The DI, SSI, and VA programs are three separate federal disability programs that differ in their underlying intent, populations they serve, and the specific approach used by SSA and VA to assess disability. Yet, each program provides financial assistance to individuals with a reduced capacity to work due to a physical or mental impairment. Program beneficiaries also have a connection to vocational assistance that can help program beneficiaries minimize the economic loss resulting from their disabilities. All three programs have experienced growth in recent years. The amount of cash benefits paid to program beneficiaries has increased over the past 10 years (see fig. 1). In 2001, DI provided $54.2 billion in cash benefits to 5.3 million disabled workers, SSI provided $19.0 billion in federal cash benefits to 3.7 million disabled and blind individuals age 18-64, and VA provided $16.5 billion in disability compensation benefits to about 2.3 million veterans. Since 1991, the cash benefits for these programs increased by 69 percent, 55 percent, and 32 percent, respectively (adjusted for inflation). In addition, since 1991 the number of DI, SSI, and VA beneficiaries grew by 65 percent, 53 percent, and 6 percent, respectively. The size of the programs could grow in the years ahead. In fact, DI and SSI are expected to grow significantly over the next decade. By 2010, SSA expects worker applications for DI to increase by as much as 32 percent over 2000 levels. In 2000, VA predicted that while the number of veterans receiving disability benefits will decrease approximately 18 percent over the next 10 years, the caseload will decline annually by less than 1 percent during this time period. VA explained that veterans will likely incur more disabilities than the past because, for example, veterans of the all- volunteer force are older at time of discharge with longer periods of service, and also because better outreach and access makes veterans more aware of benefits to which they are entitled. Moreover, VA’s estimate of the number of veterans assumed the United States would not be engaged in any major global or regional conflict. The recent war on terrorism, however, could affect VA’s future projections on the size of the disabled veterans population. SSA provides disability benefits to people found to be work disabled under the DI or SSI program. Established in 1956, DI is an insurance program that provides benefits to workers who are unable to work because of severe long-term disability. In 2000, the most common impairments among DI’s disabled workers were mental disorders and musculoskeletal conditions (see fig. 2). These two conditions also were the fastest growing conditions since 1986, increasing by 7 and 5 percentage points, respectively. Workers who have worked long enough and recently enough are insured for coverage under the DI program. DI beneficiaries receive cash assistance and, after a 24-month waiting period, Medicare coverage. Once found eligible for benefits, disabled workers continue to receive benefits until they die, return to work and earn more than allowed by program rules, are found to have medically improved to the point of having the ability to work, or reach full retirement age (when disability benefits convert to retirement benefits). To help ensure that only eligible beneficiaries remain on the rolls, SSA is required by law to conduct continuing disability reviews for all DI beneficiaries to determine whether they continue to meet the disability requirements of the law. SSI, created in 1972, is an income assistance program that provides cash benefits for disabled, blind, or aged individuals who have low income and limited resources. In 2000, the most common impairments among the group of SSI blind and disabled adults age 18-64 were mental disorders and mental retardation (see fig. 3). Mental disorders was the fastest growing condition among this population since 1986, increasing by 9 percentage points. Unlike the DI program, SSI has no prior work requirement. In most cases, SSI eligibility makes recipients eligible for Medicaid benefits. SSI benefits terminate for the same reasons as DI benefits, although SSI benefits also terminate when a recipient no longer meets SSI income and resource requirements (SSI benefits do not convert to retirement benefits when the individual reaches full retirement age). The law requires that continuing disability reviews be conducted for some SSI recipients for continuing eligibility. The Social Security Act’s definition of disability under DI and SSI is the same: an individual must have a medically determinable physical or mental impairment that (1) has lasted or is expected to last at least 1 year or to result in death and (2) prevents the individual from engaging in substantial gainful activity (SGA). Moreover, the definition specifies that for a person to be determined to be disabled, the impairment must be of such severity that the person not only is unable to do his or her previous work but, considering his or her age, education, and work experience, is unable to do any other kind of substantial work that exists in the national economy. (See app. III for a more complete description of SSA’s five-step process to determine DI and SSI eligibility.) While not expressly required by law to update the criteria used in the disability determination process, SSA has stated that it would update them to reflect current medical criteria and terminology. Over the years, SSA has periodically ensured that the medical information and the structure of its Listing of Impairments—which describe impairments that are presumed by the agency to be severe enough to prevent a person from doing substantial gainful activity—were both acceptable for program purposes and consistent with current medical thinking. The last general update to the Listing of Impairments (also known as the Medical Listings) occurred in 1985, at which time expiration dates ranging from 3 to 8 years were inserted for individual body systems to ensure the agency periodically reviews and if necessary, updates the Medical Listings. The statutes establishing the DI and SSI programs presume that disability, for program eligibility, is long-term and based on an either-or decision. That is, a person is either capable or incapable of engaging in substantial gainful work. However, the Social Security Act allows beneficiaries to use a “ticket” issued by the Commissioner of SSA to obtain free employment services, vocational rehabilitation services, or other services to find employment. Also, Congress has established various work incentives intended to safeguard cash and health benefits while a beneficiary tries to return to work. Despite these provisions, few DI and SSI beneficiaries have left the rolls to return to work, although the ticket program may have an impact on future rates. The either-or process produces a strong incentive for applicants to establish their inability to work to qualify for benefits, and work-related supports and services (including health coverage) are offered only after individuals have completed the eligibility process. Yet our past work found that DI beneficiaries believe that health interventions—such as medical procedures, medications, physical therapy, and psychotherapy—are primary factors in assisting them to work. VA’s disability program compensates veterans for the average loss in earning capacity in civilian occupations that results from injuries or conditions incurred or aggravated during military service. In 2000, the most common impairment category among all disabled veterans was illness and injury to bones and joints (see fig. 4). This impairment category also experienced the fastest growth among the disabled veteran population since 1986, increasing by 6 percentage points. VA’s program is similar to the DI and SSI programs in that all three programs provide cash benefits to persons whose physical or mental impairments have been deemed to reduce their ability to earn a living.However, VA relies upon an average reduction in earning capacity across a group of individuals with a similar condition rather than the actual reduction for an individual veteran applying for benefits. As a result, a veteran with a disability is entitled to disability cash benefits whether or not employed and regardless of the amount earned. The cash benefit level is based on the “percentage evaluation,” commonly called the disability rating, that represents the average loss in earning capacity associated with the severity of physical and mental conditions. VA uses its Schedule for Rating Disabilities to determine which disability rating to assign to a veteran’s particular condition. Ratings for individual diagnoses in the schedule range from 0 percent to 100 percent. For example, VA presumes that the loss of a foot as a result of military service results in a 40 percent impairment in earning capacity, on average, among veterans with this injury. All veterans who lose a foot as a result of military service, therefore, are entitled to a 40 percent disability rating. Unlike the DI and SSI programs, the law does not specifically require VA to conduct continuing disability reviews to determine whether veterans continue to meet the disability requirements of the law. The Schedule for Rating Disabilities was first developed in 1919 and had its last major revision in 1945. Two major studies have been conducted since the implementation of the 1945 version of the schedule to determine whether the schedule constitutes an adequate basis for compensating veterans with service-connected conditions. One was conducted by a presidential commission in the mid-1950s and a second by VA in the late 1960s. Both concluded, for various reasons, that at least some disability ratings in the schedule did not accurately reflect the average impairment in earning capacity among disabled veterans and needed to be adjusted. The law states that VA shall, from time to time, readjust the schedule based upon experience. Keeping the schedule current is important because cash benefits are based on the schedule. We previously reported, however, that VA’s rating schedule that was being used in the late 1980s had not been adjusted to incorporate the results of many recent medical advances, and as a result, some veterans may be undercompensated and others may be overcompensated for their service-connected disability. Further, we recommended that VA (1) prepare a plan for a comprehensive review of the rating schedule and, based on the results, revise medical criteria accordingly and (2) implement a procedure for systematically reviewing the rating schedule to keep it updated. Veterans with a service-connected disability rated at 20 percent or higher who are found by VA to have an employment handicap can receive rehabilitation services. Eligible veterans can receive vocational counseling, training, job search assistance, and supportive rehabilitation services. In addition, VA offers veterans a medical benefits package that provides a full range of outpatient and inpatient services, including primary and specialty care as well as drugs. Recent scientific advances in medicine and assistive technology and changes in the nature of work and the types of jobs in our national economy have generally enhanced the potential for people with disabilities to perform work-related activities. Advances in medicine have afforded the scientific community a deeper understanding of and ability to treat disease and injury. Medical advancements in treatment (such as organ transplantations), therapy, and rehabilitation have reduced the severity of some medical conditions and have allowed individuals to live with greater independence and function in settings such as the workplace. Also, assistive technologies—such as advanced wheelchair design, a new generation of prosthetic devices, and voice recognition systems—afford greater capabilities for some people with disabilities than were available in the past. At the same time, the nature of work has changed in recent decades as the national economy has moved away from manufacturing-based jobs to service- and knowledge-based employment. In the 1960s, earning capacity became more related to a worker’s skills and training than to his or her ability to perform physical labor. Following World War II and the Korean Conflict, advancements in technology, including computers and automated equipment, reduced the need for physical labor. The goods-producing sector’s share of the economy—mining, construction, and manufacturing—declined from about 44 percent in 1945 to about 18 percent in 2000. The service-producing industry’s share, on the other hand—such areas as wholesale and retail trade; transportation and public utilities; federal, state and local government; and finance, insurance, and real estate—increased from about 57 percent in 1945 to about 72 percent in 2000. Although certain jobs in the service economy continue to be physically demanding—a cashier in a fast food restaurant might be expected to stand for most of his or her shift—other service- and knowledge-based jobs can allow greater participation for persons with physical limitations. In addition, telecommuting and part-time work provide other options for persons with disabilities. However, some labor market trends—such as an increasing pace of change in office environments and the need for adaptability—can pose particular challenges for some persons, such as those with severe mental illness and learning disabilities. Moreover, other trends—such as downsizing and the growth in contingent workers—can limit job security and benefits, like health insurance, that most persons with disabilities require for participation in the labor force. Whether these changes make it easier or more difficult for a person with a disability to work appears to depend very much on the individual’s impairment and other characteristics, according to experts. Social change has promoted the goals of greater inclusion of and participation by people with disabilities in the mainstream of society, including adults at work. For instance, over the past 2 decades, people with disabilities have sought to remove environmental barriers that impede them from fully participating in their communities. Moreover, the Americans with Disabilities Act supports the full participation of people with disabilities in society and fosters the expectation that people with disabilities can work and have the right to work. The Americans with Disabilities Act prohibits employers from discriminating against qualified individuals with disabilities and requires employers to make reasonable workplace accommodations unless it would impose an undue hardship on the business. The disability criteria used by the DI, SSI, and VA disability programs to help determine who is qualified to receive benefits have not been fully updated to reflect scientific advances. Both SSA and VA are currently in the midst of a process that began around the early 1990s to update the medical criteria they use to make eligibility decisions, but the progress is slow. The updates include dropping or adding conditions that qualify one for benefits, modifying criteria needed to establish the presence and severity of certain medical conditions, and wording changes for clarification and guidance in making decisions. Agencies report that they made some of these changes due to medical advances in treatment that have reduced the severity and occurrence of some medical conditions. Nevertheless, the statutory and regulatory design of these programs limits the role of treatment in determining who is disabled. Therefore, treatment advances, by definition, have not been folded into the updates. Moreover, because of the statutory design of these programs, the role of assistive technologies is not recognized in making disability decisions. Consequently, the updates have not fully incorporated innovations in this field, such as advanced prosthetics and wheelchair designs. SSA’s current effort to update the disability criteria began in the early 1990s. To conduct the current update, SSA gathers feedback on relevant medical issues from state officials who help the agency make disability decisions. In addition, SSA has in-house expertise to help the agency keep abreast of the medical field and identify aspects of the medical criteria that need to be changed. SSA staff develop the proposed changes and forward them for internal, including legal and financial, review. Next, SSA publishes the proposed changes in the Federal Register and solicits comments from the public for 60 days. SSA considers the public comments, makes necessary adjustments, and publishes the final changes in the Federal Register. Between 1991 and 1993, SSA published for public comment the changes it was proposing to make to 7 of the 14 body systems in its Medical Listings. By 1994, the proposed changes to 5 of these 7 body systems were finalized, although SSA told us that changes to 2 systems were relatively minor. SSA’s efforts to update the Medical Listings were curtailed in the mid-1990s due to staff shortages, competing priorities, and lack of adequate research on disability issues. Since the mid-1990s, we, SSA’s Office of the Inspector General, and the Social Security Advisory Board have expressed concern that SSA was not updating the Medical Listings regularly but simply extending the expiration dates that were originally developed by SSA so as to ensure that it would conduct the updates. In fact, the Office of the Inspector General recommended that SSA develop a performance measure of its update activities for inclusion in SSA’s annual performance plan. SSA did not agree with the recommendation, responding that revisions to the Medical Listings are subject to some factors not fully in their control (e.g., progression of scientific advances, input from experts and the public, and shifting congressional priorities), which can affect timing and prioritization of effort. In our view, these uncertainties—in addition to the size and costs of the programs—in fact elevate the need for establishing a time frame to ground SSA in its efforts and help keep the agency on track. Moreover, SSA is allowed to revise performance measures in its annual plans. SSA resumed updating the Medical Listings in 1998. Since then, SSA has taken some positive steps in updating portions of the medical criteria it uses to make eligibility decisions, although progress is slow. As of early 2002, SSA has published the final updated criteria for 1 of the 9 remaining body systems not updated in the early 1990s (musculoskeletal) and a portion of a second body system (mental disorders). SSA also plans to update again the 5 body systems that were updated in the early 1990s. In addition, SSA has asked the public to comment on proposed changes for several other body systems. During the course of our work, SSA initially indicated to us that the agency planned to publish proposed changes for all body systems by 2002 and submit changes to the Office of Management and Budget for final clearance by 2003. Recently, the new administration at SSA (a new commissioner was confirmed in November 2001) reviewed the schedule and timing for the revisions. The results of this review pushed back the completion date for publishing proposed changes for all remaining body systems to the end of 2003. The revised schedule, as of May 2002, is shown in table 1. SSA’s slow progress in completing the updates could undermine the purpose of incorporating medical advances into its medical criteria. For example, the criteria for musculoskeletal conditions—a common impairment among persons entering DI—were updated in 1985. Then, in 1991, SSA began developing new criteria and published its proposed changes in 1993 but did not finalize the changes until 2002; therefore, changes made to the musculoskeletal criteria in 2002 were essentially based on SSA’s review of the field in the early 1990s. SSA officials told us that in finalizing the criteria, they reviewed the changes identified in the early 1990s and found that little had taken place since then to warrant changes to the proposed criteria. However, given the advancements in medical science since 1991, it may be difficult for SSA to be certain that all applicable medical advancements are in fact included in the most recent update. Similarly, we are concerned about the time frames for completing the full update on the criteria for another major impairment category— mental disorders. While SSA finalized in 2000 a portion of the changes for mental disorders first proposed in 1991, the agency deferred action on the remaining portion pending further review. SSA recently announced plans to publish these proposed changes by November 2003. Keeping to a set schedule and making necessary updates could help SSA minimize the use of outmoded criteria in a large number of disability decisions. For example, SSA used the criteria for musculoskeletal conditions that were developed in 1985 until 2001. This means that in the year prior to the update—2000—SSA allowed 222,750 adults to enter the DI or SSI program on the basis of medical criteria that were 15 years old. VA has made more progress than SSA in updating the medical criteria used to evaluate its disability claims, but overall the process is slow. In 1989, VA hired a contractor to bring together practicing physicians to review and develop updated criteria for several of the body systems contained in the Schedule for Rating Disabilities. The practicing physicians, who were organized by teams according to specific body systems, were tasked with proposing changes that were consistent with modern medical practice and stated in a manner that could be easily interpreted by rating personnel. The results of the teams’ efforts were reviewed by VA in-house staff. After making necessary adjustments, the proposed changes were forwarded to various VA offices for review. Proposed changes were published in the Federal Register and opened for a 60-day comment period. As of March 2002, VA had finalized the criteria for 11 of 16 body systems. VA is currently reviewing the remaining body systems. VA has generally taken more than 5 years to complete the update for each body system (see fig. 5). VA has not yet completed updating the medical criteria for several important body systems. For example, criteria used for evaluating orthopedic impairments were last updated in 1986. Yet the number of veterans with a disabling orthopedic condition has risen significantly in the past decade, outpacing the number of veterans receiving benefits under any other single disability group. Therefore, veterans with an orthopedic impairment who applied for VA disability benefits since 1996 were evaluated with medical criteria that were at least 10 years old. We found two factors contributing to the amount of time to update VA’s medical criteria. First, the review given to the proposed changes is lengthy. VA’s legal counsel as well as other entities within VA, such as the Veterans Health Administration, Office of Congressional and Legislative Affairs, and Office of Inspector General, review all proposed changes to the Schedule for Rating Disabilities. The Office of Management and Budget also reviews the changes. This entire review process can take up to 3 years. Second, the number of staff assigned to coordinate the updates at VA also contributes to the lengthy time to complete the updates. For example, one staff person is assigned less than half time to coordinate the update efforts. VA does not have a well-defined plan to conduct the next round of medical updates. Although VA provided us with a statement acknowledging the need to re-review the medical criteria in the future, it had neither a strategy nor time frame for completing the task. SSA has made various types of changes to the Medical Listings thus far. As shown in table 2, these changes, including the proposed changes released to the public for comment, add or delete qualifying conditions; modify the criteria for certain physical or mental conditions; and clarify and provide additional guidance in making disability decisions. In addition, SSA has made a number of editorial changes. In recognition of medical advances, VA has also made several types of changes to its Schedule for Rating Disabilities during the current update. As shown in table 3, the types of changes have been quite similar to changes made by SSA. Revisions generally consist of (1) adding, deleting, and reorganizing medical conditions in the Schedule for Rating Disabilities; (2) revising the criteria for certain qualifying conditions; and (3) wording changes for clarification or reflection of current medical terminology. VA also has made a number of editorial changes. Program design issues have limited the extent that advances in medicine and technology have been incorporated into the DI, SSI, and VA’s disability decision making. SSA has indicated that the updates are being made in recognition of medical advances in treatment and technology, and we found examples in SSA’s publications in the Federal Register of this occurring. Our methodology for this study, however, does not allow us to determine the extent of SSA’s efforts to incorporate medical advances into the Medical Listings. Nevertheless, the design of these programs limits the role of treatment in deciding who is disabled. SSA’s regulations require that in order to receive benefits, claimants must follow treatment prescribed by the individual’s physician if the treatment can restore his or her ability to work. The implication of this regulation is that if an individual is not prescribed treatment, SSA does not consider the possible effects of treatment in the disability decision, even if the treatment could make the difference between being able and not being able to work. Moreover, the programs do not require individuals to receive nonprescribed treatment before or during the time they are assessed for eligibility. Thus, treatments that can help restore functioning to persons with certain impairments may not be factored into the disability decision for some applicants. This limited role of treatment means, by definition, the updates have not fully captured the benefits that treatments can provide to persons with certain impairments. For example, medications to control severe mental illness, arthritis treatments to slow or stop joint damage, total hip replacements for severely injured hips, and drugs and physical therapies to possibly improve the symptoms associated with multiple sclerosis are not automatically factored into SSA’s decision making for determining the extent that impairments affect people’s ability to work. Additionally, this limited approach to treatment raises an equity issue: Applicants whose treatment allows them to work could be denied benefits while applicants with the same condition who have not been prescribed treatment could be allowed benefits. While some of VA’s changes to the Schedule for Rating Disabilities reflect advances in medicine, the changes have generally not incorporated the potential benefits of treatment. While treatment can improve an individual’s ability to function in the workplace, the program is not designed to factor in the potential benefits of treatment when evaluating a veteran’s service-connected disability. That is, veterans applying for disability benefits—much like, for example, workers applying for DI benefits—are not required to undergo treatment before or after they are given a disability rating. Moreover, the VA program does not, unlike DI and SSI, factor in the potential effect of prescribed treatment on an applicants’ abilities. As with treatment, the benefits of innovations in assistive technologies— such as advanced prosthetics and wheelchair designs—have not been fully incorporated into DI, SSI, and VA disability criteria because the statutory design of these programs does not recognize these advances in disability decision making. That is, programs are not designed to assess an applicant’s ability to work under corrected conditions. Conceivably, using innovations such as a prosthetic device could reduce the limiting nature of an applicant’s impairment and could also reduce, if programs were designed differently, eligibility for or the amount of cash benefits. And some technologies may not involve sophisticated electronics. For example, a factory worker with a back impairment who works on an assembly line could benefit from an ergonomic stool or chair and matting that would cushion the floor and reduce fatigue. According to VA, technological advances, such as voice recognition devices—which can help people who do not have the use of their hands to interact with a computer—are not considered during the rating process to determine the extent to which technology could improve a veteran’s earning capacity. The disability criteria used by DI, SSI, and VA programs for determining who is disabled have not incorporated labor market changes. In determining the effect that impairments have on individuals’ earning capacity, programs continue to use outdated information about the types and demands of jobs in the economy. Given the nature of today’s economy, which offers varied opportunities for work, agencies’ use of outdated information raises questions about the validity of disability decisions. For an applicant who does not have an impairment that SSA presumes is severe enough ordinarily to prevent an individual from engaging in substantial gainful activity, SSA evaluates whether the individual is able to work despite his or her limitations. Individuals who are unable to perform their previous work and other work in the national economy are awarded benefits. SSA relies upon the Department of Labor’s Dictionary of Occupational Titles (DOT) as its primary database to make this determination; however, Labor has not updated DOT since 1991 and does not plan to do so. Since 1993, Labor has been working on a replacement for the DOT called the Occupational Information Network (O*NET). It contains information on about 970 occupational categories, while DOT had 13,000 occupational titles. Labor and SSA officials recognize that O*NET cannot be used in its current form in the DI and SSI disability determination process. The O*NET, for example, does not contain SSA-needed information on the amount of lifting or mental demands associated with particular jobs. The agencies have discussed ways that O*NET might be modified or supplemental information collected to meet SSA’s needs, but no definitive solution has been identified. SSA officials have indicated that an entirely new occupational database could be needed to meet SSA’s needs, but such an effort could take many years to develop, validate, and implement. Meanwhile, as new jobs and job requirements evolve in the national economy, SSA’s reliance upon an outdated database further distances the agency from the current market place. The percentage ratings used in VA’s Schedule for Rating Disabilities are still primarily based on physicians’ and lawyers’ estimates made in 1945 about the effects that service-connected impairments have on the average individual’s ability to perform jobs requiring manual or physical labor. Although VA is revising the Schedule for Rating Disabilities’ medical criteria, the estimates of how impairments affect veterans’ earnings have generally not been reexamined. As a result, changes in the nature of work that have occurred in the past 57 years—which potentially affect the extent to which disabilities limit one’s earning capacity—are overlooked by the program’s criteria. For example, in an increasingly knowledge- based economy, one could consider whether earning capacity is still reduced, on average, by 40 percent for loss of a foot. VA recognizes that there have been significant changes in the nature of work, but does not believe that these changes need to be reflected in the disability ratings. One official noted that a disability rating is essentially an indication of medical severity: the more severe the medical condition, then the higher the rating. Moreover, it was stated, changes in the nature of work are captured in the types of vocational rehabilitation services offered to veterans (e.g., veterans could receive computer skills training). Finally, the official noted that disability compensation should not be adjusted if an individual veteran is able to work despite a disabling condition. In the past, we suggested to Congress that it may wish to consider directing VA to determine whether VA ratings correspond to veterans’ average loss in earning capacity and adjust disability ratings accordingly.VA responded to us that the schedule, as constructed, represents a consensus among Congress, VA, and the veteran community, and that the ratings generally represent an equitable method to determine disability compensation. In conducting the work for our present assignment, VA told us that they believe the consensus remains and the ratings continue to generally represent an equitable approach. We continue to believe, however, that changes in the nature of work afford some veterans with a disability the opportunity to become more fully employed and that the current estimates of the average reduction in earning capacity should be reviewed. Further, we believe that updating disability criteria is consistent with the law. Incorporating scientific advances and labor market changes into DI, SSI, and VA programs can occur within the existing program design and at a more fundamental level. Within the context of the programs’ existing statutory and regulatory design, agencies will need to continue updating the criteria they use to determine which applicants have physical and mental conditions that limit their ability to work. As we noted above, agencies began this type of update in the early 1990s, although their efforts have focused much more on the medical portion than labor market issues. In addition to continuing their medical updates, SSA and VA need to vigorously expand their efforts to more closely examine labor market changes. SSA’s results could yield updated information they use to make decisions about whether or not applicants have the ability to perform their past work or any work that exists in the national economy. VA’s results could yield updates to the average loss in earning capacity resulting from service-connected injuries and conditions. More fundamentally, SSA and VA could consider the impact that scientific advances and labor market changes have on the programs’ basic orientation. Whereas programs currently are grounded in assessing and providing benefits based on incapacities, fully incorporating the scientific and labor market issues we highlight in this report implies that agencies would assess individuals with physical and mental conditions under corrected conditions for employment in an economy increasingly different from that which existed when these programs were first designed. Factoring medical and technological advances more fully into the DI, SSI, and VA programs implies that some if not many applicants would receive up-front assistance—including help in finding and maintaining employment—to help agencies evaluate individuals under their fullest potential to work. In fact, the types of beneficiaries who currently might have benefited from such assistance but have not received either timely medical or vocational assistance (for example, DI beneficiaries during the 24-month wait period for Medicare benefits) could get a package of up- front service under a new approach. Moreover, reorienting programs in this direction is consistent with increased expectations of people with disabilities and the integration of people with disabilities into the workplace, as reflected in the Americans with Disabilities Act. However, for people with disabilities who do not have a realistic or practical work option, long-term cash support is likely the best option. In reexamining the fundamental concepts underlying the design of the DI, SSI, and VA programs, approaches used by other disability programs may offer some valuable insights. For example, our prior review of three private disability insurers shows that they have fundamentally reoriented their disability systems toward building the productive capacities of people with disabilities, while not jeopardizing the availability of cash benefits for people who are not able to return to the labor force. These systems have accomplished this reorientation while using a definition of disability that is similar to that used by SSA’s disability programs.However, it is too early to fully measure the effect of these changes. In these private disability systems, the disability eligibility assessment process evaluates a person’s potential to work and assists those with work potential to return to the labor force. This process of identifying and providing services intended to enhance a person’s productive capacity occurs early after disability onset and continues periodically throughout the duration of the claim. In contrast, SSA’s eligibility assessment process encourages applicants to concentrate on their incapacities, and return-to- work assistance occurs, if at all, only after an often lengthy process of determining eligibility for benefits. SSA’s process focuses on deciding who is impaired sufficiently to be eligible for cash payments, rather than on identifying and providing the services and supports necessary for making a transition to work for those who can. While cash payments are important to individuals, the advances and changes discussed in this report suggest the option to shift the disability programs’ priorities to focus more on work. We recognize that re-examining the programs at the broader level raises a number of significant policy issues, including the following: Program design and benefits offered. Agencies would need to consider the impact on program design, including fundamental issues of basic eligibility structure and benefits and services provided. Would the definition of disability change? To what extent would programs require some beneficiaries to accept assistance to enhance work capacities as a precondition for benefits versus relying upon work incentives, time-limited benefits, or other means to encourage individuals to maximize their capacity to work? Would persons whose work potential is significantly increased due to medical and technological assistance receive the same cash benefits that are currently provided? Would criteria need to be established to identify persons whose severity presumes a basis for permanent cash benefits? Would program recipients with earned income above a certain level still be eligible for no-cost assistance or do they begin to help pay for the support? To change program design, what can be done through the regulatory process and what requires legislative action? Accessibility. Agencies would need to address the accessibility of medical and technological advances for program beneficiaries. Are new mechanisms needed to provide sufficient access to needed services? In the case of DI and SSI, what is the impact on the ties with the Medicare and Medicaid programs? For VA, accessibility issues may not be as critical because of existing links to health and vocational rehabilitation benefits provided by VA. Cost. Agencies would need to address cost implications, including the issue of who will pay for the medical and assistive technologies (will beneficiaries be required to defray costs?). For example, would the cost of providing treatment and assistive technologies in the disability programs be higher than cash expenditures paid over the long-term? The cost to provide medical and technological treatment could be quite high for some program recipients, although much less for others. Moreover, net costs would need to be considered, as some expenditures could be offset with cost savings by paying reduced benefits. Integration with other program components. Agencies would need to address how to integrate a new emphasis on medical and technological assistance when making disability determinations with the health care and vocational assistance already currently available to program beneficiaries. Notably, VA’s program components of cash assistance, vocational rehabilitation, and medical care may uniquely position the agency to develop an integrated model and evaluate the results. During our work, VA officials pointed out that vocational rehabilitation services are already available to veterans to help them return to work and that such services include incorporating the advances and changes addressed in this report. Yet, the restorative benefits of medical, technological, or vocational interventions are not considered when VA makes an initial assessment of the economic losses that result from a condition or injury. With a limited amount of program funding, integrating these program components may help VA to equitably distribute program funds among veterans with disabilities. Agencies’ research efforts could help address these broader policy issues. In fact, SSA is beginning to conduct a number of studies that recognize that medical advances and social changes require the disability programs to evolve. SSA’s 2002 annual performance plan contains a strategic objective to promote policy change based on research, evaluation, and analysis. SSA has funded a project to design a study that would assess the extent to which the Medical Listings are a valid measure of disability, and began work to design a study for SSA to identify the most salient job demands in comparison to applicants’ residual functional capacity. Additionally, SSA is sponsoring the National Study of Health and Activity, a project intended to enable SSA to estimate how many adults live in the United States who meet the definition of disability used by SSA and to better understand the relationship between disability, work, health care, and community. Also, SSA has funded a study to examine the impact and cost of assistive technology on employment of persons with spinal cord injuries and the associated costs. Finally, SSA had planned to conduct a demonstration project to determine the impact of medicine and therapy on beneficiaries with mood disorders such as major depressive disorder and bipolar disorder in returning them to work. The project was partly in response to evidence found by SSA that some beneficiaries with mood disorders had not received promising treatment. SSA has placed the project on hold while it reconsiders the purpose of the project. Such research projects could provide important insight into ways that medical and technological advances can help persons with disabilities work and live independently. The research could also begin to provide important information about the cost and outcomes of program changes that bring up-front help to individuals receiving or applying for disability benefits. Nevertheless, individually, these studies do not directly or systematically address many of the implications of factoring in medical advances and assistive technologies more fully into the DI and SSI programs. Given the large size of the DI, SSI, and VA programs, it is incumbent that they remain current with medical advances and the changes in the demands and opportunities in the world of work. Updating disability criteria within existing program structures is prudent, not only as a means to best ensure program integrity, but also for agencies to meet their fiduciary responsibilities for public funds. We recognize the challenge to updating disability criteria. Yet we have concerns that while agencies are making some progress, their commitment to this effort appears to be inconsistent with the stakes involved: medical updates have been slow and there are few written strategies for performing timely updates in the years ahead. Moreover, these agencies have done little to better take into consideration the implications of labor force changes on the ability of persons with disabilities to earn a living. To the extent that SSA and VA do not update criteria used to reach disability decisions, they cannot ensure their disability decisions are valid. Updating the disability criteria within the context of current program design will not fully capture the work-enhancing opportunities afforded by recent scientific advances and labor market changes. That is, current program design does not assess individuals under corrected conditions. To fully capture these advances and changes, policymakers would need to comprehensively re-examine some fundamental aspects of the DI, SSI, and VA programs, including the type, timing, and conditions of providing assistance to persons with physical and mental conditions. Such an examination is a complex but increasingly important undertaking. Indeed, Congress’ approach to these issues could be quite different given the unique characteristics of each program. But nevertheless, without a comprehensive analysis about alternatives and their impacts, it is likely that little progress will be made. To further advance the discussion of issues raised in this report, we recommend that the Commissioner of Social Security take the following actions: Use SSA’s annual performance plan to delineate strategies for and progress in periodically updating the Medical Listings and labor market data used in its disability determination process. Study and report to Congress the effect that a comprehensive consideration of medical treatment and assistive technologies would have on the DI and SSI programs’ eligibility criteria and benefit package. The analysis should estimate the effects on the size, cost, and management of these and other relevant programs and identify the legislative action, if any, necessary to initiate and fund such change. To further advance the discussion of issues raised in this report, we recommend that the Secretary of Veterans Affairs take the following actions: Use VA’s annual performance plan to delineate strategies for and progress in periodically updating the Schedule for Rating Disabilities and labor market data used in its disability determination process. Study and report to Congress the effect that a comprehensive consideration of medical treatment and assistive technologies would have on the VA disability programs’ eligibility criteria and benefit package. The analysis should estimate the effects on the size, cost, and management of the program and other relevant VA programs and identify the legislative action, if any, necessary to initiate and fund such change. We sent a draft of this report to SSA, VA, and the Department of Labor for comments. SSA and VA submitted comments to us, which are reproduced, respectively, in appendixes I and II. Our responses to their comments appear below. In addition, technical comments and clarifications from these two agencies were incorporated as appropriate. SSA concurred with our recommendation to use its annual performance plan to delineate strategies for, and progress in, periodically updating the Medical Listings and labor market data used in its disability determination process, and it cited the strategic objective in its 2003 performance plan to promote policy changes that take account of changing needs based on medical, technological, demographic, job market, and societal trends. However, the performance goals associated with this objective do not refer specifically to updating either the Listings or labor market data. We believe such specific measurable goals are needed in light of the many years that have passed since DI and SSI disability criteria have been fully updated. In addition, SSA provided several other comments on our findings concerning the agency’s efforts to update the disability criteria. First, SSA mentioned it is unable to determine why our report concludes that the DI and SSI updates do not reflect medical advances, citing their published commitment to do so and our recognition in the report of the agency’s efforts to incorporate some medical updates into the Listings. We do not dispute SSA’s contention, which is similar to a point also made by VA, that the agency considers the effects of treatment, medication, and assistive technologies in some if not many updates to the Listings. However, the issues we raise are at a more fundamental level. Our report specifically states that, under the statutory and regulatory design of these programs, SSA does not automatically evaluate individuals applying for benefits under corrected conditions. Thus, it is our belief that the programs themselves have not been fully updated to reflect scientific advances, because interventions that could enhance individuals’ productive capacities are not, by design, factored into the disability decision-making process. Second, SSA commented that the DOT, even though it has not been revised since 1991, remains the most complete and up-to-date source of comprehensive occupational information. While characterizing the database in this manner may be technically accurate, the database was generally recognized as outdated by SSA and Labor officials we interviewed, and we note that Labor does not plan to update the database. Similarly, SSA commented that creating a new database on jobs in today’s economy for DI and SSI decision making is only one alternative (and, as SSA notes, an unlikely and undesirable one). In our view, absent a significant change in the decision-making process, SSA has only a few options: it will need to either modify the database that Labor developed to replace the DOT, modify the DOT, or develop a new database. Each option could require substantial effort, and regardless of which approach the agency selects, it will need to update the job-related information it uses. Regarding our recommendation that SSA study and report to Congress the effect that a comprehensive consideration of medical treatment and assistive technologies would have on DI and SSI’s eligibility criteria and benefit package, SSA again states that it already considers in its Listings the effect that new medical treatment and assistive technologies would have on these two disability programs. Moreover, it states, the agency is not reluctant to promulgate regulatory changes or to suggest any legislative changes it considers appropriate as the need for change arises. We do not agree that SSA currently meets our recommendation. Our recommendation underscores the need to move beyond updating the disability decision-making process within the existing program design. Instead, SSA needs to make a more systematic study of options that would maximize an individual’s work potential by focusing on early and appropriate supports and interventions that take advantage of the advances and changes we identify in this report. As we note in the report, SSA has several research studies that could provide useful information in consideration of the larger design issues. Yet these studies do not directly or systematically address many of the implications of factoring in medical advances and assistive technologies more fully into the DI and SSI programs. The agency needs to lay out a master plan to systematically explore these larger policy and design issues. VA did not concur with our recommendation to use its annual performance plan to delineate strategies for and progress of periodically updating the Schedule for Rating Disabilities and labor market data used in its disability determination process. VA stated that developing timetables for future updates to the Schedule for Rating Disabilities is inappropriate while its initial review is ongoing. We continue to believe that VA needs to include measurable goals about how and when it will complete the current round of medically-focused updates as well as future updates. VA should incorporate this information into its plan because portions of the Schedule for Rating Disabilities still remain to be updated and the agency has taken years to update individual body systems. In addition, VA should now begin to develop strategies for the next round of updates because portions of the Schedule for Rating Disabilities updated during the current round were completed about 8 years ago and were based on expert input collected about 12 years ago. As such, it is important to begin planning for the next cycle of review. VA’s annual performance plan can help the agency hold itself accountable for ensuring that disability ratings are based on current information. VA also did not concur with our recommendation to use its annual performance plan to discuss strategies and progress on updating the Schedule for Rating Disabilities because the agency does not plan to initiate an economic validation study or a revision of the Schedule for Rating Disabilities based on economic factors. The agency stated that prior attempts to change the Schedule for Rating Disabilities by conducting an economic validation were met with dissatisfaction among Congress, the veteran community, and VA. Moreover, VA noted that it believes the Schedule for Rating Disabilities is medically based; represents a consensus among Congress, VA and the veteran community; and has been a valid basis for equitably compensating America’s veterans for many years. We do not disagree that validating the Schedule for Rating Disabilities could lead to significant if not controversial changes, and the Schedule for Rating Disabilities does have a medical component and has been used as a basis for disability compensation for years. However, our analysis of the extent to which the VA—as well as DI and SSI—disability criteria were updated was grounded in the current law that authorizes this program. The law states that veterans are entitled to compensation for the average reduction in earning capacity for injuries incurred or aggravated while in service. Because earning capacity is clearly linked to the types and demands of jobs in the economy, and given that the economy has changed over time, updating the Schedule for Rating Disabilities based on labor market changes is sound administrative policy. Moreover, the concept of disability has changed significantly since the economic data assumptions in the Schedule for Rating Disabilities were last updated in 1945, further supporting the need to keep current with workforce requirements and opportunities. In addition, VA did not agree with our finding that VA disability criteria have not been fully updated based on medical advances, noting that disabilities are commonly evaluated based on disabling effects while on treatment. We do not dispute VA’s contention that it recognizes the effects of treatment, medication, and assistive technologies that have been received by veterans in some, if not many, of its disability ratings. Much like our response to a similar comment made by SSA, our conclusion is based on the overall design of the program rather than on whether specific ratings have been updated to reflect treatment options. VA does not automatically evaluate a veteran’s average reduction in earning capacity under corrected conditions when making a decision about benefit eligibility and as such, a veteran not receiving a medical intervention or assistive technology that could increase work capacity is not evaluated according to his or her potential or actual capacity to work. Again, although VA’s current approach is consistent with program design, it also downplays the role that medical and technological advances can play in helping enhance work capacity. Consequently, we conclude that the program is not fully aligned with medical and technological advances. Finally, VA did not concur with our recommendation that it study and report to Congress the effect that such a comprehensive consideration of medical treatment and assistive technologies would have on the program. VA believes moving in this direction would present a radical change from the current program, and the agency raised questions about whether Congress and the veteran community would support the idea. We believe that our society is very different from the times when VA and SSA disability programs were first designed. In addition to scientific advances and economic changes, expectations for people with disabilities are different. We believe more information is needed about the effects of a fuller consideration of these advances and changes on the program. VA should systematically study the implications of such changes and provide the results to Congress to facilitate future decision making. Copies of this report are being sent to appropriate congressional committees and other interested parties. The report is also available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions about this report, please contact me at (202) 512-9889. Other contacts and staff acknowledgments are listed in appendix IV. 1. VA cites the 1955 President’s Commission on Veterans’ Pensions (commonly called the Bradley Commission) as support that VA’s disability ratings represent noneconomic factors, such as pain and suffering, in addition to average loss of earnings. However, as we reported in 1997, “the Commission’s overall recommendation with regard to the Schedule was that it should be revised thoroughly on the basis of factual data to ensure that it reflects veterans’ average reduction in earning capacity, as required by law. The Commission stated that the basic purpose of the program is economic maintenance and, therefore, it is appropriate to compare periodically the average earnings of the working population and the earnings of disabled veterans…” Even if the ratings are intended to reflect noneconomic factors, this does not negate the need for updating the schedule due to changes in the labor market. The extent to which, if at all, disability compensation reflects noneconomic factors is a policy issue which lies beyond the scope of this report. 2. We recognize that veterans who are paid disability benefits can also be receiving various types of treatment and assistance. Our recommendation reflects the need for more information on the implications of integrating the effects of treatment and assistance into the disability determination process, including the process to determine (1) the impact of physical and mental conditions on earnings and (2) the appropriate type and timing of benefits—such as cash, medical, and vocational assistance—to minimize the reduction of earnings associated with the disabilities. 3. We recognize that the link between medical impairments and the ability to work is complex and difficult to measure and can be affected by other factors like social support and individual motivation. Yet the VA program, by legislative design, compensates for loss in earning capacity that results from injuries or medical conditions. Thus, we believe, it is important to maintain good data on the skills and demands in the labor market to provide the best estimate of loss in earning capacity that is reasonably associated with particular injuries and conditions. In our 1997 report, we lay out options for the design and methodology for estimating loss in earnings among veterans with disabilities. But VA’s comment underscores the larger point we are making: Past assumptions that underlie these programs are increasingly outmoded as the confluence of scientific, economic, and social forces are redefining the relationship between impairments and abilities. Additional information on how programs can take advantage of this change will help Congress make better-informed decisions on disability policy. 4. We recognize that veterans can work and still receive disability compensation benefits. In fact, at the beginning of fiscal year 2002, two-thirds of veterans had a rating at 30 percent or less, implying that many veterans receiving disability compensation are working. Moreover, we recognize that VA’s use of an “average” reduction in earnings capacity implies that some veterans rated at 100 percent are employed, including those without an actual reduction in earnings. See comment 1 for our response to VA’s point that benefits may be partially compensated on noneconomic factors. 5. See the third paragraph of our response to VA comments in the body of the letter (p. 33). 6. As we report in 1997, VA conducted the Economic Validation of the Rating Schedule (ECVARS) in the 1960s in response to the Bradley Commission recommendations and recurring criticisms that ratings in the schedule were not accurate. This study was designed to estimate the average loss in earning capacity among disabled veterans by calculating the difference between the earnings of disabled veterans, by condition, and the earnings of nondisabled veterans, controlling for age, education, and region of residence. On the basis of the results, VA concluded that of the approximately 700 diagnostic codes reviewed, the ratings for 330 overestimated veterans’ average loss in earnings due to their conditions, and about 75 underestimated the average loss among veterans. To determine whether an applicant qualifies for DI or SSI disability benefits, SSA uses a five-step sequential evaluation process. In the first step, an SSA field office determines if an applicant is working at the level of substantial gainful activity and whether he or she meets the applicable nonmedical eligibility requirements (for example, residency, citizenship, Social Security insured status for DI, and income and resources for SSI). An applicant who is found to be not working or working but earning less than the substantial gainful activity level (minus allowable exclusions), and who meets the nonmedical eligibility requirements, has his or her case forwarded to a state Disability Determination Service (DDS) office. Applicants who do not meet these requirements, regardless of medical condition, are denied benefits. DDS offices gather medical, vocational, and other necessary evidence to determine if applicants are disabled under the Social Security law. In step two, the DDS office determines if the applicant has an impairment or combination of impairments that is severe and could be expected to last at least 12 months. According to SSA standards, a severe impairment is one that significantly limits an applicant’s ability to do “basic work activities,” such as standing, walking, speaking, understanding, and carrying out simple instructions; using judgment; responding appropriately to supervision; and dealing with change. The DDS office collects all necessary medical evidence, either from those who have treated the applicant or, if that information is insufficient, from an examination conducted by an independent source. Applicants with severe impairments that are expected to last at least 12 months proceed to the third step in the disability determination process; applicants without such impairments are denied benefits. At step three, the DDS office compares the applicant’s condition with the Listing of Impairments (the Medical Listings) developed by SSA. The Medical Listings describe medical conditions that, according to SSA, are severe enough ordinarily to prevent an individual from engaging in substantial gainful activity. An applicant whose impairment is cited in the Medical Listings or whose impairment is equally as severe or more severe than those impairments in the Medical Listings and who is not engaging in substantial gainful activity is found to be disabled and awarded benefits. An applicant whose impairment is not cited in the Medical Listings or whose impairment is less severe than those cited in the Medical Listings is evaluated further to determine whether he or she has vocational limitations that, when combined with the medical impairment(s), prevent work. In step four, the DDS office uses its physician’s assessment of the applicant’s residual functional capacity to determine whether the applicant can still perform work he or she has done in the past. For physical impairments, residual functional capacity is expressed in certain demands of work activity (for example, ability to walk, lift, carry, push, pull, and so forth); for mental impairments, residual functional capacity is expressed in psychological terms (for example, whether a person can follow instructions and handle stress). If the DDS office finds that a claimant can perform work done in the past, benefits are denied. In the fifth and last step, the DDS office determines if an applicant who cannot perform work done in the past can do other work that exists in the national economy. Using SSA guidelines, the DDS considers the applicant’s age, education, vocational skills, and residual functional capacity to determine what other work, if any, the applicant can perform. Unless the DDS office concludes that the applicant can perform work that exists in the national economy, benefits are allowed. At any point in the sequential evaluation process, an examiner can deny benefits for reasons relating to insufficient documentation or lack of cooperation by the applicant. Such reasons can include an applicant’s failure to (1) provide medical or vocational evidence deemed necessary for a determination by the examiner, (2) submit to a consultive examination that the examiner believes is necessary to provide evidence, or (3) follow a prescribed treatment for an impairment. Benefits are also denied if the applicant asks the DDS to discontinue processing the case. The following people also made important contributions to this report: William A. McKelligott, Barbara W. Alsip, and Daniel A. Schwimer.

Summary: The three largest disability programs collectively provided $89.7 billion in cash benefits to 10.2 million adults in 2001. However, the Disability Insurance (DI) program, Supplemental Security Income (SSI) program, and VA disability criteria reflect neither medical and technological advances nor the labor market changes that affect the skills needed to perform work and work settings. If these federal disability programs do not update scientific and labor market information, they risk overestimating the limiting nature of some disabilities while underestimating others. Twelve years ago, both the Social Security Administration and the Department of Veterans Affairs (VA) began reviewing relevant medical advances and updating the criteria they use to evaluate claims. However, the time the agencies are taking to revise the medical criteria could undermine the very purpose of the update. Moreover, because of the limited role of treatment in the statutory and regulatory design of these programs, the updates have not fully captured the benefits afforded by advances in treatment. Also, the disability criteria used by DI, SSI, and VA programs have not incorporated labor market changes. These programs continue to use outdated information about the types and demands of jobs needed to determine the impact that impairments have on individuals' earning capacity. To incorporate scientific advances and labor market changes into the DI, SSI, and VA programs, steps can be taken within the existing program design, but some would require more fundamental change. Agencies need to continue their medical updates and vigorously expand their efforts to more closely examine labor market changes. At a more fundamental level, SSA and VA could consider changes to the disability criteria that would revisit the programs' basic orientation.