DI and SSI—the two largest federal programs providing cash and medical assistance to people with disabilities—grew rapidly between 1985 and 1994, with the enrollment of working-age people increasing 59 percent, from 4 million to 6.3 million, and the inflation-adjusted cost of cash benefits growing by 66 percent. Administered by SSA, DI and SSI paid over $50 billion in cash benefits to people with disabilities in 1994. To be considered disabled by either program, an adult must be unable to engage in any substantial gainful activity because of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last at least 1 year. Moreover, the impairment must be of such severity that a 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. Both programs use the same definition of disability but differ in important ways. DI, established in 1956, is an insurance program funded by payroll taxes paid by workers and their employers into a Social Security trust fund. The program is for workers who, having worked long enough and recently enough to become insured under DI, have lost their source of income because of disability. Medicare coverage is provided to DI beneficiaries after they have received cash benefits for 24 months. Almost 4 million working-age people (aged 18 to 64) received about $34 billion in DI cash benefits in 1994. resources, SSI is financed from general revenues. In most states, SSI entitlement ensures an individual’s eligibility for Medicaid benefits. In 1994, about 2.36 million working-age people with disabilities received SSI benefits. Federal SSI benefits paid to SSI beneficiaries with disabilities in 1994 equaled $18.9 billion. The composition of the DI and SSI caseloads has undergone many changes during the last decade. Between 1985 and 1994, DI and SSI experienced an increase in the proportion of beneficiaries with impairments—especially mental impairments—that keep them on the rolls longer than in the past. By 1994, 31 percent of DI beneficiaries and 57 percent of SSI working-age beneficiaries had mental impairments—conditions that have one of the longest anticipated entitlement periods (about 16 years for DI). In addition, the beneficiary population has become, on average, modestly but steadily younger since the mid-1980s. The proportion of working-age beneficiaries who are middle aged (aged 30 to 49) has steadily increased—from 30 to 40 percent for DI, and from 36 to 46 percent for SSI—as the proportion who are older has declined. The Social Security Act states that as many individuals applying for disability benefits as possible should be rehabilitated into productive activity. To this end, people applying for disability benefits are to be promptly referred to state vocational rehabilitation (VR) agencies for services intended to prepare them for work opportunities. To reduce the risk a beneficiary faces in trading guaranteed monthly income and premium-free medical coverage for the uncertainties of competitive employment, the Congress also established various work incentives to safeguard cash and medical benefits while a beneficiary tries to return to work. Despite congressional attention to employment as a way to reduce dependence, few beneficiaries leave the rolls to return to work. During each of the past several years, not more than 1 of every 500 DI beneficiaries has been terminated from the rolls because they returned to work. While DI and SSI return-to-work outcomes have been poor, many technological and medical advances have created more opportunities for some individuals with disabilities to engage in work. Electronic communications and assistive technologies—such as scanners, synthetic voice systems, standing wheelchairs, and modified automobiles and vans—have given greater independence to some people with disabilities, allowing them to tap their work potential. Advances in the management of disability—like medication to control mental illness or computer-aided prosthetic devices—have helped reduce the functional limitations associated with some disabilities. These advances may have opened new opportunities, particularly for some people with physical impairments, in the growing service sector of the economy. Social change has promoted greater inclusion of and participation by some people with disabilities in the mainstream of society, including children in school and 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, ADA supports the full participation of people with disabilities in society and fosters the expectation that people with disabilities can and have the right to work. ADA 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 cumulative impact of weaknesses in the design and implementation of the disability programs is to understate beneficiaries’ work capacity and impede efforts to improve return-to-work outcomes. Despite a changing beneficiary population and advances in technology and medicine that have increased the potential for some beneficiaries to work, the disability programs have remained essentially frozen in time. Weaknesses in the design and implementation of the DI and SSI programs, summarized in table 1, have impeded identifying and encouraging the productive capacities of those who might benefit from rehabilitation and employment assistance. Social Security: Disability Programs Lag in Promoting Return to Work “Either/or” decision gives incentive to promote inabilities and minimize abilities. Lengthy application process to prove one’s disability can erode motivation and ability to return to work. Cash and medical benefits themselves can reduce motivation to work and receptivity to VR and work incentives, especially when low-wage jobs are the likely outcome. People with disabilities may be more likely to have less time available for work, further influencing a decision to opt for benefits over work. “All-or-nothing” nature of DI cash benefits can make work at low wages financially unattractive. Risk of losing medical coverage when returning to work is high for many beneficiaries. Loss of other federal and state assistance is a risk for some beneficiaries who return to work. Few beneficiaries are aware that work incentives exist. Work incentives are not well understood by beneficiaries and program staff alike. Access to VR services through Disability Determination Service (DDS) referrals is limited: restrictive state policies severely limit categories of people referred by DDSs; the referral process is not monitored, reflecting its low priority and removing incentive to spend time on referrals; VR counselors perceive beneficiaries as less attractive VR candidates than other people with disabilities, making them less willing to accept beneficiaries as clients; and the success-based reimbursement system is ineffective in motivating VR agencies to accept beneficiaries as clients. Applicants are generally uninformed about VR and beneficiaries are not encouraged to seek VR, affording little opportunity to opt for rehabilitation and employment. Studies have questioned the effectiveness of state VR agency services since long-term, gainful work is not necessarily the focus of VR agency services. Delayed VR intervention can cause a decline in receptiveness to participate in rehabilitation and job placement activities, as well as a decline in skills and abilities. The monopolistic state VR structure can contribute to lower quality service at higher prices, and recent regulations allowing alternative VR providers may not be effective in expanding private sector VR participation. The Social Security Act requires that the assessment of an applicant’s work incapacity be based on the presence of medically determinable physical and mental impairments. SSA maintains a Listing of Impairments for medical conditions that are, according to SSA, ordinarily severe enough in themselves to prevent an individual from engaging in any gainful activity. About 70 percent of new awardees are eligible for disability because their impairments meet or equal the listings. But findings of studies we reviewed generally agree that medical conditions are a poor predictor of work incapacity. As a result, the work capacity of DI and SSI beneficiaries may be understated. While disability decisions may be more clear-cut in the case of people whose impairments inherently and permanently prevent them from working, disability determinations may be much more difficult for those who may have a reasonable chance of work if they receive appropriate assistance and support. Nonmedical factors may play a crucial role in determining the extent to which people in this latter group can work. The “either/or” nature of the disability determination process creates an incentive for applicants to overstate their disabilities and understate their work capacities. Because the result of the decision is either full award of benefits or denial of benefits, applicants have a strong incentive to promote their limitations to establish their inability to work and thus qualify for benefits. Conversely, applicants have a disincentive to demonstrate any capacity to work because doing so may disqualify them for benefits. Furthermore, the documentation involved in establishing one’s disability can, many believe, create a “disability mind-set,” which weakens motivation to work. Compounding this negative process, the length of time required to determine eligibility can erode skills, abilities, and habits necessary to work. employment. Neither do they allay the fear of losing medical coverage and other federal and state assistance that beneficiaries who return to work may face. Studies have identified the risk of losing medical coverage as a major barrier to beneficiaries’ returning to work. Beneficiaries who work and continue to earn countable income above certain amounts will eventually lose medical coverage even though they have not necessarily improved medically or obtained affordable coverage elsewhere. Finally, VR has played a limited role in the DI and SSI programs, in part because of restrictive state VR policies and limits on alternatives to providers in the state VR system. Beneficiaries are generally uninformed about the availability of VR services and are given little encouragement to seek them. Moreover, the effectiveness of state VR services in securing long-term financial gains has been mixed at best. In contrast to SSA’s disability programs, which have changed little over the years, some firms in the private sector are developing new approaches to manage the size and composition of their caseloads. Known as disability management, these approaches embody a proactive strategy for controlling disability costs by helping employees with disabilities return to work as soon as possible. Disability managers in the U.S. private sector spend money on return-to-work efforts because they believe such efforts are sound investments that reduce disability-related costs. Studies have estimated that the full cost of disability to employers ranges from about 6 to 12 percent of payroll. Such costs include insurance premiums, cash benefits, rehabilitation benefits, and medical benefits paid through workers’ compensation and employer-sponsored disability insurance programs. Companies may also incur additional expenses for training and using temporary workers and retraining employees with disabilities when they return to work. When businesses help workers with disabilities return to the workplace, they are able to reduce some of these costs. Intervene as soon as possible after a disabling event; Identify and provide necessary return-to-work services and manage cases; and Structure cash and medical benefits to encourage return to work. The practices underlying these strategies are summarized in table 2. Disability managers we interviewed emphasized that these return-to-work strategies are not independent of each other and work most effectively when integrated into a comprehensive return-to-work program. Return-to-work strategies and practices may hold potential both for improving federal disability programs by helping people with disabilities return to productive activity in the workplace and, at the same time, for reducing program costs. Disability managers we surveyed stressed the importance of early intervention in returning workers with disabilities to the workplace. Advocates of early intervention believe that the longer an individual stays away from work, the less likely return to work will be. Studies show that only one in two workers with recently acquired disabilities who are out of work 5 months or more will ever return to work. Disability managers believe that long absences from the workplace can reduce motivation to attempt work. Setting return-to-work goals soon after the onset of disability and providing timely rehabilitation services are believed to be critical in encouraging workers with disabilities to return to the workplace as soon as possible. Contacting a hospitalized worker soon after an injury or illness and then continuing to communicate with the worker recovering at home, for instance, helps reassure the worker that there is a job to return to and that the employer is concerned about his or her recovery. Another common strategy is to effectively identify and provide return-to-work services. This approach involves investing in services tailored to individual circumstances that help achieve return-to-work goals for workers with disabilities while avoiding unnecessary expenditures. In an effort to provide appropriate services, many in the private sector strive to identify the individuals who are likely to be able to return to work and then identify the specific services they need. In doing so, each individual should be functionally evaluated after his or her medical condition has stabilized to assess potential for returning to work. When appropriate, the private sector uses case management techniques to coordinate the identification, evaluation, and delivery of disability-related services to individuals deemed to need such services to return to work. Transitional work allows workers with disabilities to ease back into the workplace in jobs that are less physically or mentally demanding than their regular jobs. The private sector also stresses the need to ensure that physicians and other medical service providers understand the essential job functions of workers with disabilities. Without this understanding, the worker’s return to work could be delayed unnecessarily. Also, if an employer is willing to provide transitional work opportunities or other job accommodations, the treating physician must be aware of and understand these accommodations. Finally, disability managers responding to our survey generally offered incentives through their programs’ cash and medical benefit structure to encourage workers with disabilities to return to work. Disability managers believe that a program’s incentive structure can affect return-to-work decisions. The level of cash benefits paid to workers with disabilities can affect their attitudes toward returning to work because, if disability benefits are too generous, the benefits can create a disincentive for participating in return-to-work efforts. Disability managers also believe employer-sponsored medical benefits can provide an incentive to return to work if returning is the way that workers with disabilities in the private sector can best ensure that they retain medical benefits. Although the structure of benefits plays a role in return-to-work decisions, disability managers emphasized that well-structured incentives are not sufficient in themselves for a successful return-to-work program. Incentives must be integrated with other return-to-work practices. Disability managers also generally advocated including a contractual requirement for cooperation with a return-to-work plan as a condition of eligibility for benefits. They believed such a requirement helps motivate individuals with disabilities to try to return to work. Return-to-work strategies used in the U.S. private sector and other countries reflect expectations that people with disabilities can and do return to work. The DI and SSI programs, however, are out of sync with this return-to-work focus. Improving the DI and SSI return-to-work outcomes requires restructuring these programs to better identify and enhance beneficiary return-to-work capacities. While there is opportunity for improvement, it should be acknowledged that many beneficiaries will be unable to return to work. In fact, almost half of the people receiving benefits are not likely to become employed because of their age or because they are expected to die within several years. For others, work potential is unknown; but research suggests that successful transitions to work may be more likely for younger people with disabilities and for those who have greater motivation and more education. Studies have shown that a meaningful portion of DI and SSI beneficiaries possess such characteristics. The DI and SSI disability rolls have been increasingly composed of a significant number of younger individuals. Among working-age SSI and DI beneficiaries, one out of three is under the age of 40. In addition, in 1993, 35 percent of 84,000 DI beneficiaries expressed an interest in receiving rehabilitation or other services that could help them return to work, an indication of motivation. Moreover, a substantial portion—almost one in two—of a cohort of DI beneficiaries had a high school degree or some years of education beyond high school.The literature also suggests that lack of work experience is a significant barrier to employability. A promising sign is that about one-half of DI and one-third of SSI working-age beneficiaries had some attachment to the labor force during the 5 years immediately preceding the year of benefit award. Even those who may be able to return to work will face challenges. For example, some may need to learn basic skills and work habits and build self-esteem to function in the workplace. Moreover, the nature of some disabilities may limit full-time work, while others may cause logistical obstacles, such as transportation difficulties. Finally, employer resistance to hiring people with disabilities and tight labor market conditions, particularly for low-wage positions, could constrain employment opportunities. Nevertheless, there are compelling reasons to try new approaches. As mentioned, our review of the disability determination process shows that the work capacity of an individual found eligible for DI and SSI benefits may be understated. And this country has experienced medical, technological, and societal advances over the past several years that foster return to work. But weaknesses in the design and implementation of the DI and SSI programs mean that little has been done to identify and encourage the productive capacities of beneficiaries who might be able to benefit from these advances. Restructuring of the DI and SSI programs should consider the return-to-work strategies employed by the U.S. private sector and social insurance programs in Germany and Sweden. Lessons from these other disability programs argue for placing greater priority on assessing return-to-work potential soon after individuals apply for disability benefits. The priority in the DI and SSI programs, however, is to determine the eligibility of applicants to receive cash benefits, not to assess their return-to-work potential. In conjunction with making an early assessment of return-to-work potential, the programs should place greater priority on identifying and providing, at the earliest appropriate time, the medical and vocational rehabilitation services needed to return to work. But under the current program design, medical and vocational rehabilitation services are provided too late in the process. Finally, the programs should be designed to ensure that cash and medical benefits encourage beneficiaries to return to work. Presently, however, cash and medical benefits can make it financially advantageous to remain on the disability rolls, and many beneficiaries fear losing their premium-free Medicare or Medicaid benefits if they return to work. Although SSA faces constraints in applying the return-to-work strategies of other disability programs, opportunities exist for better identifying and providing the return-to-work assistance that could enable more of SSA’s beneficiaries to return to work. Even relatively small gains in return-to-work successes offer the potential for significant savings in program outlays. In our April 1996 report, we recommended that the Commissioner take immediate action to place greater priority on return to work, including designing a more effective means to identify and expand beneficiaries’ work capacities and better implementing existing return-to-work mechanisms. In line with placing greater emphasis on return to work, we believe that the Commissioner needs to 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. As part of that strategy, the Commissioner needs to identify legislative changes that would be required to implement such a program. Mr. Chairman, this concludes my formal remarks. I would be happy to answer any questions from you and other Members of the Committee. Thank you. For more information on this testimony, please call Cynthia Bascetta, Assistant Director, at (202) 512-7207. Other major contributors included Carol Dawn Petersen, Senior Economist; Barbara Bordelon, Brett Fallavollita, and Ira Spears, Senior Evaluators; and Kenneth Daniell and Ellen Habenicht, Evaluators. SSA Disability: Program Redesign Necessary to Encourage Return to Work (GAO/HEHS-96-62, Apr. 24, 1996). PASS Program: SSA Work Incentive for Disabled Beneficiaries Poorly Managed (GAO/HEHS-96-51, Feb. 28, 1996). SSA’s Rehabilitation Programs (GAO/HEHS-95-253R, Sept. 7, 1995). Social Security Disability: Management Action and Program Redesign Needed to Address Long-Standing Problems (GAO/T-HEHS-95-233, Aug. 3, 1995). Supplemental Security Income: Growth and Changes in Recipient Population Call for Reexamining Program (GAO/HEHS-95-137, July 7, 1995). Disability Insurance: Broader Management Focus Needed to Better Control Caseload (GAO/T-HEHS-95-164, May 23, 1995). Supplemental Security Income: Recipient Population Has Changed as Caseloads Have Burgeoned (GAO/T-HEHS-95-120, Mar. 27, 1995). Social Security: Federal Disability Programs Face Major Issues (GAO/T-HEHS-95-97, Mar. 2, 1995). Supplemental Security Income: Recent Growth in the Rolls Raises Fundamental Program Concerns (GAO/T-HEHS-95-67, Jan. 27, 1995). Social Security: Disability Rolls Keep Growing, While Explanations Remain Elusive (GAO/HEHS-94-34, Feb. 8, 1994). Vocational Rehabilitation: Evidence for Federal Program’s Effectiveness is Mixed (GAO/PEMD-93-19, Aug. 27, 1993). Vocational Rehabilitation Program: Client Characteristics, Services Received, and Employment Outcomes (GAO/T-PEMD-92-3, Nov. 12, 1991). Social Security: Little Success Achieved in Rehabilitating Disabled Beneficiaries (GAO/HRD-88-11, Dec. 7, 1987). Social Security: State Vocational Rehabilitation Agencies’ Reimbursement for the Disabled (GAO/HRD-87-36BR, Feb. 3, 1987). 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Summary: GAO discussed Social Security Disability Insurance (DI) and Supplemental Security Income (SSI) program weaknesses that impede the Social Security Administration (SSA) from requiring beneficiaries to work. GAO noted that: (1) between 1985 and 1994, the combined DI and SSI beneficiary population increased 70 percent and the cost of cash benefits grew 66 percent; (2) these increases were due to eligibility expansion, program outreach, fewer continuing disability reviews, economic factors, and demographic changes; (3) the beneficiary population is growing younger, and more beneficiaries have long-term impairments; (4) the development of effective return-to-work strategies for people with severe disabilities is challenging because individuals require various levels of support, remedial training, and education; (5) technological and medical advances and economic and social changes have created more potential for some individuals with disabilities to return to work; (6) the SSI and DI benefit structure further complicates disability and work capability determinations; and (7) although SSI and DI programs offer such work incentives as trial work periods, extended eligibility, earned income exclusion, work expense subsidies, continued health insurance coverage, and reentitlement, they are not appropriately designed or implemented to motivate beneficiaries to return to work.