Income Security: Overlapping Disability and Unemployment Benefits Should be Evaluated for Potential Savings
Released: 2012-08-30T00:00:00

Letter

Background

Disability Insurance

As the nation’s largest cash-assistance program for workers with disabilities, DI provides benefits to eligible individuals under Title II of the Social Security Act. An individual is eligible to receive DI benefits if he or she has a medically determinable physical or mental impairment that (1) has lasted (or is expected to last) at least 1 year or is expected to result in death and (2) prevents the individual from engaging in SGA. SGA is defined as work activity that involves significant physical or mental activities performed for pay or profit. For individuals whose impairment is anything other than blindness, earnings averaging over $1,000 a month for calendar year 2010 generally demonstrate SGA. For blind individuals, earnings averaging over $1,640 a month for the year 2010 generally demonstrate SGA for DI. The amount of earnings that generally demonstrates SGA can vary from year to year. For example, the SGA amount for individuals with disabilities, other than blindness, was $980 in 2009. Individuals with disabilities must also have a specified number of recent work credits under the Social Security program at the onset of medical impairment. An individual may qualify on the basis of the work record of a deceased spouse or the work record of a parent who is deceased, retired, or considered eligible for disability benefits, meaning one disability beneficiary can generate multiple monthly disability payments.

DI benefits are financed by payroll taxes paid into the Federal Disability Insurance Trust Fund by covered workers and their employers, on the basis of each worker’s earnings history. Cash benefits are payable monthly, as long as the worker remains eligible for benefits, until the worker reaches full retirement age or dies. In fiscal year 2010, more than 10 million beneficiaries received DI benefits totaling $121.6 billion, and the program’s average monthly benefit was about $922. As directed by federal law, SSA must reduce DI benefits for individuals receiving certain other government disability benefits, such as worker’s compensation. However, SSA may not reduce DI benefits for individuals receiving UI or for individuals earning less than SGA. As mentioned, the Social Security Board of Trustees projects that the DI trust fund will be exhausted in 2016 and noted that changes designed to improve the financial status of the DI program are needed soon.

Unemployment Insurance

Established by the Social Security Act of 1935, the federal-state UI program temporarily and partially replaces the lost earnings of those who become unemployed through no fault of their own. To be eligible for UI benefits, unemployed workers must meet eligibility requirements established by state laws that conform to federal law, including that they have worked recently, be involuntarily unemployed, and be able and available for work. Whereas federal statutes and regulations provide broad guidelines on UI eligibility, the specifics of UI eligibility are determined by each state. According to DOL, all states require that a claimant must have earned a specified amount of wages, worked a certain number of weeks in covered employment, or must have met some combination of the wage and employment requirements within his/her base period. To be eligible for benefits, claimants must also be free from disqualification for acts such as voluntary leaving without good cause, discharge for misconduct connected with the work, and refusal of suitable work. In addition to these eligibility requirements, all states require that a claimant must be able and available for work. However, “able and available for work” requirements vary among the states, according to DOL. For example, a few states specify that a worker must be physically able, or mentally and physically able, to work. Likewise, while some states require that a worker must be available for work, other states require that a worker must be available for suitable work; still other states require that a worker be available for work in the worker’s usual occupation or for work in which the worker is reasonably fitted by training and experience. According to DOL, in addition to being able and available for work, all states require by law or by practice that a worker be actively seeking work or making a reasonable effort to obtain work. Finally, some state laws expressly prohibit denying UI eligibility on the basis of illness or disability under certain circumstances.

UI benefits and administrative costs are financed primarily by taxes levied on employers. These taxes are deposited in the appropriate accounts within the Unemployment Trust Fund, which consists of 53 state accounts and other federal accounts dedicated to special purposes. The severity and length of the recent recession, and the slow pace of recovery, have placed a heavy demand on state UI trust funds, resulting in very large numbers of workers receiving benefits for very long periods of time. Since mid-2008, Congress and the states have temporarily extended the period of time that displaced workers can receive UI benefits to up to 99 weeks, though the maximum number of weeks of available benefits varies among the states. In April 2010, GAO reported that state UI trust funds were at historically weak levels, with most requiring federal loans to pay benefits. During fiscal year 2010, state agencies paid 11.3 million beneficiaries $156.4 billion in federal and state unemployment benefits.

UI benefits vary substantially during a business cycle. As shown in figure 1, UI benefits varied substantially from 2005 to 2011, while DI benefits steadily increased during those years.

Concurrent DI and UI Payments Resulted in Hundreds of Millions of Dollars in Overlapping Benefit Payments

In fiscal year 2010, 117,000 individuals received concurrent cash benefit payments of more than $850 million. As shown in figure 2, these individuals represented less than 1 percent of the total beneficiaries of both programs. However, estimated overlapping cash benefits paid to these individuals totaled over $281 million from the DI program and more than $575 million from the UI program.

For individuals receiving overlapping benefits in fiscal year 2010, we estimate the average quarterly amount of overlapping cash benefit payments to be $1,093 in DI and $2,231 in UI, for a quarterly average of $3,324 in overlapping benefits.

Differences in program rules and definitions allow individuals in certain circumstances to receive overlapping DI and UI benefits without violating eligibility requirements. As mentioned, SSA’s definition of a disability involves work that does not rise to the level of SGA. For 2010, a non-blind person who is earning more than a $1,000 a month is ordinarily considered to be engaging in SGA. In contrast, states’ determination of “able and available for work” criteria for UI benefits may include performing work that does not rise to the level of SGA. As a result, some individuals may have a disability under federal law but still be able and available for work under state law, thus eligible to receive DI and UI concurrently. SSA officials stated that UI is considered unearned income and therefore does not affect DI benefits. DOL officials acknowledged that certain individuals may be eligible for both DI and UI, depending on the applicable state laws regarding UI eligibility. Because these overlapping payments may be allowed under both programs’ eligibility requirements, and no federal law authorizes an automatic reduction or elimination of benefits if a recipient receives both payments, neither SSA nor DOL have any processes to identify these overlapping payments. As such, the costs associated with establishing mechanisms to reduce or eliminate these overlapping payments are not readily available.

While the DI and UI programs generally serve separate populations and provide separate services—thus not meeting our definition for overlapping programs—the concurrent cash benefit payments made to individuals eligible for both programs are an overlapping service for the replacement of their lost earnings. We define overlaps as programs that have similar goals, devise similar strategies and activities to achieve those goals, or target similar users. Our prior work on overlapping government programs has found that, in some instances, overlapping programs or activities have led to inefficiencies, and we have determined that greater efficiencies or effectiveness might be achievable. However, in other instances, it may be appropriate for multiple agencies or entities to be involved in the same programmatic or policy area due to the nature or magnitude of the federal effort.

Although current program rules allow overlapping benefits under certain circumstances, concurrent receipt of DI and UI benefits can also be an indicator of improper payments. For example, some individuals who have a disability as determined by SSA may be receiving improper UI payments because they are not “able and available” for work. Similarly, some individuals receiving UI benefits may be receiving improper DI payments because they no longer have a disability as defined by SSA. Specifically, being “able and available” for work may indicate that an individual’s medical condition no longer prevents him or her from performing work that rises to the level of SGA. As mentioned, neither SSA nor DOL have any processes to identify overlapping DI and UI payments. As a result, neither SSA nor DOL currently evaluates whether overlapping payments made to these individuals may be proper or improper.

For our review, we obtained DI and UI information for these eight individuals beyond fiscal year 2010. Of the eight individuals we selected for further investigation, SSA determined that one individual had a DI benefit overpayment. Additionally, three individuals had UI benefit overpayments, as determined by the appropriate state UI office. Because we selected a small number of individuals for our review, the results cannot be projected to the population of individuals receiving overlapping DI and UI benefits. earnings may be related to work that makes this individual ineligible for UI benefits. The Massachusetts UI benefits were exhausted after 99 weeks as of June, 2011. As of April, 2012, the individual remains in current pay status in the DI program, with a monthly DI benefit amount of $2,377.

Six of the individuals we selected for further investigation received overlapping DI and UI benefits for 18 months or more. For example, one individual began receiving DI benefits in 2004 originally due to disorders of the back, and received overlapping DI and UI payments, which totaled over $107,000, in 36 different months from 2008 to 2011. During that period, this individual worked for construction companies and received UI benefit payments from New Mexico in 2008, Wisconsin in 2009, Kansas in 2010, and Montana in 2011. Montana officials stated that they also received wage data from North Dakota for use in adjudicating the UI claim in their state. As of April, 2012, this individual was no longer receiving UI benefits from these states, but continued to receive cash benefits from the DI program. SSA officials told us that this individual is currently under a continuing disability review to determine if the beneficiary is ineligible for DI due to work at or above the SGA level.

Conclusions

DI and UI provide important safety nets for American workers who have lost their income. However, both trust funds face serious fiscal sustainability challenges, prompting the need to examine opportunities for potential cost savings. While the programs target different populations and generally provide separate services, existing rules and definitions result in a limited number of individuals being eligible for overlapping DI and UI payments. However, the concurrent receipt of these benefits can also provide an indicator of improper payments related to DI or UI. Because these overlapping payments may be allowed under both programs’ eligibility requirements, and no federal law authorizes an automatic reduction or elimination of benefits if a recipient receives both payments, neither SSA nor Labor has a process to identify these overlapping benefit payments. As a result, for individuals receiving both DI and UI benefits, the government is replacing a portion of their lost earnings not once, but twice. Reducing or eliminating this overlap and potential improper payments could offer substantial savings, though actual savings are difficult to estimate because the potential costs of establishing mechanisms to do so are not readily available.

Recommendations for Executive Action

We recommend that the Secretary of Labor work with the Commissioner of SSA to (1) evaluate the circumstances under which individuals are receiving overlapping DI and UI payments, taking appropriate action, as necessary, for any payments determined to be improper, and (2) assess whether cost savings or other benefits might be achieved by reducing or eliminating overlapping DI and UI cash benefit payments being made within the existing laws and regulations, seeking congressional authority to do so as appropriate.

Agency Comments and Our Evaluation

We provided a draft of this report to SSA and DOL for comment. DOL and SSA provided written comments to the draft which can be found in appendices I and II. DOL and SSA agreed with our recommendation that DOL work with SSA to evaluate overlapping DI and UI benefits, taking appropriate action for any payments determined to be improper, and assessing whether cost savings or other benefits might be achieved by reducing or eliminating overlapping DI and UI cash benefit payments. DOL and SSA also both recognized that the states play an important role in the UI program, and DOL recommended that we encourage states to participate in addressing the report’s recommendations. In this regard, we agree that states’ programmatic knowledge would significantly contribute to the evaluation of overlapping DI and UI benefits and encourage state participation as appropriate. We also believe that it will be important for DOL to reach out to the states in carrying out our recommendations to evaluate these overlapping benefits. DOL and SSA also provided technical comments, which we incorporated as appropriate.

As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Commissioner of the Social Security Administration, the Secretary of Labor, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have questions about this report, please contact me at (202) 512-6722 or hillmanr@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report.

Appendix I: Comments from Department of Labor

Appendix II: Comments from the Social Security Administration