SSA Disability: Return-to-Work Strategies From Other Systems May Improve Federal Programs
Released: 1996-07-11T00:00:00

Letter

Introduction

The Social Security Administration (SSA) operates the Disability Insurance (DI) and Supplemental Security Income (SSI) programs—the nation’s two largest federal programs providing cash benefits to people with disabilities. From 1985 through 1994, the number of working-age DI and SSI beneficiaries (aged 18 to 64) increased 59 percent, from 4.0 million to 6.3 million, and cash benefits (adjusted for inflation) increased 66 percent.This magnitude of growth has caused concerns that are compounded by the fact that less than half of 1 percent of DI beneficiaries ever leave the rolls by returning to work.

In our recent study of SSA’s disability programs, we reported that despite the magnitude of program growth, SSA has not improved its emphasis and efforts in returning disability beneficiaries to the workplace. By contrast, the private sector, in response to growth in disability, has begun developing and implementing strategies to improve return-to-work programs for disabled workers. Moreover, the emphasis on return to work is not limited to the private sector in the United States—disability programs financed by social insurance systems in other countries also focus on return to work and have implemented practices similar to those in the U.S. private sector.

This report focuses on identifying return-to-work practices in the private sector and other countries that may hold lessons for improving SSA’s return-to-work efforts. Improving SSA’s return-to-work efforts has important implications not only for the individuals who can return to productive activity in the workplace, but also for controlling the costs of federal disability programs. SSA estimates that lifetime cash benefit payments are reduced by about $60,000 when a DI beneficiary leaves the rolls by returning to work and by about $30,000 when an SSI disability beneficiary leaves the rolls by returning to work.

In comparison with the workers served by private sector programs, many people with disabilities served by SSA have little or no work history or current job skills. SSA also serves a population with a wide range of disabilities that often may be more severe than the disabilities of the average person served by private sector programs. For example, many workers served by private sector programs have short-term disabilities, which SSA’s programs do not cover. SSA serves people with long-term disabilities, many of whom have not been successful in returning to work through private sector programs. Thus, SSA may face greater difficulty in returning some of its clients to the workplace.

However, the experiences of Germany and Sweden show that return-to-work strategies are applicable to a population with a wide range of work histories, job skills, and disabilities. Moreover, even relatively small gains in return-to-work successes offer the potential for significant savings in program outlays. For example, if an additional 1 percent of the 6.3 million beneficiaries were to leave SSA’s disability rolls by returning to work, lifetime cash benefits would be reduced by an estimated $2.9 billion.

Magnitude of Disability Costs Has Turned Private Sector’s Attention to Improving Return-to-Work Programs

The magnitude of disability costs has caused growing concern in the private sector. Some disability-related costs borne by the private sector are more obvious than others. The most apparent costs include insurance premiums, cash benefits, rehabilitation benefits, and medical benefits paid through workers’ compensation and employer-sponsored disability insurance programs. Workers’ compensation laws require employers to bear the cost of disabilities caused by an individual’s job, and some employers offer short-term or long-term insurance or both for disabilities not caused by the individual’s job. However, in addition to the costs of such programs, there may be other, less obvious costs such as payments to employees who must work overtime, the added expense of training and using temporary workers, and retraining disabled employees when they return to work. Taking such costs into account, studies have estimated that the employer’s full cost of disability ranges from 6 to 12 percent of payroll.

At one time, the common business practice was to encourage someone with a disability to leave the workforce. In recent years, however, concern has grown about the effect of disability on costs, productivity, competitiveness, and employee and customer relations. As a result, the private sector has begun to develop and implement strategies for helping disabled workers return to work as quickly as possible. These efforts include intervening as soon as possible after a disabling event occurs, helping the worker set return-to-work goals, providing the services the worker needs to return to work, and offering incentives that encourage return to work. Similar approaches have also been implemented in the social insurance disability programs of other countries.

To develop information on private sector return-to-work practices for this report, we surveyed 21 people from the private sector recognized for their involvement in developing disability management programs that focus on return to work. As well as working to develop return-to-work programs within their own companies, all 21 have been actively involved in efforts by the Washington Business Group on Health or the Health Insurance Association of America to develop and promote such programs. As a group, these 21 individuals represented extensive experience in managing disability under workers’ compensation and disability insurance programs. We conducted in-depth interviews with five respondents to supplement the survey responses. (See app. I for a list of individuals contacted during our review.)

SSA’s Return-to-Work Efforts Have Been Static

Technological, medical, and societal changes have increased the potential for more people with disabilities to work, and some SSA data indicate that as many as 3 out of 10 persons on the disability rolls may be good candidates for return to work. However, few beneficiaries ever leave the rolls by returning to work. For example, less than half of 1 percent of the beneficiaries have left the DI program annually during the last several years because they returned to work, according to SSA data.

As we recently reported, SSA focuses little attention on returning beneficiaries to the workplace. SSA’s capacity to identify and assist in expanding beneficiaries’ productive capacities have been limited by weaknesses in the design and implementation of the DI and SSI programs. SSA does not have a system for functionally evaluating each individual’s return-to-work potential and identifying the return-to-work services needed by those who have the potential to return to the workplace. Instead, SSA’s primary focus is on processing disability applications to determine whether applicants meet disability criteria and then paying benefits to those found eligible.

DI and SSI Program Structure

The DI and SSI programs pay disability benefits to people who have long-term disabilities. To be eligible for benefits, an adult must have a medically determinable physical or mental impairment that (1) is expected to last at least 1 year or result in death and (2) prevents the individual from engaging in substantial gainful activity. Regulations currently define substantial gainful activity as work that produces countable earnings of more than $500 a month for disabled individuals and $960 a month for individuals who are blind. Furthermore, to qualify, an individual not only must be unable to do his or her previous work, but—considering age, education, and work experience—the individual also must be unable to do any other kind of substantial work that exists in the national economy.

Although both programs use the same definition of disability, they differ in important ways. Established under title II of the Social Security Act, DI is an insurance program funded by payroll taxes paid by workers and their employers into a Social Security trust fund. Similar to private long-term disability insurance programs, the DI program is for workers who have lost their source of income because of long-term disability. To be insured under DI, an individual must have worked for certain minimum periods with a specified minimum level of earnings in jobs covered by Social Security. Reflecting the program’s long-term disability character, DI benefits generally cannot begin until 5 months after the onset of disability. Medicare coverage is provided to beneficiaries 24 months after entitlement to DI cash benefits commences.

By contrast, the SSI program, established under title XVI of the Social Security Act, is not an insurance program and has no prior work requirements. Financed from general tax revenues, SSI is a means-tested income assistance program for disabled, blind, or aged individuals who have low income and limited resources, regardless of work history.Unlike the DI program in which benefits generally cannot begin until 5 months after disability onset, SSI benefits begin immediately upon entitlement. In most cases, SSI entitlement makes an individual eligible for Medicaid benefits.

Because the SSI program is a means-tested income assistance program with no work history requirements, many of the beneficiaries it serves may have different characteristics than those served by private sector programs. By definition, individuals qualify for employer-sponsored disability benefits because they were employed at the time they became disabled. They therefore have recent work histories and current job skills when they apply for benefits. In contrast, many SSI applicants have little or no recent work history or current job skills. An SSA study in 1994 found that 42 percent of SSI applicants reported leaving their last job more than 12 months before applying for benefits, and another 27 percent said they did not know when they left their last job.

When individuals apply for DI or SSI disability benefits, SSA relies on state Disability Determination Services, agencies that are funded by SSA, to determine the medical eligibility of applicants. If found disabled, the beneficiary receives benefits until he or she dies, converts to Social Security retirement at age 65, or is determined by SSA to be no longer eligible for benefits because of earnings or medical improvement. The law requires SSA to conduct a continuing disability review (CDR) at least once every 3 years to redetermine the eligibility of DI beneficiaries if medical improvement is possible or expected. Otherwise, SSA is required to schedule a CDR at least once every 7 years.

Redesign of SSA’s Disability Programs Needed to Encourage Return to Work

SSA’s process for determining disability generally does not directly assess each applicant’s functional capacity to work. The Social Security Act defines disability in terms of the existence of physical or mental impairments that are demonstrable by medically acceptable clinical and laboratory diagnostic techniques. In implementing the act through its regulations, SSA has developed a Listing of Impairments (generally referred to as “the listings”) identifying some medical conditions that are presumed to be sufficient in themselves to preclude individuals from engaging in substantial gainful employment. The presumed link between inability to work and presence of such medical conditions establishes the basis for SSA’s award of disability benefits.

According to SSA, the medical conditions identified in the listings serve as proxies for functional evaluations because such impairments are presumed to be severe enough to impose functional restrictions sufficient to preclude any substantial gainful activity. According to SSA data, about 70 percent of new awardees are found to be eligible because their conditions meet or equal listed impairments that serve as proxies for functional assessments of ability to work. Only the remaining 30 percent of new awardees are eligible because they have been further evaluated on the basis of separately developed nonmedical factors, including residual functional capacity, age, education, and vocational skills.

Relevant studies, however, indicate that the scientific link between medical condition and work incapacity is weak. While it is reasonable to expect that some medical impairments will completely prevent individuals from engaging in any minimal work activity (for example, those who are quadriplegic with profound mental retardation), it is less clear that some other impairments that qualify individuals for disability benefits completely prevent individuals from engaging in any substantial gainful activity (for example, those who are missing both feet). Moreover, while most medical impairments may have some influence over the extent to which an individual is capable of engaging in gainful activity, other factors—vocational, psychological, economic, environmental, and motivational—are often considered to be more important determinants of work capacity.

Beyond the issue of whether SSA’s eligibility determination process adequately assesses work capacity, the process itself diverts the applicant’s attention from the possibility of returning to work. Instead, the process focuses the applicant’s attention on proving that he or she is unable to work. From the moment an individual applies for disability benefits, SSA’s eligibility determination process (which can take from a minimum of several months to 18 months or longer for individuals who initially are denied and appeal) focuses on proving or disproving that the individual meets SSA’s disability definition, not on assessing how the individual could be helped to return to work.

The eligibility determination process itself may erode motivation to work. By the time applicants are approved to receive benefits, they have been through a lengthy process that requires them to prove an inability to work; they have testified about their disabilities before program officials and the health care community; family and friends may have helped to demonstrate their work incapacity; and being out of the workforce may have eroded their marketability. These factors are believed to reduce receptivity to any efforts aimed at returning to work.

The Social Security Act states that people applying for disability benefits should be promptly referred to state vocational rehabilitation agencies for services to maximize the number of such individuals who could return to productive activity. The Rehabilitation Act of 1973, as amended, authorizes the Department of Education’s vocational rehabilitation program, which provides federal funds to a network of state vocational rehabilitation agencies, to operate the country’s public vocational rehabilitation program. The federal share of funding for these services is about 80 percent; the states pay the balance.

Under current procedures, the Disability Determination Service in each state decides whether to refer DI and SSI applicants to state vocational rehabilitation agencies, which in turn decide whether to offer them services such as guidance, counseling, and job placement, as well as therapy and training. In practice, the Disability Determination Services refer, on average, only about 8 percent of DI and SSI beneficiaries to state vocational rehabilitation agencies, and we have estimated that less than 10 percent of those referred actually were accepted as clients. In total, these state agencies have little impact on DI and SSI, successfully rehabilitating only about 1 out of every 1,000 beneficiaries, on average, each year.

State vocational rehabilitation agencies may be cautious about accepting DI beneficiaries because SSA does not contribute to the cost of services these agencies provide unless a beneficiary successfully returns to work.For payment purposes, SSA defines success as returning to work for 9 continuous months with earnings at the substantial gainful activity level; whereas, state vocational rehabilitation agencies, on the basis of Rehabilitation Services Administration regulations, define success for all other clients as placing the individual in suitable employment, paid or unpaid, for 60 days. In early 1996, SSA began collecting information on the number of referrals from Disability Determination Services that the state vocational rehabilitation agencies accept. This step is the starting point of the SSA’s implementation of new regulations allowing it to use vocational rehabilitation service providers other than state agencies.

Whether beneficiaries receive vocational rehabilitation services when such services would be most effective is also an issue. SSA does not have access to disabled workers until they come to SSA to apply for benefits. SSA survey results indicate that nearly half of DI and SSI applicants with work histories have not worked for more than 6 months immediately before applying to SSA for disability benefits. But even after they apply, vocational rehabilitation services can be delayed for long periods because, generally, SSA does not refer anyone for those services until he or she has been approved as a beneficiary—a process that can take several months and may take 18 months or longer.

DI and SSI disability beneficiaries may not view returning to work as an attractive option because, by doing so, they risk losing the security of a guaranteed monthly income and medical coverage. To reduce this risk, the Congress has established incentive provisions to safeguard cash and medical benefits while a beneficiary tries to return to work. However, because of weaknesses in design and implementation, these incentives have not encouraged many beneficiaries to attempt to return to work. The work incentives do not appear sufficient to overcome the prospect of a drop in income for many who face low-wage employment or to allay the fear of losing medical coverage and possibly other federal and state assistance.

Private Sector Programs for Disabled Workers

Private sector businesses underwrite all or part of two primary disability benefit programs for disabled workers: workers’ compensation programs and employer-sponsored disability insurance plans. Growing concerns about the magnitude of disability costs have prompted many in the private sector to turn their attention to developing approaches to manage disability. Advocates of disability management stress the need to develop an integrated approach to manage all types of disability cases, including workers’ compensation and employer-sponsored disability insurance.

Workers’ Compensation Programs

Workers’ compensation programs are designed to provide medical care and cash benefits to replace lost earnings when workers are injured or become ill in connection with their jobs. Each state has enacted its own workers’ compensation requirements for people employed in that state. As of 1992, workers’ compensation laws covered about 88 percent of the nation’s wage and salary workers. Only in New Hampshire does the state law cover all jobs.

Workers’ compensation programs are financed almost exclusively by employers and are based on the principle that the cost of work-related accidents is a business expense. Most states permit employers to carry insurance against work accidents with commercial insurance companies or to qualify as self-insurers by giving proof of financial ability to carry their own risk. States also may impose requirements that affect how employers and insurers manage workers’ compensation cases. For example, some states require that employers and insurers offer specified rehabilitation services, leaving disability managers with no discretion in deciding whether the services are needed.

A large majority of compensation cases involve temporary total disability, which means the worker is unable to work while recovering from an injury but is expected to recover fully. When it is determined that the worker is permanently and totally disabled for any type of gainful employment, then permanent total disability benefits are payable. Both temporary and permanent total disability are usually compensated at the same rate, which is usually calculated as a percentage of weekly earnings—most commonly two-thirds of earnings. All programs, however, place dollar maximums on weekly benefits payable.

When people receiving workers’ compensation benefits also qualify for DI benefits, SSA generally reduces their DI benefits by the amount of cash benefits they receive under workers’ compensation. But the number of people with reduced DI benefits is relatively small—in 1992, about 103,000 out of about 3.2 million DI beneficiaries had their DI benefits reduced by the amount of their workers’ compensation benefits, according to the National Academy of Social Insurance.

Employer-Sponsored Disability Insurance Plans

While workers’ compensation replaces income lost because of work-related injuries and illnesses, some employers sponsor disability insurance plans that replace income lost because of other injuries and illnesses. These plans can provide short-term or long-term disability coverage or both. Employers who sponsor disability insurance plans either self-insure or use commercial insurers to provide coverage.

Short-Term Disability Insurance

About 44 percent of all private employees have some type of short-term disability insurance that is provided and paid for, at least in part, by employers, according to National Academy of Social Insurance estimates based on Department of Labor data. Five states—California, Hawaii, New Jersey, New York, and Rhode Island—have mandatory temporary disability insurance programs that are financed by employers and/or employees. These programs typically pay 50 percent of prior pay for 26 to 52 weeks when workers cannot perform regular or customary work because of a physical or mental condition.

Employers may purchase sickness and accident insurance from commercial insurers or they may self-insure. Under short-term disability insurance, disability generally is defined as the inability to perform one’s own occupation, and generally benefit payments begin only a few days after the disability begins. Benefits usually last for up to 6 months and typically replace about 50 percent of the worker’s prior earnings.

Long-Term Disability Insurance

About 25 percent of all private employees have some type of private long-term disability insurance that is paid for, at least in part, by employers, according to National Academy of Social Insurance estimates based on Department of Labor data. Private long-term disability benefits usually do not begin until about 3 to 6 months after the onset of disability, or after short-term disability benefits are exhausted. The benefits usually are designed to replace a specified percentage of predisability earnings—most commonly 60 percent. Although long-term plans may initially pay benefits based on the recipient’s inability to perform his or her own occupation, after 2 years they generally pay benefits only if the individual is unable to perform any occupation.

Private employees who have no employer-sponsored long-term disability insurance generally must look to SSA’s DI program as their primary source of disability assistance. Although some individuals may purchase their own individual disability insurance coverage, most individuals rely on the DI program for long-term disability benefits and medical coverage. The DI program is the safety net for people who are unable to work and have no other source of benefits or assistance in returning to work.

Almost all private long-term disability insurance benefits are coordinated with DI benefits; that is, private benefits are reduced dollar for dollar by the amount of DI benefits. The rationale for reducing private benefits is to provide an incentive to return to work by paying only the targeted partial replacement of earnings. Also, reducing private benefits dollar for dollar against DI benefits can lower disability insurance premiums. As a result, it is common for private plans to require claimants to apply for DI benefits.

Disability Programs in Germany and Sweden

The disability programs financed by the social insurance systems in Germany and Sweden employ policies and practices that have been identified by the U.S. private sector and other experts as being key to disability management. Programs in both Germany and Sweden offer an array of services, assistance, and incentives to help people with disabilities remain at or return to work. Germany has a long-standing tradition of emphasizing rehabilitation over granting permanent disability benefits (more commonly referred to as pensions), and Sweden has only recently adopted an emphasis on returning people with disabilities to work.

Disability Programs in Germany Emphasize Rehabilitation Over Pensions

German laws and policies stress the goal of “rehabilitation over pension.” This means that cash benefits are awarded only after it is determined that a person’s earning capacity cannot be restored by rehabilitation or other interventions. Under German social law, rehabilitation is an entitlement for people with physical or mental disabilities and for those threatened by such disabilities.

In Germany, disability pensions, rehabilitation, and other forms of return-to-work assistance are provided by a complex system of pension, employment, accident, and health (often referred to as sickness) insurance funds. For people with disabilities that resulted from work-related accidents or occupational diseases, accident insurance finances disability pensions as well as medical and vocational rehabilitation. Although most non-work-related disability pensions are paid by the pension insurance funds, most of the return-to-work assistance provided to people with disabilities is financed by employment insurance. However, to reduce the number of people requiring permanent disability benefits, the pension insurance funds pay for medical and vocational rehabilitation for individuals meeting certain work requirements. For those who have not worked, employment assistance is available from public social assistance and the employment office.

All disability pension applicants are considered for rehabilitation and for return to work. Those who are able to work in their former or similar occupations and earn at least half of the average income in that profession are not eligible for any pension, regardless of the disabling condition. If successful rehabilitation seems unlikely, or fails, the pension insurance funds may grant a full or partial pension on either a permanent or temporary basis to a person with reduced earnings capacity caused by a disability.

Most disability pensions awarded in Germany are full and permanent. Full or “total disability” pensions are granted to people who can no longer engage in gainful employment. Partial or “occupational disability” pensions may be awarded to people who, for health reasons, can only earn less than half of the amount earned by a healthy person in the same or comparable occupation. A temporary “fixed-term” pension—either full or partial—may be awarded if there are reasonable grounds to believe that the reduced earnings capacity can be remedied within a foreseeable period.

Disability Program in Sweden Now Emphasizes Return-to-Work Goal

The goal of Swedish disability policy is to provide people with disabilities the same opportunity as others for earning a living and participating in community life. Programs for assisting people with disabilities operate within the broader structure of the country’s universal social insurance system—providing protection against sickness, work injury, disability, old age, and unemployment—and its health and employment programs.Social insurance offices in Sweden are responsible for awarding disability benefits (or pensions) and, since 1992, for leading rehabilitation efforts.To facilitate rehabilitation, the social insurance offices have been allocated special funds for purchasing return-to-work services and assistance from either public or private sources.

Decision-making in Sweden’s social insurance system starts with the identification of individuals who may need rehabilitation or other forms of employment assistance to return to work. If, however, an individual is deemed unlikely to return to work, or if rehabilitation is unsuccessful, then a disability pension may be granted.

Disability pensions are based on reduced work capacity, not the presence of a particular illness or injury. Under Swedish law, permanent or temporary disability pensions can be awarded to individuals between the ages of 16 and 64 and who because of illness or other reductions in physical or mental performance cannot support themselves by employment. If work capacity is permanently reduced by at least 25 percent, Swedish nationals may receive a basic disability pension, regardless of work history.

Full, three-quarters, half, or one-quarter basic pensions may be granted to individuals with disabilities, depending upon the extent to which work capacity is reduced. In addition to a basic pension, an individual with a work history may also receive a supplementary pension based on employment time and earnings. Sweden also grants temporary disability pensions if the reduction in work capacity is not considered permanent.

A variety of other cash benefits may also be awarded in Sweden. Sickness benefits may be paid indefinitely to individuals with reduced work capacity. Pension supplements are available to those receiving only the basic pension or who have a low supplementary pension. Disability allowances provide compensation for extra costs that people incur from their disabilities. And rehabilitation allowances cover loss of earnings and certain kinds of expenditures for people participating in vocational rehabilitation.

Objectives, Scope, and Methodology

The Chairman of the Senate Special Committee on Aging asked us to report on ways to improve SSA’s return-to-work efforts. To develop this information, we (1) identified key practices used by U.S. private sector companies to return disabled workers to the workplace and (2) obtained examples of how other countries’ social insurance programs approach returning people with disabilities to work (discussed in chs. 2, 3, and 4).

U.S. Private Sector

To develop the information on the private sector in this report, we interviewed officials of selected employers, insurers, and other organizations known for their leadership in disability management (see app. I). We reviewed documents they provided, and we also performed an extensive review of literature on disability management.

In addition, through a mail survey, we obtained the views of 21 disability managers from companies or other organizations that are leaders in developing disability management programs. As a group, these 21 individuals represented extensive experience in managing disability under workers’ compensation and disability insurance programs. Of the 21 individuals, 8 had managed only disability insurance cases; 4 had managed only workers’ compensation cases; and 9 had managed both. We did not verify that the information reported in the responses to our survey was factually accurate, but we conducted extensive interviews with five respondents to supplement the survey responses.

Our survey instrument presented the respondents with a list of disability management practices and asked whether their current programs incorporated each practice. We then instructed them to assume they were designing a model disability management program and asked them to assess how important they believed each practice would be in their model program. We asked them to assess the importance of each practice on a scale of 1 to 5, with 1 equaling “not important” and 5 equaling “very important,” regardless of whether their current programs incorporated that practice.

Appendix II presents the survey instrument as well as data on how many respondents said their companies had incorporated each disability management practice in their programs. It also shows the mean rating of the importance that the respondents placed on including each practice in a model disability management program. The results of our survey represent the views of the disability managers who responded and should not be considered necessarily representative of the views of other disability managers. However, as we intended, the results illustrate what “leading edge” companies believe is important.

In addition, we obtained comments from disability managers of 15 companies on a summary of our analysis of private sector return-to-work practices. We asked them to assess the accuracy, completeness, objectivity, and soundness of our analysis. In general, they agreed with all aspects of our analysis, and we made only minor technical changes to this information based on their comments. A bibliography of the literature we used in our analysis of private sector disability management and a list of related GAO products are at the end of this report.

While many in the private sector believe that their proactive return-to-work efforts have resulted in net dollar savings, there have been no rigorous studies that present conclusive data on the cost-effectiveness of disability management, particularly with respect to the extent to which specific components of return-to-work programs may be responsible for cost savings.

Germany and Sweden

To obtain examples of how other countries’ social insurance programs approach returning people with disabilities to work, we did an extensive review of the literature on disability programs in other countries. To develop further information on return-to-work approaches in other countries, we interviewed a number of program officials and other experts on disability programs in Germany and Sweden, and reviewed the documents they provided. For each country, we obtained information on (1) program goals, benefits, and incentives; (2) early intervention efforts; (3) the type of return-to-work measures and services offered as well as how the assistance is provided and funded; (4) the eligibility decision-making process; and (5) how cases are managed when return-to-work services are provided. Appendix III lists the people we interviewed in Germany and Sweden.

We selected disability programs in Germany and Sweden for review because (1) both countries have political structures and standards of living, including the use of technology, similar to those in the United States, and (2) their disability programs have policies and practices that have been identified by the U.S. private sector and other experts as being key to disability management: early intervention and an emphasis on return to work through the provision and management of services, incentives, and rehabilitation.

As with disability management programs in the U.S. private sector, social insurance programs in Germany and Sweden spend money on return-to-work efforts to reduce disability costs. However, in general, rigorous studies demonstrating the cost-effectiveness of programs in Germany and Sweden do not exist. Where appropriate, we discuss the few studies that have examined outcomes of certain practices.

We did not independently verify the accuracy of the data used in this report. Except for this, our work was performed in accordance with generally accepted government auditing standards between February 1995 and March 1996.

Early Intervention Critical to Return to Work

Respondents to our private sector survey generally indicated they believe that early intervention is of paramount importance in returning disabled workers to the workplace. Early intervention involves the initiation of stay-at-work or return-to-work efforts as soon as possible after a disabling, or potentially disabling, event occurs. The respondents to our survey stressed the importance of several early intervention practices in their return-to-work programs (see table 2.1).

Disability management literature supports the respondents’ focus on early intervention, emphasizing that the longer an individual remains away from work because of a disabling condition, the less likely it is that the individual will ever return to work. One study emphasized that the timing of intervention is not a question of months, but of days or even hours after a disabling event occurs. The literature emphasizes that disability cannot be explained solely by a person’s medical condition and that the decision to return to work depends greatly on the disabled worker’s personal motivation.

In this view, long absences from the workplace because of disability can lead to a disability mind-set—a condition of discouragement in which disabled workers, believing they will not be able to return to work, lose the motivation to try. Studies have shown that only one in two newly disabled workers who remain out on disability 5 months or more will ever return to work. According to one study, a key to disability management success is the immediate creation, or maintenance, of the expectation that an individual has the potential to work and will return to work.

Address Return-to-Work Goals Early

Of the 21 respondents to our private sector survey, 18 stated they address return-to-work goals from the beginning of an emerging disability. When we asked the respondents to rate the importance of including this practice in a model disability management program, they gave goal-setting a high mean rating of 4.7 (on a scale of 1 to 5, with 1 equaling “not important” and 5 equaling “very important”). By contrast, return-to-work goals for SSA’s disability beneficiaries are not addressed, if at all, until the eligibility determination process is completed, which takes a minimum of several months and can take 18 months or longer for individuals who are initially denied benefits and appeal.

Addressing return-to-work goals early requires that injuries and illnesses be reported quickly to disability managers. One workers’ compensation program manager, for example, told us that her company encourages reporting of injuries and illnesses within 24 hours. To encourage such prompt reporting, one of the company’s divisions has a policy of not charging any disability expenses to the manager’s profit and loss center if the injury or illness is reported within 24 hours. Another company instructs employees to report claims for all absences of more than 7 days to the company’s disability management team. We were told that a team then begins the process of developing a return-to-work plan in consultation with the employee and his or her treating physician rather than waiting until the employee is regarded as disabled.

Some respondents said they use disability duration guidelines as a tool for evaluating the expected length of an individual’s absence from work because of illness or injury. Such guidelines commonly are commercially produced compilations of medical data on the characteristic duration of different types of disabilities according to diagnoses, symptoms, and occupational factors. For employers or insurers with large databases, duration guidelines can reflect actual experience in combination with medical and vocational research. The employer or insurer can use this information to work with the disabled individual and his or her physician to set a target date for return to work.

In Germany and Sweden, laws and policies require that an individual’s return-to-work potential be assessed soon after the onset of a disabling condition. Consequently, people with disabilities are generally considered for rehabilitation and return to work at relatively early stages in their contacts with the social insurance offices. In Germany, the health insurance funds generally inquire about the appropriateness of rehabilitation for individuals drawing sickness benefits more than 10 weeks. In addition, vocational counselors often discuss rehabilitation and return-to-work plans with work accident or occupational illness victims while they are still in the hospital. And everyone applying for a disability pension in Germany is considered by the pension insurance funds for rehabilitation and return to work before being determined eligible for permanent benefits.

Under Swedish laws and policies, both the private and public sectors are responsible for the early identification of candidates for rehabilitation and return to work. Since 1992, employers have been responsible for investigating whether employees who receive sickness benefits for 4 weeks or who are absent from work frequently because of illness need some type of rehabilitation. Employers are also responsible for arranging for a rehabilitation examination and reporting this to the social insurance office.

When employers disregard their responsibilities, Sweden’s social insurance offices arrange for the examination and start planning rehabilitation for the disabled workers. Because the social insurance offices monitor sickness benefits, they are able to identify who may need rehabilitation or other forms of employment assistance. After someone has received sickness benefits for about 4 weeks (28 to 30 days), a social insurance office begins the process of assessing whether the person will need vocational rehabilitation to return to work.

Provide Return-to-Work Services at the Earliest Appropriate Time

Consistent with the early intervention emphasis, most respondents to our survey stated they believe it is important to provide rehabilitation services from the onset of disability. Such services, which are intended to restore an individual’s health, functional capacities, or ability to engage in useful and constructive activity, fall into two basic categories: medical and vocational. Medical rehabilitation involves physical and mental care services, while vocational rehabilitation includes services such as vocational assessment, labor market surveys, developing alternative work plans, retraining, and assistance with job-seeking skills. Vocational rehabilitation focuses primarily on helping individuals with disabilities enter a different job or career.

The respondents to our survey tended to view medical rehabilitation as having more priority than vocational rehabilitation during the early stages of a disability. Of the 21 respondents, 18 said they provide medical rehabilitation services from the onset of disabilities, but only 12 said they provide vocational services from onset. Similarly, in rating the importance of rehabilitation services in a model disability management program, the respondents’ mean rating for providing medical services from onset was 4.3, compared with a mean rating of 3.7 for providing vocational services from onset.

The respondents’ preference for medical before vocational rehabilitation services in the early stages of disability is not surprising. All 21 respondents to our survey said that their initial goal is to return the worker to the same job he or she was doing before the disabling event. During follow-up interviews, several respondents stated that workers who have potential to return to their old jobs generally need only medical services to go back to work, but it is important that these medical services be provided as early as possible. When it appears the worker will be unable to return to the same job, disability managers turn to vocational services, which focus more on assisting the disabled employee to enter a different job or career.

Most individuals who apply to SSA for disability benefits are not working, but SSA’s focus is not on returning them to work. The agency’s efforts instead focus on determining their eligibility for cash benefits. Assessment for vocational rehabilitation services to enable return to work occurs, if at all, after the eligibility determination process is completed, which, as mentioned before, sometimes takes 18 months or longer.

In Germany and Sweden, laws and policies emphasize providing return-to-work services and assistance at the earliest appropriate time. Similar to the private sector in this country, a guiding principle of Germany’s social insurance system is that intervention should occur at the earliest possible stage of disability to minimize the degree and effects of the disability. Intervention often begins when the treating physician, one of the insurance agencies, or the employer urges a person receiving sickness benefits to apply for medical rehabilitation. Ability and capacity to work are assessed at this time. Following medical rehabilitation, in cases where it is warranted, the person will be referred to vocational rehabilitation or other types of return-to-work services and assistance.Disability pensions are not awarded until it has been determined that the person’s earning capacity cannot be restored through rehabilitation.

In Sweden, as mentioned before, employers are responsible for the early identification of workers who need rehabilitation and for taking early intervention steps. Employers often fail to do this, however, and the social insurance offices, which closely monitor the use of sickness benefits, intervene. After someone has received sickness benefits for about 4 weeks, the social insurance office collects information from the person’s doctor or employer to determine whether vocational rehabilitation will be needed for return to work. The goal of the social insurance office is to make this decision within the next 2 weeks. If such assistance is warranted, the social insurance office may purchase vocational rehabilitation and related employment services. If after receiving such services, the person does not return to work and still has the disabling condition, he or she can continue to receive sickness benefits. After 12 to 13 months of receiving these benefits, a decision is made to grant the person either a permanent disability pension or a temporary pension and possibly more vocational services.

An official at the National Social Insurance Board in Sweden has concluded early intervention pays for itself. His study found that early screening and contact with clients and employers, greater attention to diagnoses, and close cooperation among the social insurance offices and the medical and vocational rehabilitation providers reduced social insurance costs by returning people to the workplace sooner. The study noted that the reduction in sick leave and the probable accompanying increase in days worked was more than sufficient to pay for the increased administrative costs. This same official told us that just by intervening with phone calls at the 14th day of someone receiving sickness benefits saves the social insurance offices money.

Maintain Communication With Disabled Workers

To help maintain motivation to return to work, respondents to our survey indicated they believe it is important to establish early contact and to stay in touch with disabled workers. Of the 21 respondents to our survey, 19 stated they maintained communication with workers who are hospitalized or recovering at home. When asked to rate the importance of including this type of communication in a model disability management program, the respondents gave it a mean rating of 4.7.

Contacting a worker soon after an injury or illness and then continuing to communicate with the worker is important because the worker needs to be reassured there is a job to return to and that the employer is concerned about his or her recovery. Such reassurances can help maintain motivation to return to work. One disability manager stated that her company contacts workers within 24 hours of a reported illness or injury and recontacts them every 2 weeks by telephone. Another stated her company’s case managers are required to contact workers at least once a week.

The person responsible for maintaining communication varied from company to company. One respondent said in her company a registered nurse case manager contacts hospitalized workers before they return home, and the case manager maintains contact until the disabled worker returns to full duty. She said the first week after an injury is a window of opportunity that is critical to minimizing a worker’s time lost from work. In other instances, one company uses a disability management vendor to maintain contact, and another stresses that the worker’s supervisor maintain contact. Depending on whether a company is self-insured or insured by a commercial carrier, contacts with disabled workers may also be maintained by insurance company personnel.

By contrast, SSA’s contacts with disability applicants are limited to efforts to obtain the evidence needed to determine eligibility for cash benefits. Rather than encourage the applicant to return to work, these contacts probably serve only to strengthen the applicant’s resolve to prove he or she is disabled.

In both Germany and Sweden, insurance offices contact individuals receiving sickness benefits to determine whether they will be able to return to work without intervention or whether they will need some type of assistance to do so. As mentioned, workers in Germany who draw sickness benefits longer than 10 weeks are generally contacted by the health insurance funds or their employer to inquire about the appropriateness of rehabilitation measures. In Sweden, social insurance offices telephone workers after they have received sickness benefits for 14 days to determine what, if anything, needs to be done to get them back to work.

Identifying and Providing Return-to-Work Services Effectively

Not only must rehabilitation services be provided at the earliest appropriate time, but disability managers need to ensure that the services are appropriate for each individual. The respondents to our survey generally told us they attempt to provide return-to-work assistance that is tailored to the individual and that they manage disability cases with a view toward achieving return-to-work goals. This approach seeks to avoid unnecessary expenditures while investing in cost-effective techniques for achieving return-to-work goals for disabled workers. Respondents to our survey told us they employ several key practices in identifying and providing appropriate services and managing their return-to-work programs (see table 3.1).

Assess Return-to-Work Potential and Services Needed

Of the 21 respondents to our survey, 20 stated that they assess return-to-work potential early in the process. As some respondents emphasized, return-to-work potential is not determined merely by a medical diagnosis showing the presence of an impairment but, rather, by functionally evaluating each individual’s capacity to work after his or her medical condition has stabilized. When we asked the respondents to rate the importance of including early assessment of return-to-work potential in a model disability management program, they gave it a mean rating of 4.8 on a scale of 1 to 5.

By contrast, SSA’s process for determining disability generally does not directly assess each applicant’s functional capacity to work. Instead, as mentioned before, SSA’s evaluation process presumes that certain medical conditions are in themselves sufficient to preclude work. SSA enumerates such medical conditions in its Listing of Impairments. These listings serve as proxies for functional evaluations, identifying impairments that are presumed to impose functional restrictions sufficient to preclude any gainful activity. About 70 percent of new awardees are eligible because their conditions meet or equal listed impairments that are presumed to be disabling. Only the remaining 30 percent of new awardees are eligible because they have been further evaluated on the basis of separately developed nonmedical factors, including residual functional capacity, age, education, and vocational skills.

Fifteen of the 21 respondents to our survey also stated their return-to-work programs attempt to provide services at the earliest appropriate time. In rating the importance of including vocational services in a model disability management program, the respondents gave this practice a mean rating of 4.4. However, 12 respondents said that as part of their effort to provide appropriate services, they provide these services only to individuals who are deemed likely to return to work. The motivation for this approach is to avoid investing funds in vocational services when the risk is high that a disabled worker will not return to work even after receiving vocational services.

Some companies have begun developing profiles of characteristics that help them identify the disabled workers who are most likely to benefit from vocational rehabilitation services and return to work. For example, two insurers we contacted had studied thousands of long-term disability cases and developed profiles that include, among other factors, age, gender, marital status, whether the disability was caused by accident or illness, whether the disability occurred on the job, and type of disability.

Using such a profile, one insurer categorizes each long-term disabled worker in one of three groups: (1) those who are unlikely to return to work regardless of whether they receive vocational rehabilitation services, (2) those who are likely to return to work but do not need rehabilitation services to do so, and (3) those who are likely to return to work but need rehabilitation services to do so. The company focuses its attention on individuals in the third group because they have the greatest potential for cost-effective use of rehabilitation resources. This approach results in a relatively small proportion of beneficiaries receiving rehabilitation services. Officials of insurance companies we contacted estimated that about 3 to 7 percent of their long-term disability beneficiaries receive vocational rehabilitation services.

These companies expect to save more than they spend on their investment in rehabilitation services. For example, one insurance company reported that for every dollar spent on rehabilitation, it had saved an average of $10 in long-term disability reserves and expected the savings ratio to increase as the company gained experience in identifying the people most likely to benefit from rehabilitation services. Another insurance company reported average savings of $35 in long-term disability reserves for every dollar spent on rehabilitation services.

In Germany and Sweden, return-to-work services and assistance are fairly extensive and tailored to meet individual needs. An individual may receive a combination of different benefits and services, such as medical or vocational rehabilitation, employment or social assistance, as well as cash assistance while applying for or participating in rehabilitation.

As noted in chapter 1, rehabilitation is an entitlement in Germany. Vocational assistance measures include assistance in retaining or obtaining a job (including grants to the employer); assistance in selecting an occupation (including work trials or sheltered workshops); basic training and retraining to prepare for an occupation (including basic education necessary to attend more advanced training courses); workplace adaptations; and wage subsidies for employees who are difficult to place. The duration of vocational assistance varies greatly and can last as long as 2 years for basic training or retraining programs. The person’s aptitude, inclinations, and former occupations are taken into account as well as labor market conditions when accepting an individual into a vocational retraining program.

Providing appropriate return-to-work assistance to people with disabilities is viewed as a cost-effective investment in Germany. Officials we interviewed noted that placement rates for individuals who completed vocational retraining have been fairly high, although there are no quantitative data documenting overall cost-effectiveness. Surveys in Germany have found that about 80 percent of former trainees were working one year after completing their vocational retraining, and these results have remained steady over a number of years for a wide range of occupations. However, some retraining centers have waiting lists in certain vocational areas. For example, we were told that a Frankfurt retraining center had a 1- to 2-year waiting list for those to be retrained as office workers.

Swedish laws and policies that address people with disabilities as well as the country’s generous package of noncash benefits and services are aimed at helping individuals remain at or go back to work. To make the workplace accessible, employers by law must adapt working conditions, including the organization of work, to suit the needs of those with functional impairments. Government subsidies may be disbursed to employers who adapt their workplaces to the special needs of a person with a functional disability, install technical aids, or engage a personal assistant for a worker with a disability. In addition, under a law that took effect January 1, 1994, people who have severe functional disabilities and who need help with certain daily activities are entitled to personal assistance.

In Sweden, people with disabilities have, like others, the right to assistance from the regular employment office in finding employment. Employment assistance measures include assessment of working capacity, occupational rehabilitation, vocational guidance, subsidized employment, sheltered employment, on-the-job training, and probationary employment at companies that agree to such arrangements. Rehabilitation is not meant to be a lengthy process, but rather a short, intensive period of medical, social, and work-related training to help the individual to return to work as soon as possible.

Offer Transitional Work Opportunities

All but one of the 21 respondents to our survey said they offer transitional work opportunities to help disabled workers ease back into the workplace. Transitional work (also known as modified work or light duty) involves changing the work environment to allow an employee who has been disabled to return to work at a job that is less physically or mentally demanding than his or her previous assignment. When asked to rate the importance of including transitional work opportunities in a model disability management program, the respondents gave it a mean rating of 4.8.

Workplace modifications that provide transitional work opportunities may include job restructuring, assistive devices, workstation modifications, reduced hours, or reassignment to another job. For example, one respondent said that reducing the worker’s hours is typically her company’s first approach. Another said that in her company’s restaurant operations, employees are cross-trained so they can exchange positions or shift tasks if one of them, for instance, is experiencing back problems.

The Americans With Disabilities Act (ADA) requires an employer with 15 or more employees to make “reasonable accommodations” for the known disability of an applicant or employee unless doing so would impose an “undue hardship” on the employer. A reasonable accommodation could include reassigning an employee to another job.

Three insurance companies stated that although not obligated to do so under ADA, they had paid for workplace modifications for disabled beneficiaries formerly employed by firms that provided disability coverage through these insurance companies. The insurance companies viewed these expenditures as cost-effective investments because benefit payments to these beneficiaries were reduced or eliminated after the beneficiaries returned to work. One of these insurance companies often contracts to spend up to $2,000 on workplace modifications on behalf of a disabled beneficiary. In some circumstances, however, the company has spent more than $2,000 on modifications to help an individual return to work. By contrast, SSA does not promote the provision of job accommodations that could enable an individual to return to work.

In both Germany and Sweden, transitional work opportunities may be arranged for people with disabilities. Such transitional work may be considered for people with disabilities who can return to work part-time and gradually increase their daily work hours until they reach their maximum work capacity. In Germany, such a gradual return to the original job is a formalized process known as stepwise reintegration, and it is implemented under the guidance of the treating physician and the company’s doctor. In Sweden, transitional opportunities include the adaptation of working conditions to suit the needs of people with functional impairments, trial work, on-the-job training, and part-time work leading to full-time work.

Use Case Management Techniques When Appropriate

Most respondents to our survey (20 of 21) said they use disability case management techniques, when appropriate, to help disabled workers return to work. When asked to rate the importance of including case management in a model disability management program, respondents to our questionnaire gave it a mean rating of 4.5. By contrast, under current procedures, SSA does not assess which cases may warrant case management.

Although disability case management may be defined and implemented differently by different companies, it generally can encompass identifying, evaluating, and coordinating the delivery of return-to-work services, including social, health care, and rehabilitation services. The case manager may do such things as help the individual understand or obtain transitional work opportunities or assist in talking with the individual’s doctor about treatment and recovery.

Although most respondents believe case management is important, they have implemented it in different ways. For example, some respondents employ their own staff of case managers, but others rely on the staffs of their disability insurers or third-party administrators. Furthermore, respondents differed in how they assign case managers. One self-insured employer, for example, assigns someone from its disability management team to act as case manager on every disability case, regardless of whether the case involves workers’ compensation or short-term or long-term disability insurance. But in another instance, a disability insurance company determines on a case-by-case basis whether the case is complex enough to warrant a case manager.

Disability managers we contacted told us their case managers typically have caseloads of no more than 50 disabled workers. When workers are determined to have rehabilitation potential, case managers continue to manage their cases for extended periods, for example, up to 2 years.

In Germany, two national officials we interviewed stated that the accident insurance program (similar to workers’ compensation in the United States) is viewed as being more effective than the pension insurance office in returning people with disabilities to work. The program is more successful, in part, because it assigns individual advisers (or case managers) soon after the onset of a disabling condition.

Ensure That Medical Service Providers Understand Essential Job Functions

Almost all respondents to our survey (19 of 21) said they attempt to ensure that medical providers understand the disabled worker’s essential job functions because the treating physician’s decision to release the worker affects the timing of the worker’s return to the workplace. When asked to rate the importance of this practice in a model disability management program, the respondents gave it a mean rating of 4.6. By contrast, SSA generally contacts treating physicians only to request medical information needed to determine whether applicants meet disability eligibility criteria.

In the view of private sector disability managers, it is important not only that the physician understand the disabled worker’s essential job functions, but also that the physician understand the impact of any transitional work opportunities or other job accommodations that the employer is willing to provide. Otherwise, the physician may not release the individual to return to work until he or she can function at predisability levels. As some disability managers told us, actions taken to ensure that medical providers understand the essential job functions and focus on return-to-work issues should be viewed as part of the early intervention strategy.

At one of the respondents’ companies, for example, a supervisor accompanied employees with occupational injuries on the first visit to a physician. And at some respondents’ organizations, case managers communicate with treating physicians to make sure the physicians understand the essential job functions of disabled workers. Others said they try to direct disabled workers to physicians who are familiar with their companies’ operations. Several respondents said their companies sometimes provide treating physicians with videotapes of the actual job functions that would be expected of disabled workers. Also, to provide physicians with general familiarity about the jobs performed by workers, two respondents said their companies take physicians on tours of company facilities.

Some disability managers told us they have concerns about the degree to which the medical community focuses on return-to-work issues. They believe physicians should proactively address the question of return to work with injured and ill workers. However, in their view, medical training in the United States does not sufficiently emphasize the desirability of disabled workers’ returning to work at the earliest appropriate time. As a result, these disability managers believe physicians generally give insufficient priority to return-to-work issues.

Most respondents to our survey believed that return-to-work efforts are enhanced by organized systems of care. An organized system of care gives companies greater opportunity to educate physicians in the requirements of jobs performed by the companies’ workers. As well as focusing on care, health care providers in an organized system of care can collaborate with employers on setting return-to-work expectations for members who become disabled. Of the 21 respondents, only 8 said they currently use an organized system of care as part of the strategy for returning disabled workers to the workplace. However, when asked to rate the importance of including an organized system of care in a model disability management program, 16 of the 21 respondents gave it a rating of 4 or 5.

In Germany, physician education plays an important role in the rehabilitation and return-to-work process. The Federal Rehabilitation Council issues guidelines for doctors to follow during the rehabilitation process. Among other things, the guidelines describe the duties of the doctor while his or her patient is undergoing rehabilitation (medical and vocational) and they inform the doctor about the various rehabilitation centers and specialized equipment that is available. Moreover, the guidelines stress the importance of working closely with employment office officials so that a disabled worker may keep a job or find a new one, depending on the person’s residual functional capacities.

Work Incentives Facilitate Return to Work

Respondents to our survey generally told us they believe it is important that the cash and medical benefits structure provide incentives for disabled workers to return to work. However, as some respondents emphasized, such work incentives by themselves are not sufficient to make a return-to-work program successful. Incentives must be part of an integrated strategy that includes effective early intervention and the identification, provision, and management of return-to-work services. The respondents to our survey indicated several key practices in providing work incentives (see table 4.1).

As we reported recently, work incentives available to DI and SSI beneficiaries do not appear sufficient to make returning to work an attractive option. By returning to work, they risk losing the security of a guaranteed monthly income and medical coverage. Weaknesses in the design and implementation of the work incentives have made these provisions ineffective in overcoming the prospect of a drop in income for many who face low-wage employment or to allay the fear of losing medical coverage.

Structure Cash Benefits to Provide Return-to-Work Incentive

When asked to rate how important it would be for a model program to include a cash benefit structure that encourages return-to-work, the respondents gave this practice a relatively high mean rating of 4.4; however, only 14 of the 21 respondents said that their current cash benefits structure actually provides an incentive to return to work. The following are examples of how some respondents’ companies structure cash benefits to make returning to work more financially attractive than remaining away from work:

While away from work, the disabled worker receives disability benefits equivalent to 60 percent of predisability earnings. If the individual returns to work, his or her earnings are supplemented by an incentive benefit amount so that total income can be considerably higher than the disability benefits the worker was receiving. The worker continues to receive an incentive benefit until his or her earnings reach 80 percent of predisability earnings. If a disabled worker returns to work, he or she continues to receive unreduced disability benefits for 1 year, unless the total of earnings and benefits would be greater than the individual’s predisability earnings. After 1 year, the worker continues to receive disability benefits, but these benefits are reduced by an amount equal to 70 percent of the worker’s earnings.

Disabled workers are allowed a trial work period, usually 6 months, during which long-term disability benefits can be reinstated without reapplication if the worker cannot remain at work. If a disabled worker returns to work, he or she can receive up to $350 per month for each family member to cover family care expenses. Under certain conditions, an insurance company will reimburse a claimant for moving expenses incurred in relocating to take a job.

As mentioned, the respondents indicated they believe it is highly important to structure cash benefits to provide an incentive to return to work; however, we noted that their mean rating for this practice was slightly lower than the mean ratings they gave to other return-to-work practices they considered important, such as maintaining communication, setting return-to-work expectations as early as possible, ensuring that medical service providers understand essential job functions, and providing transitional work opportunities. This highlights, as some respondents commented, that although financial incentives are important, a successful return-to-work program must effectively integrate financial incentives with other important practices.

Disability management literature supports the view that the cash benefits structure can affect the disabled worker’s attitude toward returning to productive activity in the workplace. Short-term disability insurance generally replaces 40 to 70 percent of earnings for periods ranging from 30 days to 6 months; whereas, long-term disability insurance usually replaces about 60 percent of prior earnings, with maximum limits on monthly benefits, for periods that can extend to retirement or longer. Studies show that if disability benefits are too generous, the benefits can create a disincentive for participating in return-to-work efforts. For example, studies of workers’ compensation programs have concluded that the larger the percentage of original wages that is paid to disabled workers, the more difficult it is to bring them back to work.

In Germany, we found that the social insurance programs offer financial incentives to encourage individuals with disabilities to participate in rehabilitation programs and return to work. As mentioned before, individuals who are considered good candidates for rehabilitation are not awarded disability pensions. Instead, to encourage participation in rehabilitation, they can receive a cash benefit that is greater than unemployment or welfare allowances. Depending on individual circumstances, expenses for room and board, household assistance, travel, and other expenses incurred while undergoing medical or vocational rehabilitation may also be covered. However, one official we interviewed stated that economic incentives are limited. In his view, the key to encouraging return to work is the individual’s motivation and positive perspective, and the disability program’s processes must be designed to reinforce that motivation. Germany’s process is designed to identify individuals who are good candidates for rehabilitation before they are awarded disability pensions.

In Sweden, individuals with return-to-work potential may be awarded only a temporary disability pension. This time-limited benefit is awarded if the individual’s reduced work capacity is not considered permanent but is expected to continue for a significant period (as a rule, a minimum of 1 year). To encourage such individuals to participate in vocational rehabilitation, Sweden provides a rehabilitation allowance, which includes a benefit to cover loss of earnings, and a special grant to cover certain kinds of expenses connected with rehabilitation.

Because Sweden’s permanent disability pensions replace a high proportion of income, some workers may consider it more attractive to avoid rehabilitation and try to obtain a permanent pension. Currently, permanent disability pensions replace 65 to 70 percent of income for individuals who receive both a basic and a supplementary pension on the basis of having a work history. Supplemental, collective bargaining agreements add another 10 to 20 percent to the earnings replacement.

Maintain Medical Benefits for Disabled Employees Who Return to Work

Discussions of SSA’s return-to-work efforts often emphasize that beneficiaries are reluctant to return to work because they fear losing their premium-free Medicare or Medicaid benefits. By contrast, in the private sector, medical benefits provide an incentive to return to work because it is by returning to work that disabled workers can be most assured of retaining these benefits. Respondents to our survey, when asked to rate the importance of including continuation of medical benefits in a model disability management program, gave this practice a mean rating of 4.1.

In the private sector, disabled workers jeopardize their medical benefits by remaining away from work because employers eventually may terminate their employment. If terminated, such individuals may no longer be enrolled in the employer-sponsored health plan. If they later go back to work with a new employer, the new employer may not offer employer-sponsored medical benefits, or the employee may be excluded from coverage because of preexisting conditions. These possibilities give a disabled worker an incentive to return to a job with his or her old employer. In contrast, in the DI and SSI programs, beneficiaries face the loss of premium-free Medicare or Medicaid benefits if they return to work, and moreover, the job they get may not offer medical benefits or may not provide coverage because of preexisting conditions. This discourages DI and SSI beneficiaries from returning to the workplace.

DI beneficiaries who return to work can receive premium-free Medicare benefits for 39 months following a trial work period; however, to retain coverage thereafter, they must pay the same monthly cost as uninsured retired beneficiaries. SSI beneficiaries can continue receiving Medicaid coverage after their earnings become too high to allow a cash benefit, but coverage ends when their earnings reach a higher threshold amount that varies from state to state. For example, the threshold amount in 1994 was $17,480 in Pennsylvania and $22,268 in California.

In Germany and Sweden, loss or retention of health care insurance is not an issue in a worker’s decision on whether to participate in rehabilitation or attempt returning to work. The individual will continue to belong to the compulsory insurance system that provides sickness and disability protection.

Require Cooperation With Return-to-Work Efforts

Only 12 of the 21 respondents to our survey said their organizations have contractual provisions that can require disabled employees to cooperate in return-to-work efforts as a condition of eligibility for disability insurance benefits. When asked to rate the importance of including this requirement in a model disability management program, however, the respondents gave it a mean rating of 4.1. This relatively high rating is consistent with one study that found that return-to-work efforts cannot be nurtured in an environment in which, among other things, participation in a vocational rehabilitation program is entirely voluntary.

Some respondents stated that the ability to require cooperation as a condition of eligibility for benefits is important because it can help motivate an individual with a disability to try to return to work. At the same time, however, some respondents cautioned that such a requirement must be invoked carefully because a company could spend money on return-to-work efforts for individuals who participate because they feel compelled but ultimately do not return to work because of a basic lack of motivation. The Social Security Act provides for withholding benefits if a beneficiary refuses without good cause to accept rehabilitation services.

In Germany and Sweden, individuals may also be denied benefits for not participating in or cooperating with rehabilitation when it is recommended by one of the insurance offices. For example, the pension insurance funds in Germany can deny an individual rehabilitation benefits or a disability pension if they do not participate in or sufficiently cooperate with the recommended rehabilitation program. Similarly, if someone refuses to participate in training because that person would rather receive an unemployment benefit than undergo rehabilitation, the employment office can stop his or her benefits. The social insurance offices in Sweden may also revoke benefits, including pension benefits, for those who refuse to participate in vocational rehabilitation. We do not have information on the extent to which these provisions are actually invoked in Germany and Sweden.

Conclusions, Recommendation, and Agency Comments

Disability managers we surveyed spend money on return-to-work efforts because they believe such efforts are good investments that reduce disability-related costs. Social insurance programs in Germany and Sweden also spend money on return-to-work efforts to reduce disability costs, and their goals stress the importance of work in integrating people with disabilities into the broader social community.

Improving the success of SSA’s return-to-work efforts offers great potential for reducing federal disability program costs while helping people with disabilities return to productive activity in the workplace. If an additional 1 percent of the 6.3 million DI and SSI working-age beneficiaries were to leave the disability rolls by returning to work, lifetime cash benefits would be reduced by an estimated $2.9 billion. With such large potential savings, return-to-work services could be viewed as investments rather than as program outlays.

In our current study of return-to-work practices, we identified three basic strategies employed in the U.S. private sector as well as in social insurance programs in Germany and Sweden. These strategies, which must be integrated to form a comprehensive return-to-work program, are as follows:

Provide services and assistance sooner rather than later to promote and facilitate return to work. Identify and provide necessary return-to-work assistance and manage cases to achieve goals.

Structure cash and medical benefits to encourage return to work.

Lessons from the private sector and other countries’ social insurance programs argue for SSA placing greater priority on assessing return-to-work potential soon after individuals come to SSA and apply for disability benefits. Currently, when an individual comes to SSA and applies for DI or SSI benefits, SSA’s priority is to determine eligibility for cash benefits. The need for medical and vocational rehabilitation is not addressed until after applicants have been approved to receive cash benefits, which can take up to 18 months or longer from the time an application is filed.

In conjunction with making an early assessment of return-to-work potential, SSA needs to place greater priority on identifying and providing, at the earliest appropriate time, the medical and vocational rehabilitation services needed to return to work. Currently, SSA bases 70 percent of its awards on whether an individual’s medical symptoms, signs, and diagnostic results match SSA’s Listing of Impairments that are presumed to prevent work. It does not evaluate whether these people could return to work if given appropriate assistance. To improve return-to-work outcomes and to identify the services needed, SSA needs to place greater emphasis on functionally evaluating work capacity.

Under the current legislative design, SSA provides vocational rehabilitation services too late in the process. In addition, neither DI nor SSI applicants are eligible for medical rehabilitation benefits under Medicare or Medicaid, respectively, until they are approved for cash benefits through the lengthy eligibility determination process. And, in the DI program, the provision of medical rehabilitation is further delayed because Medicare eligibility does not begin until 24 months after applicants are approved to receive cash benefits.

Finally, cash and medical benefits need to encourage beneficiaries to return to work. The current design of cash and medical benefits in the DI and SSI programs often presents more hindrances than incentives when beneficiaries consider returning to work. The structure of cash benefits can make it financially advantageous to remain on the disability rolls, and studies report that DI and SSI beneficiaries fear losing their premium-free Medicare or Medicaid benefits if they return to work.

The experiences of the social insurance programs in Germany and Sweden show that the utility of return-to-work strategies is not confined to the private sector. Although SSA faces constraints in applying these strategies, we believe steps should be taken earlier to better identify and provide appropriate return-to-work assistance to those who could return to work. Even relatively small gains in return-to-work successes offer the potential for significant savings in program outlays.

Recommendation to the Commissioner of SSA

Our recent report, SSA Disability: Program Redesign Necessary to Encourage Return to Work, recommended that the Commissioner of SSA place greater priority on return to work, including designing a more effective means to identify and expand beneficiaries’ work capacities and better implementation of existing return-to-work mechanisms. In line with placing greater emphasis on return to work, we recommend that the Commissioner develop a comprehensive return-to-work strategy that integrates, as appropriate, earlier intervention, earlier identification and provision of necessary return-to-work assistance for applicants and beneficiaries, and changes in the structure of cash and medical benefits. The Commissioner should also identify legislative changes needed to implement such a program.

Agency Comments

In commenting on a draft of this report, SSA agreed much can be learned from the return-to-work practices of the U.S. private sector and disability programs in Germany and Sweden. SSA stated that it is already placing a high priority on return to work and cited a number of actions SSA has taken to implement its return-to-work initiative, such as expanding the pool of vocational rehabilitation service providers. Although these actions are in the right direction, we believe they do not constitute the fundamental redirection of goals and practices necessary to move the DI and SSI programs to a much greater emphasis on return to work. For example, increasing the number of vocational rehabilitation providers does not address the concern of earlier intervention. Fundamental redesign is needed because SSA’s disability programs are designed to be cash benefits programs, not return-to-work programs.

Consistent with our recommendation that SSA should identify legislative changes needed to implement a return-to-work program, SSA noted that the law does not provide for, or even allow, many of the return-to-work strategies discussed in our report. Within this context, however, SSA affirmed that it is interested in determining whether the return-to-work practices of other systems could be useful in SSA’s attempts to improve the return-to-work rate of its disability beneficiaries. SSA emphasized that, for such efforts to be fruitful, all players in the complex network of federal disability policy development and program execution would need to be involved, including several federal departments and agencies, state disability and rehabilitation programs, private sector providers, insurance representatives, and employer/union groups as well as the numerous congressional committees that have roles in the development of legislation or in budget approval for the kinds of solutions described in our report. We agree that it is important for all relevant parties to be involved in policy development and program execution. However, as the primary manager of multibillion-dollar programs and as the entity with fiduciary responsibility for the trust funds, SSA must take the lead in forging the partnerships and cooperation that will be needed in redesigning the federal disability programs. SSA also made a number of technical comments, which we incorporated where appropriate. Appendix V contains the full text of SSA’s comments and our evaluation.