Outcome Variation in the Social Security Disability Insurance Program: The Role of Primary Diagnoses

Based on the adjudicative process, the author classifies claimant-level data over an 8-year period (1997-2004) into four mutually exclusive categories: (1) initial allowances, (2) initial denials not appealed, (3) final allowances, and (4) final denials. The ability to predict those outcomes is explored within a multilevel modeling framework, with applicants clustered by state and primary diagnosis code. Variance decomposition suggests that medical diagnoses play a substantial role in explaining individual-level variation in initial allowances. Moreover, there is statistically significant high positive correlation between the predictions of an initial allowance and a final allowance across the diagnoses. This finding suggests that the ordinal ranking of impairments between these two adjudicative outcomes is widely preserved. In other words, impairments with a higher expectation of an initial allowance also tend to have a higher expectation of a final allowance. Introduction The purpose of the Disability Insurance (DI) program is to replace part of a worker's earnings in the eventuality of a physical or mental impairment preventing the individual from working. The disability portion of the Old-Age, Survivors, and Disability Insurance (OASDI) program, administered by the Social Security Administration (SSA), protects workers and their eligible dependents against such risk. SSA administers a second program, Supplemental Security Income (SSI), which has no employment or contribution requirements, but imposes strict income and asset limits. It is designed to be a program of last resort, assisting aged, blind, or disabled individuals who have very limited resources. The goal of this study is to explore the extent to which medical diagnoses and state of origin may explain observed heterogeneity in disability decisions. One instance of heterogeneity is manifest at the state level. The DI program is federally administered and is operated in collaboration with the states. When a local Social Security field office establishes that an applicant meets all of his or her nonmedical requirements, the case is forwarded to the state Disability Determination Service (DDS) for a decision. The DDS follows a sequential process to evaluate the medical evidence and decide if the applicant meets the definition of disability. In doing so, a DDS examiner considers the severity of the impairment(s), along with vocational factors that take into account age, education, and work experience. SSA guidelines to determine disability are uniform across all 50 states. In practice, however, there can be wide variation in state allowance rates. A second instance of variation in DI outcomes occurs through the adjudicative process. If a disability claim is denied, the applicant has a number of opportunities to appeal the decision. There are three stages of appeal within SSA: (1) a reconsideration by the state DDS, (2) a hearing before an administrative law judge (ALJ), and (3) a review by the Appeals Council. If those stages are exhausted, the claimant can always seek legal redress in a federal district court. While few initial denials are reversed at the reconsideration level, a substantial portion of claimants who appeal at the hearing level or above are eventually allowed. The two referenced sources of variation in disability outcomes (by state and adjudicative level) have been a cause of concern to SSA and Congress regarding the practical implementation of the disability programs. My hunch is that the collection of impairments in particular might shed some light in explaining a portion of the observed variation. Thus, I investigate heterogeneity in disability outcomes along three dimensions: state of origin, medical diagnosis, and adjudicative stage. That objective is pursued by working with a random sample of the Disability Research File (DRF). The DRF follows a cohort of applicants through the various stages of the determination process, identifying decisions made at different adjudicative levels. …