Before the Subcommittee on Social

Security, Committee on Ways and

Means, House of Representatives

United States General Accounting Office

GAO

For Release on Delivery

Expected at 10:00 a.m.

Thursday, May 17, 2001 SOCIAL SECURITY

ADMINISTRATION

Systems Support Could

Improve Processing

Attorney Fee Payments in

the Disability Program

Statement of Barbara D. Bovbjerg, Director

Education, Workforce, and Income Security Issues

GAO-01-710T
Page 1 GAO-01-710T

Mr. Chairman and Members of the Subcommittee:

Thank you for inviting me here today to report on our study on attorney

fees in the Social Security Administration’ s (SSA) Disability Insurance

(DI) program. To ensure that people claiming DI benefits can obtain legal

representation at a fair price, the Social Security Act requires that SSA

regulate the fees that attorneys charge people to represent their disability

claims before the agency.1 Balancing the needs of claimants with those of

their attorneys, the act limits the amount of fees that attorneys can charge

claimants, but also guarantees that those fees will be paid from the

claimants’ past-due benefits. Over the years, however, relations between

SSA and attorneys representing DI claimants have become increasingly

strained. While SSA points to the growing administrative burden of

processing these fees, attorneys are frustrated with delays in receiving

their fees. The situation intensified recently after the Ticket to Work Act

imposed an assessment (or “user fee”) to be deducted from the attorney

fees.2

 This act tied the amount of the user fee to SSA’s administrative costs

in providing fee services, requiring SSA to determine (for calendar years

after 2000) the percentage rate necessary for “full recovery of the costs of

determining and certifying fees,” not to exceed 6.3 percent.

The Ticket to Work Act required us to study various aspects of attorney

fee services in the DI program. My remarks today focus on (1) our

evaluation of SSA’s estimate of its administrative costs, (2) the time it

takes SSA to process the fee payments, (3) whether efficiencies in SSA’s

operations might reduce costs and processing times of fee payments, and

(4) other matters related to the services and the user fee. In June 2000, we

reported our preliminary results to the Subcommittee on Social Security,

House Committee on Ways and Means.3

In summary, although SSA’s administrative costs serve as the benchmark

for the user fee, precise measurement of these costs is difficult. The fee

services are only a small part of SSA’s operations, and SSA’s information

systems do not routinely track the type of data necessary for careful

measurement of these costs. SSA recently estimated that it cost $54

 1

 42 U.S.C. 406(a)(2)(A).

2

 Ticket to Work and Work Incentives Improvement Act of 1999, P.L. 106-170.

3 Social Security Administration: Paying Attorneys Who Represent Disability Applicants

(GAO/T-HEHS/AIMD-00-166, June 2000).
Page 2 GAO-01-710T

million to process attorney fees in 2000—about 10.5 percent of the total

fees of $512 million paid to attorneys in that year. Our review of this

estimate indicated that it was likely too high. However, because data

limitations and uncertainty as to what costs should be counted made exact

correction impracticable, we attempted instead to calculate a rough

“lower bound” for the amount of these costs. This analysis set the lower

bound for SSA’s administrative costs at $35.4 million, or about 6.9 percent

of total attorney fees, exceeding the 6.3 percent threshold of the user fee.

In the past year, SSA improved the timeliness of its fee payments

considerably, but major delays continue in some cases. Between June and

December 2000, SSA paid fees in 50 percent of the cases within 60 days

following issuance of the final administrative decision finding the claimant

eligible for DI benefits. This was more timely than in the same period in

1999, when it processed only 4 percent of the fee payments within 60 days

of the decision. For the most part, processing time shrank because the

Ticket to Work Act eliminated a 15-day period set aside to allow claimants

a specific time to protest the attorney fee.4

 However, over 20 percent of the

payments made in both years still took longer than 6 months from the date

of the final decision. Factors causing delay in both years include extra

time needed to finish processing certain claims—for example, if a claimant

received state workers’ compensation payments, SSA must contact the

state to verify the amount the claimant received and offset the amount

against past-due DI benefits.

According to SSA officials, both staff cost reduction and further

improvements to payment timeliness could result from automating its

process to pay attorneys. SSA’s cost estimate showed the bulk of its

administrative costs as related to a manual process for paying attorneys

their fees. Although we did not attempt to quantify the amount of cost

savings from automating these manual procedures, we believe it would

likely be significant—in 1999, for example, individual clerks manually

calculated and entered data for 166,000 attorney payments. SSA has

repeatedly postponed plans to automate the process, citing higher

priorities for other projects. Currently, however, SSA is planning to

automate the attorney payment process, but has yet to complete its plans

or to commit budget funds for the project.

 4

 Claimants, attorneys, and SSA officials are still allowed to protest the fees, however, there

is no specified waiting period, as previously required.
Page 3 GAO-01-710T

Finally, as required by the Ticket to Work Act, we considered a variety of

potential changes to the attorney fee structure, some of which raised

concerns. For instance, one issue related to a potential change that would

link the user fee to the timeliness of the SSA payment, decreasing the fee if

the SSA payment were not timely. However, some claims for DI routinely

need additional processing time, such as those requiring verification of

workers compensation payments. To fairly administer such a provision,

SSA would need to differentiate between cases where delays involve

additional processing and those cases with no need for additional

processing.

The DI program, created in 1954, provides monthly cash benefits to

workers who have become severely disabled and to their dependents and

survivors. These benefits are financed through payroll taxes paid by

workers and their employers and by the self-employed. Proof of disability

can involve complex technical issues, and section 206(a) of the Social

Security Act permits claimants to appoint an attorney to represent them at

proceedings before SSA5

, at any level of administrative review.

The disability claims process is complex, multilayered, and lengthy. The

following scenario portrays the process for DI claimants who are typically

represented by an attorney before SSA—i.e., those cases where the claim

is ultimately appealed to SSA’s Office of Hearing and Appeals (OHA).

Initially, the claimant would have filed a claim for DI benefits with a local

SSA field office. This office would have then forwarded the claim to a state

agency to examine the claimant’s evidence for medical disability. The state

agency would then have denied the claim in an initial review and denied it

again after reconsidering the claim. Once SSA notified the claimant of

denial of benefits, the claimant would have then appealed to OHA. At

OHA, the claimant would have had a hearing before an administrative law

judge who would have reversed the decision of the state agency, finding

the claimant eligible for DI benefits. Generally, the claimant appoints an

attorney for the OHA level appeal.6

 5

 42 U.S.C. 406 (a).

6

SSA staff estimate that roughly 90 percent of the cases with attorney fees involve OHA

decisions. However, there are instances of attorney fee processing for cases handled by

SSA’s field offices at the stages of the initial determination and reconsideration of the case.

Background
Page 4 GAO-01-710T

The fees that attorneys representing DI applicants can charge are limited

by law and must be approved by SSA. Since 1967, SSA has administered

fee payments to attorneys representing DI claimants. To be compensated,

attorneys must file with SSA either a fee agreement—a formal contract

signed by the applicant and the attorney setting the fee as a percentage of

the applicant’s past-due benefits—or a fee petition that lists the specific

costs associated with the case. Of the two, the fee agreement is the much

simpler arrangement; generally, it specifies fees limited to 25 percent of

the claimant’s past-due benefits up to a maximum of $4,000.7

 In contrast,

the fee petitions require attorneys to itemize expenses and hourly charges,

and SSA must determine a reasonable fee to compensate the attorneys.

Assuming either a fee agreement or a fee petition is approved, SSA

withholds the amount of the fee from the beneficiaries’ past-due benefits

and pays the attorneys directly.

Historically, attorneys representing claimants before SSA submitted fee

petitions for their services. As the percentage of claimants represented by

attorneys in DI hearings increased from 19 percent in fiscal year 1967 to 66

percent in fiscal year 1987, fee petitions became a significant

administrative burden for SSA. To alleviate some burden, the Congress

streamlined the fee approval process in 1990 to allow attorneys to use the

much simpler fee agreement in cases where SSA finds the claimant eligible

for past-due benefits.8

 Since the introduction of fee agreements in 1991,

their use has become nearly universal—in 2000, 88 percent of the attorney

fees were based on fee agreements. However, even with the prevalence of

the simpler fee agreement, SSA continued to have significant delays in

paying attorney fees, and attorneys increasingly turned to court action to

obtain their fees.

In 1995, SSA proposed to stop processing attorney fees for DI claimants,

and estimated that, if this were done, it would save $20 million in

administrative costs. This cost estimate was the basis for a 6.3 percent

assessment on attorneys for use of SSA’s processing services enacted in

the 1999 Ticket to Work Act, a charge deducted directly from the

attorney’s fee. Under this law, SSA is to determine (for calendar years after

2000) a percentage rate that allows “full recovery of the costs of

 7

 In cases where the 25 percent of past-due benefits is higher than $4,000, and if the

attorney believes that his or her case warranted a fee higher than the $4,000, he or she can

request a higher fee—not to exceed the 25 percent of past-due benefits.

8

P.L.101-508, sec. 5106(a) (Nov. 5, 1990).
Page 5 GAO-01-710T

determining and certifying fees to attorneys for the past-due benefits of

the claim,” but is not to exceed 6.3 percent of the total fee.9

 The proceeds

from the collection of the user fee are returned to the Federal Old-Age and

Survivor Insurance Trust Fund and the Federal Disability Insurance Trust

Fund.

SSA’s estimate indicated that its administrative costs for attorney fee

services in 2000 were $54 million for the two major components of these

services: $13.8 million for approval of fee arrangements by OHA and $40.2

million for payment of fees by SSA’s processing centers.10 Neither OHA nor

the processing centers routinely collect information that specifically

identifies the costs associated these services. To develop its estimate, SSA

relied on various data it adapted from its regular operations, as well as

surveying its regional offices to determine time spent on attorney fees in

OHA. Our review indicated flaws in these data and suggested that the

original estimate should be adjusted downward. However, without

adequate data, we were unable to make exact corrections to the estimate.

Instead, we made rough assumptions with the best available data and we

limited our costs to those related to attorney fee processing but clearly

unrelated to normal case processing. Using these assumptions—which

may result in understating SSA’s actual costs—we approximated the lower

bound of SSA’s administrative costs. From this analysis, we set the lower

bound of costs for attorney fee services at $35.4 million in 2000.

SSA’s cost estimate indicated that it cost $54 million to provide attorney

fee services in 2000. This estimate includes the two major components of

fee services: OHA fee approvals and fee payment in SSA payment

processing centers. Within SSA, its field offices, OHA, and the processing

centers all have important roles in managing a disability claim. However,

for the most part, OHA and the processing centers have the central

 9

 In accordance with this requirement, on January 19, 2001, SSA published the findings

from their cost study in the Federal Register.

10 For the cost study included in the Federal Register, SSA used only data from the

processing centers and did not include OHA costs.

Inadequate Data Make

Precise Estimate of

Administrative Costs

Unreliable

SSA Adapted Various

Operational Data and

Surveyed Some of its

Offices to Develop Cost

Estimates
Page 6 GAO-01-710T

functions of fee processing.11 OHA must review and approve fee

arrangements, while the processing centers pay the attorney fee once the

amount of past-due benefits is determined.

For OHA fee approval services, SSA estimated costs of $12 million for

1999—which we restated in terms of 2000 costs as $13.8 million.12 Within

OHA only a small portion of staff time is spent reviewing fee

arrangements. For fee agreements, SSA estimated that its staff spent about

1 1/2 hours handling each agreement during an OHA appeal that may take

about 1 year to complete. However, the small amount of time spent

reviewing each fee agreement becomes significant when all such review

time is totaled. For example, OHA processed about 179,000 fee agreements

in 1999—if each took 1 1/2 hours to process, the total time to process

would be the equivalent of 129 work years and result in millions of dollars

of costs.

While OHA did not have an information system that routinely collected

data about the time spent on each fee arrangement, it used operational

data to determine the general types of work considered related to these

costs—for example, approving fee agreements, reviewing administrative

disputes, etc. For each category of work, OHA developed a series of tasks

necessary to perform the work. Then, to obtain information on how long it

took to complete each task, OHA surveyed its regional offices.

Most of SSA’s administrative costs, however, were for paying the attorney

fees—in 2000, SSA estimated that this service by its processing centers

cost $40.2 million, or three-quarters of the total estimate of $54 million.

For the most part, this cost relates to manually handling the attorney

payments. Once a claimant’s past-due benefits are determined, a clerk

manually processes the payment—filling out a form that shows what

payment is authorized, calculating the user fee, and giving the form to the

data entry clerks for further processing. As with the OHA fee approvals,

 11 SSA also discussed two other organizational components as contributing to the fee

processing services: its Office of Systems and the field offices. These costs are not included

in the estimates because SSA does not routinely track this workload. Currently, however,

SSA is also collecting data on field office staff time spent inputting data when a DI claimant

appoints a representative.

12 To restate the estimate of OHA costs for 2000, we inflated the 1999 estimate by 6.6

percent—an amount provided by SSA that reflects the cost increase in OHA between 1999

and 2000.
Page 7 GAO-01-710T

even though the time on each task may be small, it becomes significant

when all such time is summed up.

To develop its estimates for payment processing, SSA relied on the cost

allocation system it uses in its normal operations. SSA generally uses this

system to account for the expenses of its various types of work so that the

proper trust fund account can be charged; the system allocates SSA’s

administrative costs to one of the various trust funds SSA administers.

Although the system was not developed to analyze the costs related to fee

payments, SSA has adapted it to collect data on attorney fee work. Even

so, when SSA used the data from this system to make its estimate, it had to

first remove costs unrelated to processing attorney fees for DI claims.

Our review of SSA’s estimate indicated that it is likely too high. We

identified six problems with the SSA estimate:

• The estimate for the costs of OHA fee approvals included the cost of

handling cases from the Supplemental Security Income program (SSI),

cases unrelated to DI claims;

• The OHA estimate also included excessive staff time for processing the

simplified fee agreements;

• In calculating the estimate of the costs for payment processing, SSA used

an erroneous cost allocation category that overstated the costs of the

services;

• The estimate for the payment processing did not adjust for one-time use of

premium overtime pay used to reduce processing backlogs in February

and March 2000;

• The estimate for the payment processing included costs not clearly

associated with fee payment; and

• The estimate for the payment processing used an average of both higherand lower-salary costs to calculate staff costs; this did not accurately

reflect that staff who routinely work on most payment processing are in

the lower salary group.

However, we were unable to make precise corrections for these

adjustments because of insufficient SSA data and unclear definitions of

what should be counted as a relevant cost. For example, there was no data

Flaws in SSA’s Estimate

Suggest That Downward

Adjustment is Needed
Page 8 GAO-01-710T

available to calculate exactly how much overtime had been used to

process the payment backlogs. As another example, while SSA officials

agreed that the majority of staff that routinely work on payment

processing tasks had lower salaries than the average calculated, they were

unable to provide us with more specific data on staff costs. Furthermore, it

was not always clear as to what costs should be included in the estimate—

for instance, we eliminated certain costs related to handling attorney

inquiries because we believe that they included instances of normal case

processing unrelated to the steps needed to process attorney payments.

SSA officials, on the other hand, argued that these same costs should be

included because they were handling matters dealing with attorneys.

Although we were unable to precisely correct for each of these

adjustments, we approximated a “lower bound” of SSA’s administrative

costs. To do so, we made assumptions with the best available data and we

limited our costs to those related to attorney fee processing but clearly

unrelated to normal case processing. Using these assumptions—which

may somewhat understate SSA’s actual costs—our analysis indicates that

administrative costs could be as low as $35.4 million. We discussed each of

these adjustments with SSA officials. (See the appendix for further details

on our proposed cost adjustments.)

We compared our adjusted estimate of $35.4 million with SSA’s original

estimate of $54 million. In 2000, SSA processed $512 million in attorney fee

payments. Comparing the original estimate to these payments, SSA’s

administrative costs were 10.5 percent of the total payments. However,

using the adjusted estimate, SSA’s administrative costs were 6.9 percent of

the attorney payments. Table 1 presents both the original and adjusted

estimates.

Table 1: Comparison of Total Original SSA Estimates With Total Adjusted Estimates

Fee approval

process for 1999

Fee payment

process for 2000

Total attorney fee

process

Original SSA

estimate

$13 million $40.2 million Not applicable

Original SSA

estimate restated

in 2000 costs

$13.8 million

(inflated by 6.6%)

$40.2 million $54 million

Adjustments to

estimate, stated in

2000 costs

($7 million)

(inflated by 6.6%)

($11.6 million) ($18.6 million)

Total adjusted

estimate, stated in

2000 costs

$6.8 million $28.6 million $35.4 million
Page 9 GAO-01-710T

Note: SSA data indicated that the OHA costs increased 6.6 percent between 1999 and 2000.

Accordingly, we inflated the 1999 costs by this percentage in order to combine the estimates for the

two segments.

Source: GAO analysis of SSA data.

Although most fees were processed in far less time in 2000 than in 1999,

over 20 percent of the fees in both years still took longer than 6 months

from the date of the OHA decision to the date when the attorneys were

paid. While the major reason for the improved performance in 2000 was

the elimination of the 15-day protest period by the Ticket to Work Act, the

underlying reasons for the longest periods of delay remained largely

unchanged. These included factors that are often outside of SSA’s control,

such as the need for additional documentation to complete the calculation

of the claimant’s benefits, for example, verification of state workers’

compensation payments. In a recent report, we documented some of the

difficulties SSA encounters in obtaining workers’ compensation

information.13

According to SSA data for the 7-month period from June through

December, payments in 2000 were dramatically faster than for the same

period in 1999. In 2000,12 percent of the payments were processed in 30

days or less from the date of the OHA decision, and 50 percent of the

payments were processed in 60 days or less. In contrast, only 1 percent of

the 1999 payments were processed in 30 days or less, and only 4 percent of

the 1999 payments were processed in 60 days or less. However, in 2000, 22

percent of the payments took over 180 days to process, about the same as

1999.

While SSA officials attributed most of the improved processing time in

2000 to elimination of the 15-day protest period14 (with an added 15-day

mailing period), SSA changed other procedures that improved processing

time. For example, SSA stopped sending case files that needed additional

documentation out of the processing centers to storage centers; instead,

the case files stayed in bins near where staff processed the cases.

 13 Workers’ Compensation: Action Needed to Reduce Payment Errors in SSA Disability and

Other Programs (GAO-01-367, May 2001).

14 Claimants, attorneys, and SSA officials are still allowed to protest the fees, however,

there is no specified waiting period, as previously required.

Attorney Fee

Payments More

Timely In 2000 But

Major Reasons For

Delay Remain
Page 10 GAO-01-710T

Processing center staff also contacted OHA staff to better track

information on attorney fee approvals.

However, many of the reasons that it takes an extra period of time to

process an attorney’s payment remained the same—for example, the

centers still need to track down state workers’ compensation information,

they still need to have proof of age to process a claimant’s benefits, and

they still need to wait for all claims related to the principal beneficiary to

be resolved to determine what to pay the attorney. Recently, SSA

conducted a 1-day sample of cases with attorney fees that looked at

factors, such as those listed above, that complicate the payment process.

Of the 669 attorney fees processed on August 10, 2000, 48 percent had

some factor that complicated the processing of the case.15 Furthermore, of

the cases with complicating factors, the most common characteristics

were the need to verify information on workers’ compensation (29

percent) and deferred related claims (18 percent).

The bulk of SSA’s administrative costs relate to a manual payment process

that if improved could cut staff time and reduce processing time. Under

the current process, information necessary to make a payment to an

attorney is extracted from the main case information system and handled

manually to prepare for payment. However, the manager of SSA’s largest

processing center indicated that systems support could save one-third of

the staff time currently spent on processing this type of payment.

Furthermore, Office of Systems officials told us that automating the

payment process could save from 3 to 5 days in processing time.

Nonetheless, proposals to automate this process have been repeatedly

postponed. SSA has, however, recently developed a draft plan to automate

the attorney fee payment process, but according to SSA officials, the

details related to this plan have not been fully developed.

In general, DI cases are processed using an information system known as

the Modernized Claims System (MCS). When a claimant first files for DI, a

staff person in one of SSA’s field offices enter the claimant’s case history

in to MCS. After a favorable decision is issued by OHA, the hard copy of

the case file—including information about the attorney and his or her

 15 As the 1-day study is not considered statistically valid by SSA officials, the results of the

study cannot be extrapolated to the entire DI caseload.

System Support Could

Help Reduce

Inefficiencies in

Processing Attorney

Fee Payments

Current Payment Process

Is Antiquated
Page 11 GAO-01-710T

fee—is mailed to a the processing center. When the case file is received at

the processing center, staff update the case history which was previously

entered in to MCS and complete information needed—such as determining

workers’ compensation offset—for processing the claim. Once the

information is completed, MCS automatically calculates the claimant’s

past-due benefits, withholding 25 percent or $4,000 (whichever is less).

However, once MCS determines the amount of the past-due benefits owed

the claimant, a series of manual steps is performed to handle the

attorney’s fee payment. The case file is sent to a GS 7 or 9 technician (a

“benefit authorizer”) who fills out a form that transfers the attorney

information to a key punch clerk. The key punch clerk then inputs the data

into a separate stand-alone information system.

In addition to the problems cited above, there are other inefficiencies with

the payment process. For instance, there are no controls to ensure that the

amount withheld from the beneficiary is properly paid out to the attorney

nor are there controls to ensure that duplicate payments to an attorney are

avoided. Furthermore, there is no database (or “master file”) of attorney

names, addresses, and payments. Without this, any time an attorney

reports a change of address, for example, the new address must be

reported for every claimant the attorney represents. In addition, there is

no electronic link between the OHA fee approval staff and MCS processing

system. As a result, OHA staff mails information on attorney

representation and fee arrangements to a processing center where staff

manually enter the attorney data into the MCS system.

Developing an information system to automate the process may result in

reduced staff time associated with processing these payments. According

to officials in the Office of Systems, automation could eliminate the need

for many staff who are now required to transfer information between the

MCS and the payment systems to process the attorney fees. If, for

example, there was no need to gather further documentation, the payment

to the attorney would be issued automatically at the same time the

payment is issued to the beneficiary. The officials also noted that

automation might save from 3 to 5 days in processing time.

In a memorandum dated January 24, 2000, the Associate Commissioner for

Central Operations—the head of the largest DI processing center—

recommended that SSA automate this process, which he termed “archaic.”

With systems support, he noted that his center would save 34 work years

of staff time, one-third of the total staff time the center spent on attorney

System Support Could

Help Reduce Staff Costs

and Time
Page 12 GAO-01-710T

fee processing. He also pointed out that an attorney master file would

“eliminate duplicate work with needless reviews and greatly improve the

accuracy of payments.” In 1997, an SSA study group recommended that

SSA improve its automation of the current attorney fee process.

Despite internal recommendations for a new system, SSA has repeatedly

postponed its plans, redirecting funds to other higher-priority projects.

Officials from SSA’s Office of System reported that this systems

development effort has officially been part of SSA’s systems plans since at

least 1998.

SSA currently has a draft plan to develop a system that would automate

the process so that payment processing would be linked to the MCS. While

the plan calls for linking the payment records to the claimants’ records to

verify whether the payment withheld was also sent to the attorney, it does

not include any provision for an attorney master file or an electronic

connection with the OHA fee approval staff. Moreover, according to the

Office of Systems staff, there is not yet any definite schedule to complete

their plans, nor are any budget funds committed to the project.

The Ticket to Work Act also directed that we examine a number of

potential changes to the current fee structure including (1) linking the user

fee to SSA’s timeliness of payment, (2) making the user fee a fixed charge

rather than a percentage of the fee, (3) raising the caps on attorney fees,

and (4) extending the fee payment services to the SSI program. The act

also directed us to consider whether the recent imposition of the user fee

affected attorney representation of DI claimants. Additionally, we looked

at the possibility of having SSA issue checks made payable to both the

beneficiary and the claimant for the total amount of the past-due benefits.

While the information necessary to fully evaluate these issues is not

available, our review raised concerns about some of the matters.

Though it is not clear that all of the delay in the longest cases is due to

legitimate case processing, any decision to link the payment of the user

fees to SSA timeliness would need to account for unavoidable additional

processing steps.

The SSA 1-day study conducted in August 2000—which cannot be

extrapolated to the entire case population because it is not statistically

valid for all cases—looked at length of payment processing time. The

SSA Has Current Plans to

Automate

Other Issues Related

To Payments and the

User Fee

Linking User Fees to

Payment Timeliness
Page 13 GAO-01-710T

study compared the processing times to the presence of factors that

complicate case handling. About one-quarter (172) of the cases in the

sample took longer than 120 days from the date of the OHA decision to

process. Of these cases, over one-half (52 percent) had at least one factor

that required additional processing time. Forty-one percent (71 cases) had

issues requiring verification of state workers’ compensation payments.

However, 48 percent (84 cases) of the cases with the longest processing

times had no complicating factors at all.

Currently, SSA does not routinely identify cases that require extra case

processing because of complicating factors such as state workers’

compensation payments. However, fair implementation of a link between

the user fee and SSA’s timeliness of payments—for example, reducing or

eliminating user fee payments if SSA did not pay the attorney within 120

days of the OHA decision—should treat such cases differently from other

cases with no complicating factors at all. From our review of the SSA

processing system, it is not clear, as a practical matter, how SSA could

separate and account for the different types of cases without considerable

extra administrative burden.

Technically, the vast majority of attorney fee payments each cost the same

amount to process; however, equity concerns arise when considering a

fixed fee instead of a percentage. The vast majority of fees are based on

fee agreements (88 percent in 2000 according to SSA) and the steps to

process an approval and payment of a fee agreement remain the same

regardless of the ultimate amount of the payment—which is dependent

upon the claimant’s past-due benefits, not the amount of work performed.

Thus, because the costs are the same regardless of the amount of the

payment, a fixed fee more accurately reflects the actual costs borne by

SSA per payment.

However, the impact of a fixed charge per payment could vary

significantly, depending solely on the final amount of the claimant’s pastdue benefits. To illustrate, according to SSA data, 17 percent of the

attorney fees paid out in 1999 were for amounts of $1,000 or less, and 39

percent were for $2,000 or less, although it is not clear exactly what

amount was finally paid an attorney (there can be multiple payments to

one attorney). Since fee agreements were applicable in most instances,

this would mean that these were cases where the claimant’s past-due

benefits were for amounts of $8,000 or less.

Fixed Charge Versus

Percentage User Fee
Page 14 GAO-01-710T

Using 1999 costs and payments, if attorneys were charged a fixed amount

for each payment rather than a 6.3 percent user fee, the fixed charge

would have been $176 per payment.16 Under a fee agreement specifying

that the attorney would be paid 25 percent of the past-due benefits, if the

claimant’s past-due benefits were $8,000 a user fee of $176 would be 8.8

percent of the attorney’s payment of $2,000. If, on the other hand, the

claimant’s past-due benefits totaled $16,000, then the fee would be $4,000

and the same fixed charge would be 4.4 percent of the attorney’s payment.

The impact on attorneys representing claimants with smaller benefit

claims can be relatively greater than that on attorneys with claimants who

are owed larger benefits.

The current fee cap—limiting fees under fee agreements to 25 percent of

past-due benefits or $4,000, whichever is less—was first set 10 years ago in

1991 and has not changed since that time. However, although the actual

cap has not changed, the DI benefits on which the fees are based have

been annually increased to account for inflation in the cost of living. Thus,

unless attorney fees hit the $4,000 cap, fees should have gradually

increased as benefits have risen.

However, the data from SSA are not clear as to how frequently attorneys

may reach the maximum fee of $4,000 in their cases. According to SSA

data, the breakdown of attorney fee payments in various dollar ranges has

stayed fairly consistent between 1995 and 1999. Thus, about 40 percent of

payments have been less than $2,000, about 20 percent have been between

$2,000 and $3,000, while the remaining 40 percent have been between

$3,000 and $4,000. SSA does not keep records on how many payments are

issued for the maximum $4,000. In SSA’s recent study of a one-day sample

of payments processed on August 10, 2000, of 625 fee agreement cases

processed that day, one-third (33 percent) had been paid at the $4,000

limit. SSA officials, however, believe that this percentage may have been

unusually high. Without reliable data, we were unable to ascertain the full

impact of the current cap on attorney fees.

 16 In 1999, SSA paid out $464 million in 166,000 fee payments. Applying 6.3 percent to the

total paid would have resulted in $29.2 million in total user fees. If, however, these fees

were paid in a fixed amount for each payment, the user fee per payment would have been

$176.

Raising the Cap on

Attorney Fees
Page 15 GAO-01-710T

The SSI program was created in 1972 as an income assistance program for

aged, blind, or disabled individuals whose income and resources are below

a certain threshold. SSI payments are financed from general tax revenues,

and SSI recipients are usually poorer than DI beneficiaries. While SSA

currently approves the fee arrangements between SSI claimants and their

attorneys, it does not withhold money from the past-due benefits to send

to the attorneys.

SSA and some advocates for the poor have argued against the extension of

the fee payment services to SSI claimants. According to their view, SSI

recipients tend to be poorer than DI beneficiaries, and deducting an

attorney fee from their past-due benefits would take money from those

who need it the most. SSA also points to the added administrative burden

that the additional fee services would entail.

On the other hand, others believe that the fee payment services should be

extended to the SSI claimants because providing a certain source of

compensation for attorneys would tend to increase the representation of

SSI claimants and possibly result in more successful cases by the SSI

claimants. According to 1999 data from OHA, applicants for DI benefits (or

DI and SSI together) were more likely to be represented by an attorney

than those applying only for SSI benefits. An official representing SSA

hearing officers told us that he believed that applicants with a legal

representative tended to fare better than those without one because the

cases are better presented in the OHA proceedings.

In general, legal representation of DI claimants in OHA proceedings has

steadily increased in the past 2 years. During the first quarter of calendar

year 1999, attorneys represented DI claimants in 73.4 percent of cases

presented to OHA. By the end of calendar year 2000, legal representation

of DI claimants had risen to 76 percent.

However, there was a slight dip in attorney representation for DI cases in

the second full calendar quarter—the months of July through September

2000—following the implementation of attorney fees in February 2000. The

percentage of attorneys representing claimants for DI benefits only (not

SSI benefits as well) declined to 74.3 percent from 75.3 percent in the

months of April though June. In the next quarter (October through

December 2000), though, the percentage of attorney representation rose

again—to 76 percent. For the first quarter of the calendar year 2001, the

rate dipped once more to 75.4 percent.

Extension of SSA Fee

Payment Services to

Attorneys Representing

SSI Claimants

Legal Representation of DI

Claimants Since

Implementation of the

User Fee
Page 16 GAO-01-710T

Currently, once SSA determines the past-due benefits owed to DI

claimants, it issues two checks—one to the claimant and another to the

claimant’s attorney. One proposal would change this process by issuing

one single check for the total amount of the past-due benefits—made out

jointly to the claimant and the attorney—sent directly to the attorney. The

attorney would deposit the check into an escrow account and pay the

past-due benefits, minus his or her fee, to the claimant.

Such a change could have serious policy implications, however. For

instance, SSA currently attempts to pay the claimant as soon as possible

after a favorable decision. Joint checks might delay payment to the

claimant because the claimant would need to wait until the attorney

deposited the check into an escrow account. Also, using a joint check

would reduce SSA’s ability to enforce the fee limits and could increase the

risk that attorneys might short-change claimants. A number of

administrative issues would need to be addressed, as well. Because SSA

must report the claimant’s benefits to the Internal Revenue Service, it must

track the amount each claimant receives. With joint checks, the attorney

would need to certify to the amount provided to the claimant. In addition,

SSA’s DI claims processing system would need to be adjusted to handle

joint checks.

Inefficiencies in the current process increase both the time it takes to pay

the attorney fees and the costs of administration. One segment of attorney

fee processing—the fee approval process—was substantially simplified in

1991. Systems support could streamline the second segment of the

processing—the fee payment—thus lowering the annual administrative

costs and cutting processing time. If SSA automated this final segment of

the fee processing, it could help improve customer service for both

claimants and their attorneys.

Mr. Chairman, this concludes my prepared statement. At this time, I will be

happy to answer any questions you or other Members of the

Subcommittee may have.

For information regarding this testimony, please contact Barbara Bovbjerg

at (202) 512-7215. Individuals who made key contributions to this

testimony include Shirley Abel, Kelsey Bright, Nancy Peters, and Dan

Schwimer.

Joint Check Issued to

Attorney and Claimant

Conclusions

GAO Contacts and

Staff

Acknowledgments
Page 17 GAO-01-710T

This appendix describes our adjustments to the Social Security

Administration’s (SSA) estimate of the costs of its fee process services.

SSA estimated the costs for the two major components of these services

(1) the 1999 Office of Hearings and Appeals (OHA) fee approval process;

and (2) the 2000 fee payment process. We describe our adjustments to the

costs of each component in separate sections below. In general, we were

unable to precisely correct the estimate because of inadequate data and

unclear cost definition. However, with rough adjustments to the original

estimate, we have attempted to approximate a “lower bound” of the SSA

costs. We have discussed each of our adjustments, and our proposed

corrections, with SSA officials.

According to SSA’s estimate, OHA staff spent 236 work years on about

206,000 fee approval actions, at a cost of $13 million in 1999. These actions

included approval of both fee agreements and fee petitions, as well as

reviews of disputes over fees. The vast majority of these actions involved

approval of fee agreements—in 1999, OHA approved about 179,000 fee

agreements.

The cost estimate, however, included work not related to disability

insurance (DI) cases and used an unrealistically high estimate of staff time

taken to review fee agreements. While we could identify these problems,

we could only approximate the actual adjustment needed to correct the

original estimate because of insufficient data.

First, the estimate included costs spent on cases that were not DI cases. In

1999, there were about 185,000 OHA cases with attorney representation

that resulted in favorable decisions for the claimant. However, of these

cases, only about 79 percent (146,000) involved claims for DI benefits and

the remaining 21 percent (39,000) involved claims for benefits under the

SSI program only. SSA officials acknowledged that their estimate included

work on fee approvals for other than DI cases, but they were unable to

provide us with a more detailed breakout of workload (e.g., the number of

fee agreements that were also DI cases).

In addition, the SSA estimate appears to overstate the time it takes to

routinely handle a fee agreement. Over the past 10 years, SSA’s role in

regulating attorney fees have become much less burdensome. With the

simplified fee agreement, SSA staff can, for the most part, verify that the

claimant has agreed to pay his or her attorney 25 percent of past-due

benefits, instead of reviewing itemized hourly charges commonly

presented in fee petitions. Despite the steady trend towards uniform use of

Appendix I: Specific Adjustments to the SSA

Cost Estimate

OHA Fee Approval Process
Page 18 GAO-01-710T

the simplified fee agreement, the most recent estimate of the time it takes

to review a fee agreement is twice that used in SSA’s 1995 cost estimate. In

1995, SSA estimated that it took about 45 minutes of staff time to review

and process a fee agreement. In 1999, however, its estimate of the same

review had risen to 94 minutes per agreement. The 1999 estimate included

about 47 minutes to evaluate whether each agreement meets the

regulatory criteria—32 minutes by a senior case technician, and once this

is done, 15 minutes by the administrative law judge (who also takes 6

minutes to sign each agreement). After the judge signs the order, the

estimate included 16 minutes for a clerk to mail the fee approval

agreement (with the rest of the case file) to the payment processing

center.

While we were unable to quantify the actual staff time, the 1995 estimate

of 45 minutes appears to be the better approximation of staff time spent

handling routine fee agreement approvals, particularly in view of the

increasingly uniform use of this simplified fee contract. To develop the

1999 estimate of staff time, SSA officials told us that they polled the OHA

regional offices in a 4-day period. They received responses from only 6 of

the 10 regional offices, and those responses included wide variations for

staff time—for instance, the estimate for the review by the administrative

law judge went from 1 minute to 5 days. Additionally, the time for the

mailing the fee agreement included the time spent to mail the entire OHA

decision.

Our review suggests that the OHA costs in 1999 may be as low as $6.4

million, or 51 percent of the original estimate. Our adjustments to the OHA

estimate are as follows:

1. Because SSA could not provide us with a detailed breakout of the OHA

work on DI cases, we reduced the total estimate by 21 percent—the

proportion of non-DI cases in the OHA 1999 workload. This adjustment

reduced the estimate by $2.7 million, to $10.3 million.

2. Once we removed the non-DI cases from the estimate, we then

reduced the estimate of staff time spent on fee agreement approval by

one-half, roughly the difference between the 1995 and the 1999 staff

estimate. This change lowered the OHA estimate by $3.9 million (30

percent), to $6.4 million.

3. We restated the estimated costs in terms of costs in 2000, to be

comparable to SSA estimates of processing costs. To do this, we
Page 19 GAO-01-710T

inflated the estimated costs (and our proposed adjustments) by 6.6

percent, the amount by which the cost of the average OHA staff year

increased in 2000 over 1999.

The original OHA estimate, our adjustments to the estimate, and the

limitations to these adjustments are shown in table 2.

Table 2: GAO Adjustments of SSA’s Estimate of 1999 Fee Approval Costs

Dollars in millions

OHA estimate

in 1999 dollars

OHA estimate

Restated in

2000 dollars

Percentage

reduction

Limitation on

adjusted estimate

SSA original

estimate of fee

approval costs

$13 $13.8 Not applicable Not applicable

Adjustment for

inclusion of

Non-DI cases

($2.7) ($2.9) (21) Unable to

precisely allocate

workload to DI

cases

Adjustment for

excessive staff

time

($3.9) ($4.1) (30) Actual staff time

for fee approval

tasks unknown

Total

adjustments

($6.6) ($7) (51) Not applicable

Total adjusted

estimate

$6.4 $6.8 Not applicable Not applicable

Source: GAO analysis of SSA data.

According to SSA, its payment processing centers took 673 work years to

process $512 million in attorney fee payments in 2000, at a cost of $40.2

million. SSA developed this estimate from the standard system of cost

allocation it uses at the payment centers. Under this cost allocation

system, each payment center’s workload is quantified by a random check,

conducted daily, of the work done by all employees at the center. Each

type of work at the payment centers is categorized, and one major

category of work includes that done on attorney fee processing. This work

category (called “atfee” in the centers) includes all work done at the

payment centers related to handling and paying fee agreements and fee

petitions. The work includes all cases that involve attorney fees—field

office cases (initial determinations and reconsiderations) as well as OHA

cases.

Fee Payment Processing

Costs
Page 20 GAO-01-710T

Our review indicated that the payment processing estimate appears high.

It included an incorrect cost amount; failed to adjust for one-time use of

premium overtime pay to reduce processing backlogs; included costs not

clearly associated with fee payments; and it used average salary costs

when the staff who routinely work on most payment processing receive

below-average pay. However, we were, for the most part, unable to make

precise adjustments for these problems because of limited data and

unclear definitions as to what counts as a fee processing cost.

First, the original estimate erred in a calculation of the total estimate by

using the wrong amount of total costs for the largest processing center. In

creating the estimate, SSA used an incorrect category from its cost

accounting system to calculate the center’s costs. This cost category

included costs unrelated to the work necessary to process attorney fees.

Second, the estimate did not adjust for premium overtime pay. Because

the user fee required by the Ticket to Work Act was effective February 1,

2000, SSA staff worked overtime in February and March to clear out the

backlog of fee payment cases pending as of February 1. According to

testimony by SSA’s Assistant Commissioner before the Subcommittee on

Social Security, House Committee on Ways and Means, in June 2000, SSA

provided an extra 111 staff work years to handle the backlog of fee cases,

diverting resources from other workloads to process the claims on a

priority basis.

Third, the general “atfee” work category used to designate attorney fee

processing in the centers appears to include subcategories of work too

broad to be included in the estimate—in our view, the subcategories

include work that would be necessary for normal case processing even if

SSA did not pay attorney fees. According to staff in the centers, the

subcategory “atfee misc” includes correspondence from attorneys that

cannot be clearly categorized as dealing with either fee agreements or fee

petitions. For example, a letter would be classified as “atfee misc” if it

included issues related to the claimant as well as a question about fees.

One supervisor told us that the designation of work category was made by

a GS 4 or 5 file clerk who would classify any correspondence with an

attorney’s letterhead as “atfee misc” if the letter could not be clearly

identified to another specific work category.

Finally, the staff salary costs included in the estimate should be adjusted

to reflect more accurately the lower staff salaries of the technicians who

routinely work on payment processing. SSA’s estimate is based on the

average salary of all its employees who work on DI cases involving OHA
Page 21 GAO-01-710T

decisions. However, the staff working on these cases includes both claims

authorizers (generally paid a GS-11 salary) and benefit authorizers

(generally paid between GS-7 and GS-9 salaries). For the most part, the

lower-paid benefit authorizers process the attorney fees, while the higherpaid claims authorizers perform the main case processing. From SSA data,

it appears that over 50 percent of the work on DI cases with OHA

decisions is case processing work routinely performed by the higher-paid

claims authorizers.

Taking into account the points noted above, we believe that the “lower

bound” costs for the processing centers could be as low as $28.6 million.

Our calculation of the adjusted estimate is as follows:

1. We corrected the SSA estimate for an error in its calculations of the

processing center costs. This correction reduced the estimate by $1.9

million (5 percent) to $38.3 million.

2. We adjusted for the premium overtime pay. We reviewed data provided

by SSA on the increase in overtime pay in 2000 over the prior year.

Using this information, we allocated a part of the increase in overtime

pay to the center’s attorney fee work, reducing the estimate by $0.5

million (1 percent) to $37.8 million.

3. We eliminated the costs associated with the subcategory “atfee misc”

from the costs. When these costs were subtracted from the estimate,

the original estimate was reduced by $5.5 million (13.7 percent) to

$32.3 million. Because some of the work included in this subcategory

was likely to be directly related to the fee processing, eliminating this

subcategory most likely understated some of SSA’s actual costs.

4. We adjusted the estimate to better reflect the below-average pay of the

staff who routinely handle attorney fee processing. SSA was unable to

provide us with data to precisely allocate the salary costs of those

working on fee processing; hence, we assumed that all staff who

worked on attorney fee processing were paid at a GS-8 step 5 level

($33,202) in 2000, while all the rest of the staff who worked on the

same cases were paid at GS-11 step 5 level ($44,369). This adjustment

reduced the original estimate by $3.7 million (9.2 percent) to $28.6

million.

The adjustments to the payment processing estimate are summarized in

table 3.
Page 22 GAO-01-710T

Table 3: GAO Adjustments of SSA Estimate of 2000 Payment Processing Costs

Dollars in millions

Amount Percentage reduction

Limitation on adjusted

estimate

SSA original estimate of

payment processing

costs in 2000

$40.2 Not applicable Not applicable

Correction of SSA

estimate

($1.9) (5) Not applicable

Adjustment for premium

pay

($0.5) (1) Unable to quantify with

SSA data

Adjustment for overly

broad work category

“atfee misc”

($5.5) (13.7) Eliminated entire work

category, even though it

most likely includes

some work directly

related to attorney fees

Adjustment for lower

staff salaries

($3.7) (9.2) Data on salaries are from

an SSA estimate; no

specific data on salary

allocation available

Total adjustments ($11.6) (28.9) Not applicable

Total adjusted estimate $28.6 Not applicable Not applicable

Source: GAO analysis of SSA data.

When we combined the total adjusted estimate for the OHA fee approval

process ($6.8 million) and that of the payment processing centers ($28.6

million), our total adjusted estimate was $35.4 million. This adjusted

estimate is 34 percent of the original SSA estimate of $54 million. When

compared to the $512 million of total attorney fees paid out in 2000, the

original SSA estimate is 10.5 percent of the fees, while the adjusted

estimate is 6.9 percent.

OHA Fee Approval and

Payment Processing

Center Costs Combined

(207102)