SSA Disability: SGA Levels Appear to Affect the Work Behavior of Relatively Few Beneficiaries, but More Data Needed
Published: 2002-01-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Social Security Administration's (SSA) Disability Insurance (DI) program paid $50 billion in cash benefits to more than five million disabled workers in 2000. Eligibility for DI benefits is based on whether a person with a severe physical or mental impairment has earnings that exceed the Substantial Gainful Activity (SGA) level. SSA terminates monthly cash benefit payments for beneficiaries who return to work and have earnings that exceed the SGA level--$1,300 per month for blind beneficiaries and $780 per month for all other beneficiaries.
section_title: What GAO Found
paragraphs: GAO found that the SGA level affects the work patterns of only a small proportion of DI beneficiaries. However, GAO also found that the SGA may affect the earnings of some beneficiaries. About 13 percent of those beneficiaries with earnings near the SGA level in 1985 still had earnings near the SGA level in 1995, even though the level was increased during that period. The absence of key information identifying the monthly earnings of beneficiaries, their trial work period status, and whether they are blind limited GAO's ability to definitively identify a relationship between SGA levels and beneficiaries' work patterns. Data limitations also make the effect of the SGA on DI program entry and exit rates difficult to isolate. Although the rate of program entry increased in the years immediately following a 1990 increase in the SGA level, it then gradually declined to a level below the pre-1990 entry rates. Since 1990, DI exit rates continue to be driven largely by beneficiary death and conversion to retirement benefits. However, the percentage of all exits caused by improvements in medical conditions or a return to work increased slowly, from 1.9 percent in 1985 to 9.2 percent in 1996, and then rose dramatically to 19.9 percent in 1997. A substantial increase in the number of continuing disability reviews done by SSA may account, in part, for this 1997 upturn, but data limitations preclude GAO from obtaining a full understanding of the link between the SGA and exit behavior.

section_title: Letter
paragraphs: The Social Security Administration’s (SSA) Disability Insurance program is the primary federal income program for workers with disabilities, paying about $50 billion in cash benefits to over 5 million disabled workers in 2000. Eligibility for Disability Insurance benefits is based on whether a person with a severe physical or mental impairment has earnings that exceed the Substantial Gainful Activity (SGA) level, which represents SSA’s principal standard for determining whether a disabled individual is able to work. SSA terminates monthly cash benefit payments for beneficiaries who return to work (after completing a trial work period) and have earnings that exceed the SGA level, set at $1,300 per month for blind beneficiaries and at $780 per month for all other beneficiaries in 2002.
Some researchers and disability advocacy groups believe that the SGA level serves as a significant work disincentive for Disability Insurance beneficiaries, with many working beneficiaries “parking,” or earning amounts that are close to, but never exceeding, the SGA level. According to this view, a large increase in, or elimination of, the SGA level would result in increased work by this population. However, others believe that while the SGA may serve as a work disincentive for some beneficiaries, this disincentive effect is likely to be small in comparison to the various other work limitations faced by beneficiaries. Rather than emphasizing the effect of the SGA on the work behavior of those already receiving Disability Insurance benefits, some of these observers point out that increasing or eliminating the SGA level could result in a significant increase in the number of disabled workers entering the Disability Insurance program and a reduction in the number exiting the program, placing additional fiscal stress on the program.
The Ticket to Work and Work Incentives Improvement Act of 1999 requires that we assess the effects of changes in the SGA level on the Disability Insurance program. Specifically, we examined (1) the effects of the SGA on the work patterns of Disability Insurance beneficiaries and (2) the effects of the SGA on Disability Insurance program entry and exit rates. To assess these effects, we reviewed the economic and disability literature related to the effects of the SGA. We also analyzed SSA’s Disability Insurance program data, including the Continuous Work History Sample (CWHS) over the period 1985 through 1997. In addition, we interviewed various SSA policy officials, academic experts, and representatives from disability advocacy groups. We performed our work in accordance with generally accepted government auditing standards from December 2000 to December 2001. (See app. I for a more detailed discussion of our scope and methodology.)
subsections: section_title: Background
paragraphs: From its origin in 1956, the Disability Insurance (DI) program has provided compensation for the reduced earnings of individuals who, having worked long enough and recently enough to become insured, have lost their ability to work due to a severe, long-term disability. The program is administered by SSA and is funded through payroll deductions paid into a trust fund by employers and workers. In addition to cash assistance, DI beneficiaries receive Medicare coverage after they have received cash benefits for 24 months. In 2000, about 5 million disabled workers received DI cash benefits totaling about $50 billion, with average monthly cash benefits amounting to $787 per person.
To qualify for benefits, an individual must have a medically determinable physical or mental impairment that (1) has lasted or is expected to last at least 1 year or result in death and (2) prevents an individual from engaging in substantial gainful activity. Individuals are considered to be engaged in substantial gainful activity if they have countable earnings at or above a certain dollar level. In addition to determining initial eligibility, the SGA standard also applies to the determination of continuing eligibility for benefits. Beyond a 9-month trial work period and an additional 3-month grace period during which beneficiaries are allowed to have any level of earnings without losing benefits, benefit payments are terminated once SSA determines that a beneficiary’s countable earnings exceed the SGA level. DI benefits are also terminated when a beneficiary (1) dies, (2) reaches age 65, upon which DI benefits are automatically converted to Social Security retirement benefits, or (3) medically improves, as determined by SSA through periodic continuing disability reviews.
Under the Social Security Act, the Commissioner of Social Security has the authority to set the SGA level for individuals who have disabilities other than blindness. SSA has increased the SGA several times over the past decade, to $500 per month in 1990 and to $700 per month in July 1999. In December 2000, SSA finalized a rule calling for the annual indexing of the nonblind SGA level to the average wage index (AWI) and recently increased the level to $780 on the basis of this indexing. The SGA level for individuals who are blind is set by statute and indexed to the AWI.Currently, the SGA for blind individuals is $1,300 of countable earnings.
Despite considerable disagreement and uncertainty among researchers, policy makers, and disability advocates over the employment effects of the SGA on DI beneficiaries, there is a theoretical basis for believing that the SGA acts as a work disincentive. That is, to maximize income, maintain health insurance coverage, or achieve a desirable labor-leisure tradeoff, beneficiaries may be inclined to limit their work effort to remain eligible for program benefits. This economic rationale is supported by anecdotal evidence from some beneficiaries who have reported that, although they would prefer to work or have greater earnings, they are fearful of doing so because of the severe financial consequences of exceeding the SGA— losing cash benefits and, eventually, Medicare benefits. In addition, some workers with disabilities whose current earnings are above the SGA level, making them ineligible for the DI program, may reduce their earnings to become eligible for DI benefits.
Other researchers and policy makers believe that although the SGA level may serve as a work disincentive for some beneficiaries, this disincentive effect is likely to be very limited for several reasons. First, because severe long-term disability is a central criterion for DI eligibility, many DI beneficiaries may be unable to perform any substantial work. Even if they are willing and able to work, beneficiaries may face employment barriers, such as high costs for supportive services and equipment or discrimination. In addition, we reported previously that many beneficiaries are unaware of DI program provisions affecting work, and several researchers we spoke with said that some beneficiaries may not even know how much they are allowed to earn. In terms of the SGA’s effect on those not currently on the DI rolls, disability advocates have stated that workers turn to the DI program only as a last resort and are not inclined to reduce income for the sole purpose of qualifying for benefits. Also, some studies indicate that the difficulty of qualifying for DI benefits–having to limit or cease work for at least 5 months before receiving benefits and undergoing a stringent review to certify one’s condition as severely disabled–may itself be a factor discouraging workers with disabilities from applying for these benefits.
Few empirical studies have examined the effects of the SGA on the work patterns of disabled beneficiaries and nonbeneficiaries. Two studies conducted in the late 1970s by SSA researchers found that the SGA level does not have a substantial effect on the work behavior of beneficiaries.These studies examined past increases in the SGA level to assess whether these increases led to greater labor force participation on the part of DI beneficiaries. Neither study identified any clear change in beneficiary earnings as the SGA level increased. However, a study conducted by the Office of Inspector General (OIG) at the Department of Health and Human Services (HHS) found that some beneficiaries who had completed a trial work period subsequently reduced their earnings below the SGA level so they could continue to receive DI benefits. Out of the 100 cases sampled, 18 beneficiaries who were capable of working had quit work or reduced their earnings to maintain DI benefits. In addition, an internal study conducted by SSA researchers examined how the earnings patterns of DI beneficiaries age 55 or older changed after they converted to retirement benefits at age 65. This study found that beneficiaries were more likely to return to work after converting to retirement benefits, which were subject to a more generous earnings limit. This evidence suggests that the SGA standard leads some beneficiaries to work less than they could.
Despite the difficulties inherent in comparisons of different programs, studies of earnings limits in other programs may also provide some insights on the effect of the SGA. For example, studies of the retirement earnings test indicate that this limit probably caused some retirees to restrain their earnings in order to avoid having their benefits reduced. However, this “parking” effect appeared to be limited to only a relatively small proportion of the retiree population. For example, one study found that only about 2 percent of insured workers aged 65-69 had earnings at or near the retirement earnings limit.
A study of the Supplemental Security Income (SSI) program’s 1619(b) provision also indicates that an earnings limit can result in beneficiaries limiting their work effort. As the 1619(b) earnings threshold was increased, some SSI beneficiaries increased their earnings in line with this threshold, which is consistent with the idea that beneficiaries restrain earnings in order to maintain program (in this case, Medicaid) eligibility. However, this “parking” behavior was limited to only those beneficiaries who had significant earnings—a group comprising about 2 percent of all adult, disabled SSI beneficiaries.
section_title: The SGA Level Appears to Affect the Work Effort of Relatively Few Beneficiaries
paragraphs: Our analysis of SSA data indicates that the work patterns of most DI beneficiaries are unlikely to be affected by the SGA level. For example, from 1985 through 1997, on average, about 7.4 percent of DI beneficiaries who worked had annual earnings between 75 and 100 percent of the SGA level. These beneficiaries comprised only about 1 percent of the total DI caseload. This proportion of beneficiaries with earnings in this range of the SGA remained relatively small even though the number and proportion of DI beneficiaries who work rose dramatically during this period, increasing by almost 80 percent. Although almost one-fourth of working beneficiaries had earnings above the SGA level, most had very low earnings, well below the annualized SGA level. Even among those beneficiaries with earnings near the SGA level in a given year, most experience an eventual reduction in earnings in subsequent years.
Nevertheless, some beneficiaries may change their work effort in response to the SGA level. For example, we found that about 13 percent of working beneficiaries who had earnings between 75 and 100 percent of the annualized SGA level in 1985 still had earnings near the SGA level in 1995, even though the SGA had increased from $300 to $500 a month during this period. In addition, about 7 percent of beneficiaries who did not have any earnings in the years immediately preceding their retirement earned income in the one or more years following retirement, when the SGA earnings limit no longer applied. However, while these findings are suggestive of a possible effect on work effort, our analysis could not definitively link beneficiary work patterns to the SGA level due in part to various limitations in SSA data, such as the lack of monthly earnings data.
subsections: section_title: About 1 Percent of All DI Beneficiaries Have Annual Earnings Near the SGA Level
paragraphs: From 1985 through 1997, on average, about 7.4 percent of DI beneficiaries who worked –comprising about 1 percent of the total DI caseload – had annual earnings between 75 and 100 percent of the SGA level (see table 1). On an annual basis, the number of beneficiaries with incomes clustering at or just below the SGA level increased almost fourfold in absolute terms from 15,800 in 1985 to almost 60,000 in 1997. However, the annual percentage of working beneficiaries with earnings between 75 and 100 percent of the SGA level fluctuated from 8.5 percent in 1988 to 5.1 percent in 1990 to 8.9 percent in 1997.
The proportion of beneficiaries with earnings at or just below the SGA level remained small even though the proportion of DI beneficiaries who worked rose dramatically, increasing by almost 80 percent between 1985 and 1997 (see table 2). The number of beneficiaries who worked increased from about 220,000 in 1985 to over 675,000 in 1997 and increased as a percent of all DI beneficiaries in every year, including during the 1990- 91 recession.
Throughout the period, most working DI beneficiaries had very low earnings. For example, in 1995, the median annual earnings of working beneficiaries were about $2,157 and the majority of working beneficiaries—about 58 percent—earned no more than 50 percent of the annualized SGA level. Although median earnings of working DI beneficiaries were about 15 percent higher in 1997 than they had been in 1985, they remained well below the annualized SGA level. While mean earnings for this group fluctuated between a high of $5,851 in 1985 and a low of $4,697 in 1993, figure 1 indicates that even with the 67 percent increase in the SGA level in 1990, the earnings distribution of DI beneficiaries did not change considerably from 1985 to 1997.
We also examined beneficiaries who had earnings above the SGA level to see if, over time, they tended to reduce their earnings to an amount less than but close to the SGA level in order to maintain eligibility for DI benefits. We found that the majority of beneficiaries in 1985 who had earnings exceeding the SGA level eventually experienced a reduction to no earnings or to an amount less than 75 percent of the SGA (see table 3).
By 1989, 48 percent of these individuals had no earnings and only 2 percent had earnings between 75 to 100 percent of the annualized SGA level. This indicates that most beneficiaries who at some point have earnings above the SGA level do not subsequently engage in “parking” to remain on the DI rolls. Nevertheless, the large shift that we observed from earnings above the SGA to no or very low earnings does suggest decreasing ability or motivation to work.
However, as late as 1997, about 32 percent of these beneficiaries had earnings exceeding the SGA level, indicating that some beneficiaries maintain their ability to achieve relatively substantial earnings. It is unclear why these individuals are able to consistently earn above the SGA level while retaining eligibility for DI benefits. Although beneficiaries in a trial work period or an extended period of eligibility may have earnings that exceed the SGA level, these work incentive periods are time-limited. Only beneficiaries who are blind are permitted, on a continuing basis, to earn above the SGA level that applies to nonblind individuals. However, we could not determine the status of individuals who had earnings exceeding the SGA level because SSA’s principal program data do not reliably identify whether a beneficiary is in a trial work period or extended period of eligibility and do not contain an indicator denoting whether a beneficiary is blind.
section_title: Most Beneficiaries with Earnings Near the SGA Level Do Not Maintain that Level of Earnings
paragraphs: Among beneficiaries who have earnings at or near, but not exceeding, the SGA level in a given year, most experience a reduction in earnings in subsequent years. For example, of beneficiaries in 1985 who earned between 75 to 100 percent of the annualized SGA level, 47 percent had no earnings by 1989, while the earnings of another 26 percent had fallen to between 1 and 74 percent of the annualized SGA level (see table 4).
Nevertheless, about 11 percent of these beneficiaries still had earnings in 1989 between 75 to 100 percent of the annualized SGA level, suggesting that at least some beneficiaries may be attempting to stay close to the SGA without exceeding it. Even after the SGA level was increased in 1990, a small proportion of these beneficiaries continued to have earnings between 75 to 100 percent of the new annualized SGA level. For example, in 1995 about 13 percent of beneficiaries who had earnings between 75 to 100 percent of the annualized SGA level in 1985 still had earnings within this range of the higher annualized SGA level.
section_title: Small Number of Nonworking Beneficiaries Begin Employment After Initial Receipt of SSA Retirement Benefits
paragraphs: Our review of the earnings of former DI beneficiaries who were converted to retirement benefits at age 65 also indicates that the work patterns of only a small proportion of beneficiaries are affected by the SGA. For example, we looked at DI beneficiaries who converted to retirement benefits at age 65 between 1987 and 1993. Of those in this group who had no earnings in the 3 years preceding retirement, about 7 percent did have earnings in 1 or more years following retirement (between ages 66 – 68) when the SGA earnings limit no longer applied. While small, the proportion of beneficiaries returning to work after retirement is greater than the proportion of older beneficiaries who return to work while still on the DI rolls. For example, we found that of beneficiaries who had no earnings at ages 55-57, about 3 percent had earnings at ages 58-60. These data suggest that, at least for a limited number of beneficiaries, the SGA may serve as a disincentive to work.
section_title: Data Limitations Suggest Caution in Ascertaining SGA’s Effects
paragraphs: For each analysis, the absence of key data elements made it difficult for us to determine the effects of the SGA level. For example, because SSA collects annual rather than monthly earnings data, we could not observe earnings relative to the SGA level on a monthly basis. However, many workers with disabilities may engage in only intermittent work throughout the year. The annual earnings data did not allow us to observe those individuals who only work several months out of the year and, in order to ensure receipt of benefits, “park” at the SGA level in those months.
Another data limitation is the difficulty in identifying whether a DI beneficiary is in a trial work period. Without reliable information on the trial work period status of beneficiaries, we could not determine the full range of work incentives and disincentives potentially affecting the earnings of DI beneficiaries. In addition, neither the CWHS nor SSA’s principal administrative file for the DI program (the Master Beneficiary Record) contain data that identify whether a beneficiary is blind. Such a distinction is important to analyses relating to the SGA because blind beneficiaries are subject to a higher SGA limit than nonblind beneficiaries are. Distinguishing blind and nonblind beneficiaries may help explain why a substantial proportion of beneficiaries continue to earn above the nonblind SGA level while retaining DI eligibility.
section_title: Effects Of SGA on Program Entry and Exit Rates Difficult to Isolate
paragraphs: Data and methodological limitations make it difficult to ascertain the effect of the SGA on DI program entry and exit rates. After 1990, the rate of program entry initially increased and then gradually declined. Although some researchers and policy makers believe that an increase in the SGA could encourage more people who are capable of working to enter the rolls, our analysis indicates that most new entrants were either not able or not inclined to increase their earnings or work at all. However, because of data limitations and the wide range of other possible factors affecting program entry, the link between the increase in the SGA level and these trends in entry is unclear. The analysis of program exits indicated that although the number of beneficiaries exiting the program rose over the 7 years after the 1990 increase in the SGA level, the annual rate of exit generally declined. While beneficiary deaths and conversions to retirement benefits accounted for most program exits, the percentage of exits caused by medical improvement or a return to work increased gradually, from 1.9 percent in 1985 to 9.2 percent in 1996, and then rose sharply to 19.9 percent in 1997. However, the aggregation of medical improvement and return-to-work data prevent us from obtaining a full understanding of the link between the SGA and DI program exit behavior.
subsections: section_title: Annual Program Entry Rates Varied from 1990 through 1997, but Limitations Prevent Assessment of Alternative Explanations
paragraphs: Our analysis showed that the rate of program entry varied between 1990 and 1997, reaching a high of 19.3 percent in 1991 and then gradually declining, except for a slight upward movement in 1996, to a low of 10.3 percent in 1997 (see figure 2). In 1990, there was a discernible jump in the rate of program entry, which continued into 1991. The 1990 and 1991 rates were higher than the rates in any of the pre-1990 years we analyzed.
The 1990 increase in the SGA level could have encouraged additional program entry to the extent that individuals with disabilities whose earnings were between the pre-1990 SGA level and the 1990 SGA level could then qualify for benefits. Also, some individuals could have reduced their earnings in order to qualify for DI benefits and then increased their earnings once they became eligible. However, the data we examined indicate that most DI beneficiaries who entered the program between 1990 and 1995 were either not able or not inclined to increase their earnings or work at all after receiving benefits. Relatively few of these new DI beneficiaries—between 2 to 5 percent—increased their earnings above the SGA level within the first 3 years after their initial year in the program and most new beneficiaries had no earnings during these first several years on the rolls.
There are a number of factors other than the increase in the SGA level that likely affected the post-1990 DI program entry rates. For example, given that entry rates began to increase in 1988, prior to the 1990 SGA increase, the growth in program entry in 1990 and 1991 may simply represent a continuation of this earlier trend. In our prior work, we described several program factors, such as changes in the criteria for evaluating mental impairment disabilities, that appear to have contributed to this trend. In addition, a general labor force response to the 1990-91 recession might also explain the increase in entry. The recession could have resulted in layoffs of individuals with disabilities, as well as other workers. In response, some of these individuals might have sought entry to the DI program, rather than continuing a job search, even though they were previously able to work and earn above the SGA level. From the data, we cannot differentiate the reason for entry by a beneficiary, and so have no way of determining whether the increase in entry was related to the increase in the SGA level or some other factor. Likewise, the ensuing economic expansion may have helped to ensure continuing work and significant earnings for some disabled workers, thereby reducing the number of workers seeking and receiving DI benefits. In addition, advances in medicine and medical care, along with advances in and increased use of assistive devices and equipment (for example, adapted computers/keyboards), may have allowed some disabled workers to remain gainfully employed.
section_title: Program Exits Since 1990 Driven by Retirement and Death but Data Are Limited
paragraphs: Our analysis of DI program exits indicated that the yearly rate of exit generally declined over the 1990 to 1997 period even though the number of beneficiaries exiting the program was increasing (see figure 2).
Program exit is largely driven by beneficiaries’ death or their conversion to retirement benefits, which together account for about 95 percent of aggregate program exits between 1985 and 1997 (see table 5). While medical improvement or return to work gradually increased from 2 to 9 percent of all exits between 1985 and 1996, there was a dramatic increase in the percentage of DI beneficiaries exiting the program in 1997 for these reasons.
It is unclear what effect, if any, the SGA may have had on these program exits because, although the data indicate whether the beneficiary reached retirement age or died, they do not indicate whether the beneficiary returned to work or whether a continuing disability review determined that they had medically improved. The large increase in the percentage of beneficiaries returning to work or medically improving for 1997 may be related, in part, to an increase in the number of continuing disability reviews that occurred during 1997. However, a strong economy that drew more DI beneficiaries into the labor force or other factors also may have played a role.
section_title: Conclusions
paragraphs: Our analysis of DI beneficiary earnings from the mid-1980s to the mid- 1990s suggests that the SGA level may act as a work disincentive for only a small proportion of DI beneficiaries. This is generally consistent with studies of the SGA and of earnings limits in related programs, which indicate that such limits, at most, affect a relatively small proportion of beneficiaries. However, the limitations in the available data mean that our findings should be accepted with caution. The lack of data on monthly earnings; on beneficiaries who are blind or are in a trial work period; and on beneficiaries who return to work, to name only a few areas, all hampered our efforts to arrive at more definitive conclusions. In particular, the lack of data identifying whether a beneficiary is blind precluded us from analyzing the effect of different SGA levels on blind and nonblind DI beneficiaries.
We place significance on our finding that the SGA’s effect remained small even as increasing numbers of DI beneficiaries entered the labor force. While the DI program had grown by almost 72 percent from 1985 to 1997, the number of employed DI beneficiaries more than tripled. The number of working DI beneficiaries increased every year, even during the recession of the early 1990s. Yet it is unclear what has been driving this increase in employment. Given that most of these new workers have earnings far below the SGA level and remain at those low levels for many years afterwards, it is unlikely that this increase was caused by an increase in the SGA level. Other possible explanations include a buoyant economy throughout most of this period since 1985, enhanced employment protections for the disabled, increased availability of assistive technology, and a greater acceptance of hiring workers with disabilities by society in general. While this development has important implications for the DI program, the lack of data again makes it difficult for program officials, researchers, and policy makers to gain a better understanding of this phenomenon and reconfigure the DI program’s return-to-work incentives to reinforce this trend.
section_title: Recommendations for Executive Action
paragraphs: The DI program, program beneficiaries, policy makers, and the general public could all greatly benefit from the collection of data that would facilitate a more comprehensive analysis of critical employment and program policy issues. Therefore, we recommend that the Commissioner of SSA take action to identify the full range of data necessary to assess the effects of the SGA on DI program beneficiaries, develop a strategy for reliably collecting these data, and implement this strategy in a timely manner, balancing the importance of collecting such data with considerations of cost, beneficiary privacy, and effects on program operations. In our study, we noted several key data elements that would be needed for a comprehensive assessment of the effects of the SGA level on program beneficiaries. These include data that identify the monthly earnings of beneficiaries and whether a beneficiary is blind, is participating in a trial work period, or has exited the DI program based on a return to work. Some of these data, such as information identifying whether a beneficiary is blind or is participating in a trial work period, is already collected by SSA but is not reliably recorded and maintained in SSA’s principal DI program data base. Other information, such as monthly earnings data, may be difficult to collect and involve data issues that extend beyond the DI program. There may also be additional information, beyond the data elements we discussed, that SSA may consider necessary for assessing the effects of the SGA.
section_title: Agency Comments and Our Response
paragraphs: In commenting on a draft of this report, SSA agreed with our recommendation. The agency, while acknowledging that it currently does not have the capability in place to track the employment and earnings patterns of DI beneficiaries, noted that it has made a commitment to collecting and analyzing DI beneficiary data. SSA stated that it is currently reaffirming that commitment and is developing a strategy to improve its efforts to collect such data. (SSA’s comments appear in app. II.)
We believe that SSA’s stated commitment to developing improved data on DI beneficiaries’ earnings and employment represents a positive development. Such a commitment should include the development and implementation of a comprehensive strategy that would collect the data required for assessing the earnings and employment of all DI beneficiaries rather than just a subset, such as those who participate in particular programs initiated under the Ticket to Work Act. This strategy should also include additional data elements that would provide insight into our understanding of DI beneficiaries’ employment, such as data identifying beneficiaries who are blind or who are participating in a trial work period.
SSA also provided some technical comments.  The agency noted that although our report acknowledges various data limitations that affected our analysis, including limitations in SSA’s earnings data, we did not sufficiently emphasize the extent to which these earnings data might include income that is not related to current employment. In addition, SSA stated that our data on reasons for exit, or termination, from the DI program varied from those published by SSA’s Office of the Chief Actuary. Finally, SSA questioned our analysis of beneficiaries whose earnings consistently exceed the SGA level.
With regard to our discussion of limitations in the earnings data, we agree with SSA that these limitations are considerable and have noted that throughout the report. In particular, SSA highlighted the potential for SSA earnings records to include income that may not be related to current work. It is unclear whether a substantial portion of the earnings data we analyzed was unrelated to current work. For example, an SSA studystated that the agency’s earnings data may include “certain payments from profit sharing plans.” However, the study also noted that few beneficiaries had actually participated in such plans. In addition, although this study indicated a sizeable discrepancy between SSA earnings data and earnings reported by some beneficiaries in a survey interview, it was unclear whether this discrepancy was due to limitations in SSA data or to limitations inherent in self-reported data.
Regarding the differences between our data on the reasons for program exit, or termination, and the data reported by SSA, we acknowledge in the report that SSA data indicate somewhat higher exit rates due to reasons other than death and conversion to retirement benefits. We believe that these differences are likely attributable to the use of different sources of data on program exit. We used the CWHS because it was the most appropriate data set for conducting a longitudinal analysis of beneficiaries’ earnings in relation to the SGA level. Further, although the termination rates we report do differ from SSA’s data, the trends portrayed in our data on exits are, in fact, generally consistent with those indicated in the SSA data. For example, where SSA’s data indicate a 10.5 percentage point increase in program exit due to medical recovery or return-to-work from 1996 to 1997 (from 12.3 percent to 22.9 percent), GAO’s data similarly indicate a 10.7 percentage point increase (from 9.2 percent to 19.9 percent). Given that our discussion of program exits focuses primarily on trends rather than absolute numbers, we believe that our data adequately support our finding.
Finally, regarding the issue of some beneficiaries being able to consistently earn above the SGA level, we identified in the report several reasons why some beneficiaries might do so. For example, such beneficiaries may be blind and thus subject to a higher SGA level than nonblind beneficiaries. We also note that without better DI program data, including data identifying whether a beneficiary is blind or in a trial work period, we could not provide a more definitive explanation of this phenomenon. Examination of individual case folders to determine why beneficiaries continued to earn above the SGA level—an approach suggested by SSA--was not a viable option for us on this study given our resources and timeframes for completing the study.
SSA also made a few other technical comments, which we incorporated where appropriate.
We are sending copies of this report to the Honorable Jo Anne B. Barnhart, Commissioner of Social Security; appropriate congressional committees; and other interested parties. We will make copies available to others on request. This report is also available on GAO’s home page at http://www.gao.gov.
If you or your staff have any questions concerning this report, please call me at (202) 512-7215 or Charles A. Jeszeck at (202) 512-7036. Other individuals making key contributions to this report include Mark Trapani, Michael J. Collins, and Ann Horvath-Rose.
section_title: Appendix I : Scope and Methodology
paragraphs: To conduct our work, we analyzed data from the Social Security Administration’s (SSA) Continuous Work History Sample (CWHS). The CWHS consists of records representing a longitudinal 1 percent sample of all active Social Security accounts. It is designed to provide data on earnings and employment for the purpose of studying the lifetime working patterns of individuals. The data, drawn from SSA administrative data sets, contain information on an individual’s Disability Insurance (DI) eligibility, earnings, and demographic characteristics. We did not independently verify the accuracy of the CWHS data because they were commonly used by researchers in the past and they are derived from a common source of DI program information.
subsections: section_title: Our Sample
paragraphs: From the total sample of 2,955,942 individuals, we selected a subsample of 92,662 individuals who were eligible for DI benefits at some point between 1984 and 1998. To obtain this sample, we excluded individuals whose Social Security record indicated a gap in DI entitlement, DI beneficiary status beginning before age 18 or continuing past age 64, a date of death before their DI beneficiary status, and those not identified as the primary beneficiary. We could not determine the exact date of eligibility because the CWHS only provides eligibility status as of December 31 of each year. Therefore, individuals were included in our analysis only as of their second year of DI eligibility to assure that the earnings we observed occurred only while an individual was in beneficiary status. In addition to our main sample, we selected another subsample of 9,990 DI beneficiaries who reached age 65 during the 1987 to 1993 time period for the purpose of analyzing DI beneficiaries who were converted to retirement benefits.
subsections: section_title: Sampling Errors
paragraphs: All samples are subject to sampling error, which is the extent to which the sample results differ from what would have been obtained if the whole universe had been observed. Measures of sampling error are defined by two elements—the width of the confidence interval around the estimate (sometimes called precision of the estimate) and the confidence level at which the interval is computed. The confidence interval refers to the fact that estimates actually encompass a range of possible values, not just a single point. This interval is often expressed as a point estimate, plus or minus some value (the precision level). For example, a point estimate of 75 percent plus or minus 5 percentage points means that the true population value is estimated to lie between 70 percent and 80 percent, at some specified level of confidence.
The confidence level of the estimate is a measure of the certainty that the true value lies within the range of the confidence interval. We calculated the sampling error for each statistical estimate in this report at the 95- percent confidence level. All percentage estimates from the sample have sampling errors (95 percent confidence intervals) of plus or minus 10 percentage points or less, unless otherwise noted.  All numerical estimates other than percentages have sampling errors of 10 percent or less of the value of those numerical estimates, unless otherwise noted.
section_title: Analysis of the Effect of the SGA on Beneficiaries’ Earnings
paragraphs: To analyze the effects of the SGA on the earnings of DI beneficiaries, we attempted to determine whether DI beneficiaries engage in “parking,” that is, whether they limit their earnings to a level at or just below the SGA limit in order to maintain eligibility for benefits. If beneficiaries do indeed park, then we would expect to find a clustering of earnings just below the SGA level. The occurrence of such clustering would provide a fairly strong indication that beneficiaries are limiting their employment and earnings to stay in the DI program, thereby reducing program exit. In addition, to the extent that beneficiaries park or otherwise limit their earnings due to a work disincentive effect of the SGA, we would expect an increase in the SGA level to result in a corresponding increase in beneficiaries’ earnings.
To determine if earnings clustered around the SGA level, we examined the distribution of earnings both before and after the 1990 increase in the SGA level to see what proportion of beneficiaries had annual earnings at or within 5 percent, 10 percent, and 25 percent of the annualized SGA level. We also tracked those beneficiaries who had earnings near the annualized SGA level in a given year to see if they maintained this level of earnings in subsequent years. In addition, we tracked those beneficiaries who were on the rolls and had no earnings or had earnings below the annualized SGA level prior to 1990 to see if they increased their earnings and clustered around the new annualized SGA level. Finally, we examined beneficiaries who, in a given year, had earnings above the annualized SGA level to see if, over time, they tended to reduce their earnings to an amount near, but below, the SGA to maintain program eligibility.
To further analyze whether DI beneficiaries limit their earnings due to the SGA, we observed how these individuals behave once they are no longer subject to the SGA level. We did this by looking at the earnings of DI beneficiaries who reached age 65 and were converted to the Old Age and Survivors Insurance (OASI) program. Once DI beneficiaries reach age 65, they are converted to retired worker status and their benefits are paid from the OASI trust fund. Likewise, they are no longer subject to the SGA limit. If beneficiaries are limiting their earnings due to the SGA, then we would expect them to increase their earnings after retirement at age 65. Therefore, a finding that a significant proportion of former DI beneficiaries return to work or increase earnings after conversion would serve as some evidence for the work disincentive effect of the SGA. For DI beneficiaries who had entered the DI rolls prior to age 62, remained on the rolls until being converted to retirement benefits at age 65, and survived to age 68, we examined their earnings between ages 66 – 68 to determine whether there was an increase in earnings and employment after they left the DI program.
section_title: Analysis Of the Effect of the SGA on Program Entry and Exit
paragraphs: To examine the effects of the SGA on DI program entry and exit rates, we looked at the rate of entry and exit both before and after the increase in the SGA. If people respond to the change in the SGA then we might expect the rate of entry to increase after the increase in the SGA level. With the higher SGA level, some individuals with disabilities would now qualify for benefits if their earnings are between the old and new SGA level. Likewise, some individuals with earnings just above the new SGA level may reduce their earnings in order to qualify and then increase their earnings after they become eligible. Therefore, we examined the earnings, through 1997, of new beneficiaries who entered the DI program between 1990 and 1995 to see if they tended to increase their earnings after becoming eligible for benefits.
In terms of program exit, we might expect exit rates to decrease after an increase in the SGA level since many working beneficiaries may now be further from the new level and some may even increase their earnings to an amount near the new level (but higher than the old level) without having their benefits terminated. We examined data indicating the reasons that beneficiaries’ exit DI to determine the extent to which program exits resulted from beneficiaries returning to work or medically improving versus retirements or deaths.
section_title: Limitations in Our Analysis
paragraphs: The absence of key data in the CWHS and in other SSA data sets limited our ability to draw clear conclusions from our analysis. For example, while the SGA is a monthly level, the available earnings data are recorded only on a yearly basis. Therefore, we were not able to analyze DI beneficiaries’ monthly earnings in relation to the actual, monthly SGA limit. Instead, we examined beneficiary earnings in terms of the annualized SGA level; that is, we multiplied the monthly SGA amount by 12 to permit comparison of the monthly limit to the annual data. (For example, the SGA level in 1995 was $500 per month, so the annualized SGA level was $500 multiplied by 12, or $6,000.) As a result, we were not able to identify parking that might have occurred among beneficiaries who, for example, worked for only a few months during the year but limited their earnings to a level near, but not exceeding, the SGA level in each of those months.Nevertheless, our analysis did allow us to identify individuals who consistently have earnings at or near the SGA level. To the extent that beneficiaries are trying to maximize their income–that is, earn as much as they can within a given year while maintaining DI eligibility–there may be a significant number of beneficiaries who have sustained earnings up to the SGA level through much of the year.
Another data limitation concerned beneficiaries who are in a trial work period. The trial work period allows beneficiaries to test their ability to work without penalty. Therefore, beneficiaries can earn any amount without being subject to the SGA limit. Neither the CWHS nor other SSA data sets provide a reliable means for identifying beneficiaries in a trial work period. As a result, in our parking analysis, we were not able to distinguish the earnings of beneficiaries who are subject to the SGA limit from those who are not subject to this limit. Although the trial work period allows beneficiaries to earn any amount, there is no reason to believe that all beneficiaries in a trial work period will have earnings greater than the SGA level. An individual’s disability may limit his/her earnings to well below the SGA level. However, we do not believe that this limitation affected our analysis to a great extent because it is unlikely that the earnings of beneficiaries in a trial work period would systematically fall at or near the SGA level and thereby skew our analysis.
The identification of blind and nonblind beneficiaries also created a limitation in our analysis. The CWHS does not allow us to distinguish between blind and nonblind DI beneficiaries, which is important since blind beneficiaries are subject to a higher SGA limit. Some of the beneficiaries that we observe earning above the nonblind SGA limit may actually be blind individuals. In addition, if a substantial number of blind beneficiaries had earnings just below the nonblind SGA level, then our analysis could exaggerate the existence of parking. However, this limitation is not likely to have substantially impacted our analysis of parking among nonblind beneficiaries because blind individuals represent only about 2 percent of the DI caseload and therefore probably comprised a very small portion of our sample. Perhaps more importantly, the inability to identify blind beneficiaries means that we could not assess the extent to which they exhibit parking behavior. As a result, our analysis may be understating the extent of parking in the DI program.
Finally, the lack of data on impairment-related work expenses (IRWE) also limited our ability to analyze the effects of the SGA level on employment. SSA deducts the cost of certain impairment-related expenses needed for work from earnings when making SGA determinations. The inability to identify IRWE could exaggerate the effect of the SGA on earnings since some beneficiaries near or above the SGA level may not have been at this level once IRWE was subtracted from their earnings. However, the inability to determine IRWE is not likely to have significantly impacted our analysis because SSA officials told us that IRWE was applied in only a very limited number of cases during the years of our analysis Despite these substantial limitations, the CWHS is the best available data set for identifying the basic program information needed to conduct our analysis within acceptable timeframes. The principal alternative data set within SSA—the Master Beneficiary Record—does not lend itself to easy analysis because it is designed to fulfill SSA’s administrative objectives. In particular, we did not choose to use this data set because it would not have provided the longitudinal data that we needed unless it was linked with other SSA administrative files containing DI program information. Linking these complex files would have raised many uncertainties regarding the ultimate quality of the data and would have added substantial time and complexity to our analysis. In addition, non-SSA data sets, such as the Census Bureau’s Current Population Survey, could not serve our needs because, among other limitations, we would not be able to adequately identify DI program participation for most of the years of our analysis.
In addition to data limitations, our analysis was also constrained by the lack of any quantitative evaluation of other possible factors affecting the earnings of DI beneficiaries and disabled workers. For example, our analysis does not control for other factors in the economy such as recessions, implementation of the Americans With Disabilities Act (ADA), advances in medicine and medical care, and advances in and increased use of assistive devices and equipment. A recession may increase entry into the DI program, but implementation of the ADA and improvements in medical care and assistive devices and equipment may either decrease entry or increase exit. The inability to control for these factors limited our ability to make clear inferences from the data regarding the effects of the SGA.
section_title: Appendix II: Comments From the Social Security Administration