involves a sophisticated
exercise of administrative judgment based on a host of individualized
factors, including the credibility of the beneficiary.  See, e.g., 20
C.F.R. 404.507 (The administrator "will consider all pertinent
circumstances, including * * * age, intelligence, education, and
physical and mental condition");  20 C.F.R. 416.552 ("Whether an
individual is 'without fault' depends on all the pertinent
circumstances surrounding the overpayment in the particular case").

   With respect to the "equity and good conscience" exemption, the
regulations require SSA to investigate whether the recipient "becuase
of a notice that such payment would be made or by reason of the
incorrect payment, relinquished a valuable right * * * or changed his
or her position for the worse." 20 C.F.R. 404.509;  see also 20 C.F.R.
404.512, 416.554.  A "(d)efeat the purpose" determination necessitates
a comprehensive investigation of the beneficiary's financial
circumstances to ascertain if recovery would deprive an individual of
"income required for ordinary and necessary living expenses." 20
C.F.R. 404.508(a) (Title II), 416.553 (Title XVI).  Finally, Title XVI
requires the administrator to decide whether the amount involved is
too small to justify recovery by comparing the projected recoupment
amount to the "administrative cost of handling" an overpayment case.
See 20 C.F.R. 416.555.

   APPENDIX