Advances in technology and medicine and economic changes have created more potential for people with disabilities to engage in employment. Moreover, there has been a trend toward greater inclusion of and participation by people with disabilities in the mainstream of society. These changes have sparked an increased interest in public policy on the employment of people with disabilities. In this report, we focus on Disability Insurance (DI) and Supplemental Security Income (SSI)—the two largest federal programs providing assistance to people with disabilities. Provisions contained in the legislation that created DI and SSI focus on returning people with disabilities to self-supporting employment whenever possible. Yet, very few people have left the disability rolls to return to work. DI is the nation’s primary source of income replacement for workers with disabilities who have paid Social Security taxes and are entitled to benefits. SSI provides federal and state assistance to people who are aged, blind, or disabled, regardless of Social Security coverage, whose income and resources are below a specified amount. DI and SSI are administered by the Social Security Administration (SSA) with the assistance of state agencies. Estimates of the number of people with disabilities in the United States depend on the definition of disability. The Survey of Income and Program Participation—an ongoing study by the U.S. Census Bureau of the economic well-being of the civilian noninstitutionalized population—reports about 51.5 million people with some type of work or functional limitation. Approximately 43 million people are reported as having disabilities when using the definition of disability in the Americans With Disabilities Act of 1990 (ADA). According to ADA, having a physical or mental impairment substantially limiting one or more major life activity, having a record of such an impairment, or being regarded as having such an impairment constitutes disability. When disability is defined by inability to work or perform other major activities, the size of the population with disabilities is much smaller. For instance, about 16 million persons are work disabled according to the U.S. Census Bureau’s 1993 Current Population Survey, which defines work disability as a self-reported limitation in the type or amount of work a person is able to perform because of chronic illness or impairment. Working-age adults with disabilities can obtain benefits in the form of services and short- and long-term cash assistance from a number of public and private programs (see app. I). After the onset of a disabling condition, workers may be eligible for return-to-work services, such as rehabilitation. The aim of such return-to-work services is to maintain workers in their current work setting. These services are provided through various means, including employers, private disability insurers, state or private nonprofit vocational rehabilitation programs, and workers’ compensation programs. If, however, a worker is temporarily unable to work while recovering from an illness or injury but is expected to recover, the worker may turn to short-term cash benefits to replace lost wages. To illustrate, in the case of a temporary inability to work caused by an illness or an off-the-job injury, a person might be eligible for short-term cash disability benefits from state temporary disability insurance. Five states provide this type of benefit.Or, a worker might be eligible for paid sick leave or sickness or accident insurance benefits if a policy is provided by the employer or purchased by the worker. If the worker is injured on the job but is expected to recover, he or she may be eligible for temporary workers’ compensation benefits. Once the worker recovers and returns to the workplace, temporary cash benefits end. Those who do not return to work may seek long-term cash benefits to replace lost wages. They may be eligible for private disability insurance benefits—either employer-provided or from a personal policy—or, if injured on the job, for workers’ compensation. In some cases, workers can supplement DI coverage—the country’s long-term public disability insurance program for workers—with cash benefits from private long-term disability insurance. But a worker who is not eligible for cash benefits from either private insurance or workers’ compensation and is unable to be accommodated in the workplace may discover that DI offers the only potential for wage replacement. Long-term benefits may also be sought by people with disabilities who have low income and limited assets, regardless of their work histories. Individuals with little or no work history are unlikely to be covered by employer-provided disability insurance. Moreover, it is unlikely that such individuals could afford to purchase a private disability policy. These individuals may apply for SSI benefits. SSI provides income support at the national level regardless of work connection for low-income people with disabilities. DI and SSI are the two major public programs serving people with disabilities. In 1994, 3.3 million disabled workers were enrolled in DI and received, on average, about $660 a month; 2.4 million adults aged 18 to 64 were enrolled in SSI and received, on average, about $360 a month (beneficiaries in the 48 states plus the District of Columbia that provided a monthly SSI supplement in 1994 received, on average, an additional $103). In addition, 671,000 more people were concurrently enrolled in both programs, and 841,000 children with disabilities received SSI benefits. DI is designed to insure covered workers against loss of income due to a disabling condition. The program was established in 1956 under title II of the Social Security Act. At that time, its primary purpose was to prevent “loss or reduction of benefit rights” for wage earners who became disabled and were considered unable to continue paying Social Security taxes. The program provided payment of cash benefits to disabled workers aged 50 or older. Benefits for dependents of disabled workers were provided by the 1958 Social Security Amendments, and benefits to disabled workers under age 50 were provided by the 1960 amendments. The Congress authorized Medicare coverage for DI beneficiaries in 1972, making it available to beneficiaries after they have received cash benefits for 24 months. Those who have worked long enough and recently enough become insured for DI coverage, but there is no requirement that a disabling impairment happen on or because of the job. The DI program is funded through Federal Insurance Contributions Act (FICA) taxes paid into a trust fund by employers and workers. The SSI program was authorized in 1972 under title XVI of the Social Security Act as a means-tested income assistance program for the aged, blind, or disabled. In most cases, SSI beneficiaries are eligible for Medicaid coverage. SSI raised to the federal level preexisting federal/state welfare programs authorized under various provisions of the Social Security Act. Unlike DI beneficiaries, SSI disabled recipients do not need to have a work history to qualify for benefits, but they must have low income and limited assets. The SSI program is funded through general revenues. The Social Security Act defines disability as the inability to engage in any substantial gainful activity (SGA) 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 12 months or longer. Moreover, the act states that 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 engage in any other kind of substantial work that exists in the national economy. To apply for DI or SSI benefits, a person must file an application at any one of 1,300 SSA field offices or other authorized locations. For SSA to determine whether an applicant qualifies for disability benefits, the application proceeds through a five-step evaluation process (see app. II). In step one, an SSA field office determines if an applicant is currently engaged in SGA. If an applicant is found not to be engaged in SGA, the field office forwards the application to a state Disability Determination Service (DDS) office for processing through the remaining four steps until a determination of disability or no disability is reached. A DDS office develops medical, functional, vocational, and other necessary evidence; evaluates it; and determines whether the applicant meets the disability criteria set forth in SSA regulations. Once the DDS has determined that the applicant meets the criteria, SSA calculates the benefits payable and makes the award. SSA pays the costs incurred by DDSs in evaluating applications, including the expense of collecting medical evidence they request from hospitals, clinics, or other institutions. There are 54 DDSs throughout the country employing about 12,000 full-time and 2,000 part-time employees. SSA reported that in fiscal year 1994 the DDSs processed about 2.6 million initial claims, and the total DDS budget was about $1.1 billion. Applicants denied benefits after the initial DDS review may request a reconsideration by the DDS office. If still not satisfied, they can appeal to an administrative law judge. If denied again, they may appeal to the SSA Appeals Council and, later, to the federal district courts. Once a person is on the disability rolls, disability benefits continue until one of three things happens: the beneficiary dies; SSA determines that the beneficiary is no longer eligible for benefits; or, for DI beneficiaries, benefits convert to Social Security retirement benefits at age 65. Generally, a beneficiary loses eligibility for benefits under one of two conditions: (1) a beneficiary earns more income than allowed by program rules (the monthly ceiling is $500 for disabled DI beneficiaries and $960 for blind DI beneficiaries; for SSI, the ceiling varies from state to state—for example, $1,464 in Pennsylvania and $1,855 in California) or (2) SSA decides that a beneficiary’s medical condition has improved to the point that he or she is no longer considered disabled and can now perform work at the SGA level. In order to make this latter determination, SSA periodically performs continuing disability reviews. The law requires SSA to conduct such a review at least once every 3 years on DI beneficiaries whose medical improvement is possible or expected. When medical improvement is not expected, SSA is required to schedule a continuing disability review at least once every 7 years. The Social Security Act states that people applying for disability benefits should be promptly referred to state vocational rehabilitation (VR) agencies for services in order to maximize the number of such individuals who can return to productive activity. However, the act does not require that all applicants be referred to VR agencies because doing so would not be useful in many circumstances (for example, a 62-year-old person who experienced an accident resulting in total paralysis would be unlikely to benefit sufficiently from VR to return to work). DDS offices decide whether or not to refer applicants to state VR agencies. DDS offices make referral decisions using SSA’s recommended criteria and additional criteria developed in consultation with state VR agencies to screen out applicants who are not considered to be reasonable candidates for rehabilitation. Once a referral has been made, a state VR agency weighs the candidate’s potential for rehabilitation against that of other VR applicants. If the VR agency decides to offer services to the applicant, it contacts the applicant directly. State VR agencies also provide rehabilitation services to people not involved with the DI and SSI programs. VR services include, for example, guidance, counseling, and job placement, as well as therapy and training. State VR agencies are reimbursed by the federal government for the rehabilitation cost of each DI/SSI client who is returned to employment at the SGA level for 9 continuous months. The Social Security Act provides for withholding benefits from beneficiaries for refusal, without good cause, to accept rehabilitation services offered to them. A beneficiary who engages in work encounters additional challenges, however. By returning to work, a beneficiary trades guaranteed monthly income and premium-free medical coverage for the uncertainties of competitive employment. To reduce this risk, the Congress has established program provisions, referred to as work incentives, to safeguard cash and medical benefits while a beneficiary tries to return to work. For example, DI provisions allow beneficiaries to engage in a trial work period during which they can earn any amount without affecting their benefits.Beneficiaries who complete a trial work period but who do not medically recover can retain Medicare coverage for at least an additional 39 months. In addition, cash benefits can be reinstated for any month within a 36-month period following the end of a trial work period if a beneficiary’s earnings drop below the SGA level. Under SSI provisions, beneficiaries whose impairments continue are allowed to earn above the SGA level and to continue to receive reduced cash benefits indefinitely. Also, SSI beneficiaries whose earnings eliminate eligibility for cash benefits can continue to receive Medicaid coverage if their incomes remain within certain limits. Despite congressional interest in helping return DI and SSI beneficiaries to employment, few beneficiaries engage in work while on the rolls and fewer still leave the rolls to return to work. In a recent month, for example, about 8 percent of SSI recipients aged 18 to 64 reported any earnings, and about 1 percent of DI beneficiaries reported earning $500 or more. Moreover, during each of the past several years, about 6,000 of the more than 3 million DI beneficiaries have been terminated from the rolls because they returned to work. Although SSA does not count the number of SSI beneficiaries terminated because of return to work, it has estimated that few are terminated for this reason. The proportion of beneficiaries who return to work (1 in 500 for DI) would be higher if candidates unlikely to obtain gainful employment were excluded from the equation. Such candidates include, for example, beneficiaries who are expected to die or to reach retirement age within a few years following benefit award. SSA research findings provide some estimate of the size of these groups. Among a cohort of beneficiaries who entered DI in 1988, 28 percent died and 17 percent reached 65 within 5-1/2 years. Also, among cohorts of recipients who entered SSI between 1974 and 1982, 28 percent died or reached 65 within 10 years. Moreover, 46 percent of all working-aged DI and SSI beneficiaries are 50 or older. While age alone may be neither an accurate nor appropriate predictor of return-to-work potential, older workers who become disabled generally are less likely to recover functioning and return to work than younger workers. The Chairman of the Senate Special Committee on Aging asked us to examine trends in the DI and SSI programs and determine why few beneficiaries are returned to substantial gainful employment. On the basis of subsequent discussions with his office, we designed our study to do the following: describe changes in the number and characteristics of DI and SSI program beneficiaries over time and the implications of these changes for returning beneficiaries to work; analyze the disability determination process to assess whether it can accurately distinguish between applicants who can work and those who cannot; and evaluate the effect of the disability determination process, work incentives, and vocational rehabilitation on returning DI and SSI beneficiaries to work. To do this work, we reviewed the extant literature and synthesized our prior work and reports published by SSA, the Congressional Research Service (CRS), and others; analyzed information from SSA; interviewed federal and state agency officials, experts, and advocates; observed DDS operations; and conducted six focus groups around the country with people receiving federal disability benefits. We also convened a panel of disability experts (see app. III) to review our findings and comment on the report’s accuracy, completeness, objectivity, and soundness. A bibliography of the literature we used in our analysis and a list of related GAO products are presented at the end of this report. We did not independently verify the accuracy of the data used in the analysis of this report. Our work was performed between February 1994 and December 1995 in accordance with generally accepted government auditing standards. The number of beneficiaries and the cost of program benefits have grown rapidly since the mid-1980s. Program growth is attributed to factors that increased the number of people coming onto the rolls and decreased the number leaving. As the beneficiary population has grown, a greater portion of beneficiaries now have impairments—especially mental impairments—that are likely to keep them on the rolls for longer periods than in the past. Also, the beneficiary population has proportionately more middle-aged adults and fewer older beneficiaries, although trends in recent years suggest that the relative numbers of older beneficiaries may increase in the years ahead. For the current beneficiary population, there are challenges to develop effective return-to-work strategies that will recognize and flexibly respond to individual differences. However, while economic changes may have had a mixed impact on work opportunities for people with disabilities, technological and medical advances—along with a trend toward inclusion of and participation by people with disabilities in mainstream society—have created more potential for some people with disabilities to engage in gainful work. Between 1985 and 1994, the combined DI and SSI beneficiary population increased 70 percent and the inflation-adjusted cost of cash benefits grew 66 percent. Although the reasons for growth are not fully understood, a number of factors are believed to have increased the number of people who entered the programs and decreased the number who were terminated. These factors include eligibility expansion; program outreach; fewer continuing disability reviews; and occurrences external to the programs, for example, a downturn in the business cycle and demographic changes. At the same time, the portion of the adult beneficiary population with longer-lasting impairments has increased since the mid-1980s. This trend has been driven especially by increases in the proportion of beneficiaries with mental impairments. In 1994, more people qualified for disability benefits because of mental retardation and mental illness than any other impairment category. Compared with beneficiaries with shorter-term impairments, a lower proportion of beneficiaries with longer-term impairments are terminated from the rolls each year because of death. The growing proportion of beneficiaries with longer-lasting impairments means that the beneficiary population, on average, is likely to spend more time on the rolls before reaching age 65. In addition, the beneficiary population has become, on average, modestly but steadily younger since the mid-1980s. The proportion of adult beneficiaries who are middle-aged has steadily increased as the proportion who are older has declined. However, this trend reversed slightly between 1992 and 1994. Coupled with the aging of the “baby boom” cohort, this suggests that the age of the beneficiary population may increase in the years ahead. DI and SSI caseloads and expenditures increased dramatically between 1985 and 1994, and the pace of this growth accelerated in the early 1990s. As a result of this rapid growth, concern arose regarding the adequacy of the DI Trust Fund. Responding to estimates that the DI Trust Fund would be depleted in 1995, the Congress reallocated payroll tax receipts in 1994 from the Social Security Old Age and Survivors Trust Fund into the DI Trust Fund. SSA has estimated that by the end of 2016 this measure will have transferred $499 billion from the Old Age and Survivors Insurance Trust Fund into the DI Trust Fund. In 1985, 4.2 million blind and disabled persons under age 65 received DI or SSI benefits: 2.3 million received DI benefits, 1.6 million blind and disabled adults and children received SSI, and about 324,000 people received both DI and SSI benefits. By 1994, the number of blind and disabled people under age 65 receiving DI or SSI benefits reached 7.2 million. The DI beneficiary population increased 41 percent, the SSI beneficiary population increased 105 percent, and the number of people receiving both DI and SSI increased 107 percent. (See table 2.1.) Moreover, 37 percent of the growth between 1985 and 1994 in the overall size of the disability rolls occurred between 1992 and 1994 (see fig. 2.1). Appendix IV presents information on the entire 1985 to 1994 period. As the number of DI and SSI beneficiaries increased, so did the amount paid in cash benefits. In 1985, SSA paid $17 billion in DI cash benefits and $7 billion in SSI cash benefits. By 1994, cash benefits reached $34 billion for DI and $19 billion for SSI. Overall, the combined DI and SSI cash benefits increased from $23 billion to $53 billion in 10 years (adjusted for inflation, the increase in the value of cash benefits was 66 percent). Moreover, the cost of DI and SSI benefits nearly doubles when including the cost of health care coverage. In 1994, the cost of providing Medicare and Medicaid to beneficiaries was about $48 billion, bringing the federal cost of cash benefits and health care coverage for disabled beneficiaries in that year to about $101 billion. Although the reasons for growth and their relative effects are not fully understood, multiple factors contributed to the increase in program growth. The following factors affected program growth by bringing more people into the programs and lowering the rate at which some beneficiaries left the programs. The eligibility standards, especially for mental impairments (which include mental retardation and mental illness), were expanded in the mid- to late 1980s. Standards expanded largely because of the effects of legislative, regulatory, and judicial action. For example, additions were made to the listing of medical criteria used by SSA to determine program eligibility, which gave greater weight to evidence gathered from an applicant’s own physician, and more consideration was granted to pain and functional deficits in social relations and in concentration. The purpose of SSA’s outreach efforts has been to reduce the barriers that prevented or discouraged potentially eligible individuals from applying for SSI benefits. SSA has conducted several outreach efforts since program authorization in 1972. Around the late 1980s, congressional and agency actions were taken to ensure that all segments of the potential SSI population were made aware of their potential eligibility. For instance, a permanent outreach program for disabled and blind children was established by the Omnibus Budget Reconciliation Act of 1989; SSA made SSI outreach an ongoing agency priority in 1989; and, in 1990, the Congress mandated that SSA expand the scope of its SSI outreach efforts. Since 1990, the Congress has appropriated $33 million for SSA to complete a series of outreach demonstration projects. Economic factors play an important role in the decisions of people with disabilities to seek disability benefits, particularly DI benefits, according to an SSA-sponsored study on the demographic and economic determinants of growth in SSA disability programs. Factors that reduce the rewards of participating in the labor force for people with disabilities, such as downturns in the business cycle, make leaving the labor force and applying for benefits more attractive to people with disabilities. However, while economic downturns contribute to program growth, no evidence exists that there has been a concomitant exit from the DI rolls when the economy has improved. Many state and local governments actively encouraged and assisted disabled recipients of state-funded general assistance (GA) to apply for SSI benefits when GA was cut in these jurisdictions. These state and local efforts to shift public assistance recipients with disabilities onto the SSI rolls appeared to increase the number of SSI (and, to a lesser extent, DI) applications and awards, according to the SSA-sponsored study on growth in the disability programs. An increase in the number of people without affordable health insurance may have affected the size of DI and SSI. The uninsured population under age 65 in the United States grew by 5 million persons between 1988 and 1992. Coupled with this growth, limitations in employer-based health care coverage for chronic conditions may have prompted some individuals to apply for DI or SSI for health care protection. Demographic changes have played a role in program growth. For example, the aging baby boom cohort born between 1946 and 1964 (which increased the number of people in middle age during the late 1980s and early 1990s), greater labor force participation among women (which increased the number of women insured for disability benefits), and declines in marriage rates (which may have limited the income support provided by spouses of people with disabilities) have been associated with increases in program applications and awards. Also, the growing number of immigrants admitted annually for legal residence in the United States may have contributed to SSI growth. In 1993, 880,00 immigrants were admitted to the United States, compared with 570,000 in 1985. In addition, nearly 3 million formerly illegal immigrants attained legal residence status under the Immigration Reform and Control Act of 1986. This increased immigrant population is likely to have contributed to the rising portion of disabled immigrants on SSI, which increased from less than 2 percent of the SSI disabled population in 1982 to about 6 percent in 1993. As more people were enrolled, the DI termination rate decreased and the SSI termination rate remained stable, thereby resulting in a net increase in DI and SSI program size. The DI termination rate decreased from 13.1 percent in 1985 to 10.8 percent in 1992 (between 1970 and 1984, the DI termination rate fluctuated between 14 and 19 percent). The termination rate for each of the major reasons for exiting DI—conversion to retirement benefits at age 65, death, failure to meet medical criteria, and return to work—decreased during this period (reaching age 65 and dying accounted for the vast majority of instances of termination from 1985 to 1992). Between 1988 and 1993, the SSI termination rate for adults with disabilities remained around 16 percent. A factor contributing to the decrease in DI terminations due to medical recovery (which was relatively low from 1985 to 1992) may have been the reduction in the number of continuing disability reviews (CDR) performed by SSA. In the early 1990s, because of SSA resource constraints and increasing initial claims workloads, the number of DI CDRs declined dramatically. In 1995, the backlog of CDRs for DI beneficiaries was about 1.5 million cases, with about 500,000 additional cases coming due each year. SSA researchers have found that the types of impairments that qualify people for benefits are associated with different lengths of entitlement.The researchers calculated average length of stay on the disability rolls for DI and SSI cohorts who were awarded benefits (“awardees”) from 1975 through 1993. For DI awardees, on average, mental impairments (16 years); diseases of the nervous system (13 years); and musculoskeletal impairments (10 years) lead to the longest entitlement periods. Between 1986 and 1994, the proportion of DI beneficiaries with any one of these three impairment types increased from 54 percent to 62 percent (see table 2.2). Most of this growth occurred within the category of mental impairment, which increased from 24 percent of the DI beneficiary population in 1986 to 31 percent in 1994. The trend toward a greater portion of beneficiaries with longer-lasting impairments signifies lengthy stays on the rolls for some. For SSI adult awardees, on average, mental impairments and diseases of the nervous system also lead to the longest entitlement periods. The proportion of adult SSI beneficiaries with either of these impairment types increased from 60 percent in 1986 to 65 percent in 1994. In 1994, about 57 percent of adult SSI beneficiaries had a mental impairment, up from 50 percent in 1986. (See table 2.3.) Between 1986 and 1994, the proportion of adult beneficiaries who were middle aged steadily increased as the proportion who were older than middle aged declined. Although this trend signified that the beneficiary population had become younger, it did not signify that the population was young, as only 10 percent of the adult DI/SSI disability rolls consisted of persons aged 18 to 29 in 1994. Moreover, the proportion of older new awardees increased slightly in recent years, suggesting that the beneficiary population will become older in the years ahead if this trend persists. Among the DI population, the proportion of beneficiaries aged 30 to 49 steadily increased from 30 percent in 1986 to 40 percent in 1994. While the proportion of DI beneficiaries who were younger remained around 4 percent during this time, the proportion of older DI beneficiaries steadily decreased from 66 percent in 1986 to 56 percent in 1994. Likewise, within SSI, the proportion of beneficiaries who were middle aged increased as the proportions of beneficiaries who were older or younger decreased. The proportion of SSI beneficiaries aged 30 to 49 increased from 36 percent in 1986 to 46 percent in 1994. During this time, the proportion of beneficiaries who were older decreased from 40 percent to 35 percent, and the proportion of beneficiaries who were younger decreased from 23 percent to 19 percent. (See table 2.4.) The trend toward serving a greater proportion of beneficiaries who were middle aged was also generally evident among new awardees. While the proportion of DI awardees who were under 35 fluctuated somewhere around 17 percent between 1986 and 1994, the proportion of DI awardees who were middle aged steadily increased from 25 percent to 31 percent; the proportion of DI awardees who were older than middle aged steadily decreased, except in 1994, from 55 percent to 51 percent. Between 1993 and 1994, however, the proportion of DI awardees who were between 50 and 64 increased nearly 3 percentage points (an increasing proportion of DI awardees who are older may continue into the future as the baby boom cohort turns 50 and older). Likewise, the proportion of SSI middle-aged awardees increased modestly between 1986 and 1992; between 1992 and 1993, the proportion of middle-aged awardees decreased as the proportion of older awardees and, to a lesser extent, younger awardees increased. Overall, the proportions of younger, middle-aged, and older SSI awardees in 1993 were roughly equal. (See table 2.5.) Developing effective return-to-work strategies for people with disabilities presents challenges to policymakers. For example, strategies need to recognize individual differences and abilities and should have the flexibility and capacity to provide varying levels and types of assistance. Some people may require a one-time medical intervention, while others may need ongoing and changing levels of medical support; some individuals may require remedial retraining, and others may need education and job coaching. Moreover, beneficiaries with limited work histories present particular challenges in finding and maintaining employment. In addition to needing to learn basic skills and work habits, some beneficiaries, for example, may need to overcome social isolation and low self-esteem in order to function at the workplace. Also, even jobs that pay low wages may not be widely available for some beneficiaries and may become more scarce in the future. Real wages for the least skilled workers have declined since the late 1970s. Current welfare reform proposals call for sending low-skilled people into the labor market, so competition for low-wage jobs may increase. Also, the U.S. economy may be moving toward more temporary or part-time work (which generally offers little if any health care coverage and other benefits). While this trend would match the needs of some beneficiaries who cannot or do not want to work full-time, it would also make the road to economic self-sufficiency more difficult and less attractive than public support for others, particularly for those who earn low wages. In addition, employment may be more easily disrupted for some people with disabilities, thereby creating additional challenges to developing successful return-to-work mechanisms. For instance, people with visual impairments who work in office settings may undergo more adjustment than other workers if an office converts from a text- to a graphics-mode of communication. At a more basic level, some people with disabilities may experience difficulty in getting to work in the event of inclement weather or changes in public transportation schedules. Moreover, the nature of some disabilities may make it difficult for some workers to engage in full-time work while other disabilities may stigmatize individuals and perhaps make them appear less attractive to employers. Finally, a shift in the U.S. economy from labor/manufacturing to skill/service-based jobs may have had a negative impact on the job opportunities for some people with mental impairments. Although efforts to maximize the work potential of people currently on the disability rolls face many challenges, numerous technological and medical advances and economic changes have created more potential for some people with disabilities to engage in work. Electronic communications and assistive technologies—such as synthetic voice systems, standing wheelchairs, and modified automobiles and vans—have given greater independence and more work potential to some people with disabilities. Advances in the management of disability—like medication to control mental illness or computer-aided prosthetic devices that return some functioning to the impaired—have helped reduce the severity of some disabilities. Also, the shift in the U.S. economy toward the service industry may have opened new opportunities for some people with physical impairments. Moreover, over the last several decades, there has been a trend toward greater inclusion of and participation by people with disabilities in the mainstream of society. 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. Additionally, the ADA supports the full participation of people with disabilities in society and fosters the expectation that people with disabilities can work. The ADA prohibits employers from discriminating against qualified individuals with disabilities and requires employers—without undue hardship—to make reasonable workplace accommodations. 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. The findings of the studies we reviewed generally agree that difficult measurement and conceptual issues complicate the use of medical conditions as the basis for decisions on work incapacity. Indeed, making valid decisions about who can work and who cannot is very difficult. While decisions may be more clear cut in the case of people whose impairments inherently and permanently prevent work, disability determinations may be much more difficult concerning people 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 engage in substantial gainful activity. Compounding decision-making difficulties are program features that, taken together, can undermine the incentive to attempt work. First, the “either/or” focus of the disability determination process encourages applicants to concentrate on their inabilities. Moreover, people who have successfully established their disability to SSA staff may have little reason or desire to attempt rehabilitation and competitive work. Second, the benefit structure can provide disincentives to low-wage workers. Third, work incentives, which few beneficiaries take advantage of, are generally ineffective in encouraging return to work. Finally, VR plays a limited role in the disability programs because beneficiaries have poor and untimely access to services, and the long-term gains for people who receive VR services are generally lacking. As a result, the design and implementation of DI and SSI undermine the ability of SSA to identify and expand work capacities of beneficiaries and return them to substantial gainful employment. Table 3.1 summarizes these program weaknesses. The Social Security Act defines disability as the inability to engage in any SGA 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 12 months or longer. A physical or mental impairment is one that results from anatomical, physiological, or psychological abnormalities that are demonstrable by medically acceptable clinical and laboratory diagnostic techniques. The statutory requirement for disability presumes that some medical conditions are sufficient, in themselves, to prevent individuals from engaging in substantial gainful employment. The presumed link between inability to work and presence of a medical condition establishes the basis for SSA’s award of disability benefits. SSA maintains a Listing of Impairments containing medical conditions that are, according to SSA, ordinarily severe enough in themselves to prevent an individual from engaging in any SGA. About 70 percent of new awardees are eligible for disability because their impairments meet or equal the listings. Applicants whose impairments do not meet or equal the medical listings are further evaluated on the basis of nonmedical factors, including residual functional capacity (RFC), age, education, and vocational skills. Relevant studies indicate that the scientific link between work incapacity and medical condition is a weak one. While it is reasonable to expect that some medical impairments can completely prevent individuals from engaging in any minimal work activity (for example, people who are quadriplegic with profound mental retardation), it is less clear that some other impairments that qualify individuals for disability benefits completely prevent individuals from engaging in any SGA (for example, people who are missing both feet). Moreover, while most medical impairments may have some influence over the extent to which an individual is capable of engaging in gainful activity, other factors—vocational, psychological, economic, environmental, and motivational—are often considered to be more important determinants of work capacity. Concerns about the relationship between medical status and work incapacity were raised before the DI program was implemented. In deliberations leading up to the establishment of the DI program, the 1948 Advisory Council on Social Security recommended that compensable disabilities be restricted to those that can be “objectively determined by medical examination or tests.” However, physicians testified before the Congress that disability determination is inherently subjective and they could not provide the kind of objective determination that policymakers desired. According to this view, physicians can attest to the existence of medical impairments but they cannot quantify inability to work, and they cannot certify that the impairments render a person unable to work. “information about a claimant’s medical condition and vocational background cannot conclusively demonstrate that he or she cannot work. Except in the case of very severe disabilities and relatively minor disabilities, the current state of knowledge and technology does not enable the quantification of disabilities or the definition of categories of disability which reliably correlate an impairment with a particular individual’s capacity to work.” Studies we reviewed show that sorting people into two mutually exclusive categories—either not having the ability to engage in SGA or having the capacity to do so—can lead to questionable decisions. Many people with disabilities may have some capacity to work, especially if given appropriate treatment and support, and these cases are likely to be the ones that result in different decisions by different decisionmakers. Using medical criteria as the basis for these decisions attempts to impose precision on an imprecise process. Decision-making as implemented under current law involves significant judgment, which may result in some applicants’ receiving benefits while others with similar limitations in their capacities are denied benefits. Such a disparity illustrates the inherent subjectivity of making disability determinations; it does not imply that DDSs could make more accurate decisions under current decision-making procedures. Two of the studies we reviewed compared disability decisions made by DDS/SSA with nonbinding decisions on the same cases made by independent decisionmakers. In one study, a team of vocational and health care professionals reached decisions opposite from those reached by DDS/SSA in 30 percent of cases: DDS/SSA approved 37 percent of the cases denied by the teams and denied 27 percent of the cases approved by the teams. The other study found that a team of mental health workers could not agree on a disability decision in 47 percent of DI/SSI cases involving people with mental impairments. Among the cases allowed by the team, 88 percent were also allowed by the DDS; but of the cases denied by the team, 55 percent were allowed by the DDS (overall, the team reached conclusions opposite from those of the DDS in about one out of every four cases). The findings of one other study and a survey we conducted suggest that disability decisions are not accurate predictors of work capacity. The study found that, among a sample of people who had physical impairments that met or equaled the listings but who were not enrolled in DI or SSI, about 61 percent of men and 32 percent of women were employed 2 years after being diagnosed with their physical impairment. The survey we conducted showed that about 58 percent of DI applicants who were denied benefits in 1984 and who were not receiving DI benefits as of 1987 reported that they were not working (over two-thirds of these nonworking applicants had been out of the workforce for at least 3 years). Moreover, the self-reported functional and health status of the nonworking denied group was nearly indistinguishable from the status of a sample of DI beneficiaries accepted into the program in 1984. Appendix V contains more details on the studies cited. Two aspects of the disability determination process—the disability decision itself and the application process—may promote inability to work. Eligibility for disability benefits is an “either/or” decision. The Social Security Act characterizes individuals as either unable to engage in any substantial gainful employment or having the capacity to work. Because the decision is a dichotomy—the result is either full award of benefits or denial of benefits—applicants have a strong incentive to promote their limitations in order to establish their inability to work and thus qualify for benefits. Conversely, applicants have a disincentive to demonstrate any capacity to work at all. Moreover, the process of applying for disability benefits has been characterized in the literature we reviewed as long, cumbersome, and possibly debilitating in itself because of the certification and labeling of the individual as disabled. The length of the determination process ranges from a minimum of several months to 18 months or longer for individuals who are initially denied benefits and appeal. During this time, an applicant meets with his or her physician, SSA staff, and others in an attempt to establish disability. Some individuals completing the process may become entrenched in their perceived inability to work, which can possibly lead to a gradual decrease in actual work ability. SSA survey results indicate that nearly one-half of DI and SSI applicants with a work history reported being out of the workforce for more than 6 months in the period immediately preceding application for benefits.Consequently, their skills and work habits may have declined prior to application. And, since these individuals are unlikely to participate in any substantial gainful employment during the application process, the erosion of skills may be exacerbated, further contributing to a decline in their motivation or ability to work. Applicants who successfully meet the programs’ definition of disabled may be poor candidates for attempting a return to work. They have been through a lengthy process that required them to prove an inability to work. They have provided information about their disabilities before program officials and the health care community, and family and friends may have helped to demonstrate their work incapacity. Moreover, being out of the workforce may have degraded their marketability. The literature suggests that these factors can reduce receptivity to VR and work incentives as well as the motivation to develop or regain the ability to engage in gainful employment. The degree to which this may occur, however, will vary among beneficiaries. A small portion of people do, in fact, leave the rolls by returning to work. Cash and medical benefits themselves are another factor that can reduce beneficiaries’ motivation to work and receptivity to work incentives and VR. The average monthly benefit value in 1994 for DI and SSI beneficiaries was about $1,050 and $930, respectively. As part of their consideration of whether to undergo rehabilitation, attempt work, or both, beneficiaries may weigh the financial gains of working against the value of their monthly cash and medical benefits. On the one hand, rehabilitation and work require significant time commitment and the chance of success is unknown; on the other hand, program benefits are secure and free individuals from having to devote time to secure economic stability. Some people may opt to live at a lower income level rather than at a marginally higher income level if the latter requires a major commitment of time and energy. Some people with disabilities commit significant amounts of time to performing daily activities (bathing, dressing, and eating), self-managing their impairments or receiving medical treatment, or meeting their transportation needs. The time required to perform these and other activities can reduce the time available for work and influence an individual’s decision to opt for benefits over work. People who have less time available for full-time work may see some value in part-time work. However, if part-time work pays less than the value of lost benefits, then a person would actually be financially better off to receive benefits rather than to work. From our fieldwork and analysis of several studies, we identified weaknesses in the design and implementation of work incentive provisions. While some provisions effectively reduce the risk of returning to work, others do little to remove work disincentives. Studies conducted by SSA researchers and others have questioned the effectiveness of the work incentive provisions and have cited many of the same design and implementation problems raised during our discussions with disability advocates and program and rehabilitation officials. The DI and SSI programs offer a number of work incentives to encourage beneficiaries to return to work. For both populations, work incentive provisions safeguard cash and medical benefits and retain beneficiaries’ program eligibility during work attempts. However, work incentive provisions differ significantly between the two programs, providing differing levels of benefit protection for DI and SSI beneficiaries. One significant difference between the two programs is that a DI beneficiary’s cash benefit stops completely after the trial work period (if it is determined that work is at the SGA level), while an SSI recipient’s cash benefit is gradually reduced to ease the transition back to work. Another difference is that a DI beneficiary can purchase Medicare coverage as an ex-beneficiary, although it is expensive for lower-wage earners to do so, but an SSI recipient may lose Medicaid coverage once he or she exceeds a certain income level. A number of work incentive provisions exist within each program, and, depending upon an individual’s particular situation, certain provisions may be more useful than others. If, for example, a DI beneficiary engages in work and earns more than $500 a month but needs a wheelchair and special transportation in order to work, the beneficiary may use the Impairment-Related Work Expenses (IRWE) provision to maintain eligibility while working. This provision allows a DI or SSI beneficiary to deduct work expenses that are related to the impairment from gross earnings, which are used to determine continuing eligibility. Without this provision, someone with high disability-related work expenses could be financially harmed by returning to work. On the other hand, a beneficiary such as a construction worker who became eligible due to blindness may need to acquire new skills in order to return to work. The Plan for Achieving Self-Support (PASS) provision allows DI beneficiaries to become eligible for SSI, or SSI beneficiaries to increase the amount of their monthly cash benefits, by excluding from the SSI eligibility and benefit calculations income or resources set aside to pursue a work goal. Table 3.2 highlights each program’s work incentive provisions. Despite the ways in which work incentive provisions can provide some financial protection for those who want to return to work, work incentive provisions do not appear to be appropriately designed to motivate beneficiaries to work. In fact, from an SSA survey of DI beneficiaries, it was found that only about 2 percent said that their decision to attempt work was influenced by the work incentive provisions. Our review, as well as other studies, identified a number of design weaknesses that diminish the work incentives’ intended benefit safeguards. Research conducted by SSA researchers and others suggests that DI work incentive provisions are actually disincentives. DI work incentives provide for a trial work period in which a beneficiary may earn any amount for 9 months (which need not be consecutive) within a 60-month period and still receive full cash and medical benefits. At the end of the trial work period, if a beneficiary’s countable earnings are more than $500 a month, cash benefits continue for an additional 3-month grace period and then stop. For 36 months after the trial work period ends, referred to as the extended period of eligibility, cash benefits will be reinstated for any month in which the person does not earn more than $500 a month in countable income. After the completion of the trial work period, a beneficiary’s countable earnings in excess of $500 a month cause a precipitous drop in monthly income—from full benefits to no cash benefit. SSA researchers have noted that such a drop in income is a considerable disincentive to finishing the trial work period as well as to beginning work. Cash and medical benefits continue indefinitely for a DI beneficiary as long as the beneficiary does not earn more than $500 a month in countable income or does not medically recover. Especially for beneficiaries with low earnings, it may be more financially advantageous to quit work, or work part time, and continue to receive disability payments than to earn more than $500 a month in countable income. As illustrated in table 3.3, some beneficiaries would be making a rational economic decision to limit work in order to continue receiving benefits. Table 3.3 presents a simplified scenario illustrating the financial disincentive to work for some DI beneficiaries. If a beneficiary works and earns $500 a month in countable income and continues to receive the average DI cash benefit, his or her total monthly income would be $1,160. At minimum wage ($4.25 an hour), the beneficiary would need to work 27 hours a week to earn $500. But, if that same beneficiary earned $1 more, so that earnings were greater than $500 a month, cash benefits would stop, and the $1 additional earnings would cost the beneficiary $659 in monthly income. To maintain a monthly income of $1,160, the beneficiary would have to work 63 hours each week in a minimum-wage-paying job. A review of the effectiveness of DI work incentive provisions performed by the Office of Inspector General (OIG) at HHS found that some beneficiaries who had completed a trial work period subsequently reduced their earnings so they could continue to receive the full cash benefit amount, causing their total monthly income (wages plus cash benefit) to be higher than it would have been from earnings alone. The OIG observed that these beneficiaries were making “financially correct decisions,” a conclusion that table 3.3 supports. Of 63 cases reviewed, 9 beneficiaries—or 14 percent—had reduced their earnings in order to continue to receive cash benefits. Although it is uncertain whether this behavior is widespread, data from a study of beneficiary participation in DI work incentive provisions indicate that only 6 percent of the beneficiaries successfully completed a trial work period, and more than half of those never left the program. In addition to losing cash benefits, beneficiaries who work and continue to earn countable income above certain amounts will eventually lose medical coverage even though they have not necessarily medically improved or obtained affordable coverage elsewhere. Disability advocates and VR counselors that we spoke with believe that the fear of losing medical coverage is one of the most significant barriers to the participation of SSI and DI beneficiaries in a VR program, their return to work, or both. DI work incentive provisions provide up to 4 years of premium-free Medicare coverage when a person who continues to be medically disabled goes to work and earns more than $500 a month in countable income. When premium-free coverage ends, these individuals may purchase Medicare coverage at the same monthly premium paid by uninsured retired beneficiaries. However, the monthly premium—exceeding $300 for full coverage in 1996—may be a hardship for some beneficiaries, especially individuals with low earnings. In a study of DI beneficiary work attempts, SSA researchers noted that “the eventual loss of Medicare coverage which, for some beneficiaries, is worth as much as cash benefits, adds to a feeling of future financial insecurity and discourages work.” SSI beneficiaries who lose medical coverage because they exceed the earnings limit do not have the option of purchasing Medicaid. In most states, section 1619 work incentives allow beneficiaries to keep Medicaid coverage even when earnings exceed $500 a month. SSI beneficiaries may keep their Medicaid coverage until earnings increase to a point—referred to as the threshold amount—that SSA considers high enough to replace SSI cash and Medicaid benefits. Beneficiaries who lose Medicaid could be uninsurable or face prohibitively high premiums. It may matter little how much a beneficiary can earn by returning to work if he or she cannot buy health insurance because of a disabling condition. Even if a beneficiary is able to obtain health insurance, he or she may still be subject to a waiting period and exclusion for preexisting conditions. Other studies have also identified the risk of losing medical coverage as a major barrier to beneficiaries’ returning to work. For example, the fear of losing Medicaid and Medicare was identified as perhaps the single greatest barrier to employment by the President’s Committee on Employment of People With Disabilities. Its study reportedly included the views of more than 1,200 leaders of every major disability constituency in every state. In a recent OIG/HHS survey of disability program applicants, 75 percent of the DI applicants and 79 percent of the SSI applicants rated continued medical coverage as very important to encouraging work. Beneficiaries with low income may be receiving benefits from other programs—for example, food stamps, housing assistance, and energy assistance. SSI and DI work incentives do not protect beneficiaries from losing benefits from other programs. During our visits with disability advocates and rehabilitation counselors, we were told of instances in which beneficiaries had little option other than to quit work because they could not afford to lose their housing assistance. Thus, beneficiaries faced with losing their medical benefits and benefits from other programs if they return to work have an incentive to forgo work in order to continue receiving cash, medical, and other types of assistance. Implementation problems further limit the effectiveness of work incentive provisions in two ways. First, beneficiaries are generally unaware of the work incentive provisions. Second, if beneficiaries are aware of the provisions, they generally do not understand their complexities. For work incentives to influence behavior, beneficiaries need to be aware of the work incentive provisions. Disability advocate groups and VR counselors told us, however, that beneficiaries generally are unaware of the work incentive provisions. SSA researchers have found that, among a sample of DI beneficiaries, 80 percent were unaware of the work incentive provisions at the time they returned to work. This lack of knowledge of work incentives is due, in part, to SSA’s emphasizing disability determination over encouraging or helping beneficiaries to work. SSA claims representatives told us that they devote most of their time to assisting beneficiaries to apply for benefits, leaving little time to inform them of work incentive provisions. When work is discussed, it is generally in the context of the application process and how earnings may result in lower benefits or no benefits at all. Although some claims representatives do spend time discussing the work incentive provisions, they recognize that time spent on work incentives is quite brief and that it occurs at the end of a lengthy application process in which they have already provided beneficiaries with a large amount of information. Further, the evidence we reviewed indicated that, at the time of application, individuals are focused on establishing their inability to work and not on initiating efforts to obtain employment. Other claims representatives told us that they discuss work incentive provisions only if the beneficiary expresses a desire to work, while still others said they provide brochures describing work incentive provisions or rely on SSA headquarters to provide this information. Claims representatives, disability advocates, and VR counselors told us that most beneficiaries who are aware of the work incentive provisions do not understand them. In fact, counselors and advocates who help beneficiaries return to work are not always able to explain how work incentives apply to a person’s particular situation, because they are not fully aware of or do not understand all the provisions themselves. Claims representatives, who spend most of their time processing claims, are not always familiar with work incentive provisions, either. During group discussions with claims representatives, we found that although some appeared to have a good working knowledge of the work incentive provisions, some were not aware of certain provisions while others appeared to be confused by them. The difficulty in understanding work incentives is heightened for the 11 percent of the beneficiary population who receive both DI and SSI. For these concurrent beneficiaries, the SSI work incentive provisions apply to the SSI portion of their cash benefit and the DI provisions apply to the DI portion of their cash benefit. In some SSA district offices, concurrent beneficiaries must go to two different claims representatives to handle their cases. In addition, when reporting earnings to SSA, these beneficiaries must report their earnings to both programs, each of which has its own reporting requirements and processes. For example, DI requires that reported earnings reflect when the income was earned, while SSI requires that reported earnings reflect when the income was received. Some beneficiaries who receive DI and SSI benefits do not understand the different reporting requirements. If these beneficiaries report earnings only to one program, for example, they may be overpaid by the program that does not receive the earnings data. Beneficiaries can become even more confused and anxious about working when they later receive a notice of overpayment. Studies have also found that beneficiaries generally do not understand work incentive provisions. For example, one study concluded that DI and SSI work incentive policies and procedures were neither well understood nor operating smoothly administratively. Another study noted that DI beneficiaries who were aware of work incentive provisions were unfamiliar with the details and had conflicting interpretations. The study also found that claims representatives had a large number of responsibilities and used very little of their time advising beneficiaries about return to work. Moreover, the claims representatives said that the complexity of the work incentives made the provisions hard for even them to master. The Disability Advisory Council also concluded that beneficiaries did not understand the work incentive provisions. The Council stated that better understanding of the provisions would help beneficiaries dispel their fears and encourage them to test their work capacity. The application process and weak DI and SSI program work incentive provisions can discourage a beneficiary from attempting to return to work. Structural weaknesses in the VR system—spanning SSA, the DDSs, and the state VR agencies—further diminish the chances that a beneficiary will return to work. The Social Security Act established the policy that the maximum number of individuals applying for disability benefits should be rehabilitated into productive activity. People applying for disability benefits are to be promptly referred to state VR agencies for rehabilitation services. VR services are intended to prepare individuals with disabilities for work opportunities. However, VR has a limited impact on DI and SSI, as state agencies successfully rehabilitate only about 1 out of every 1,000 beneficiaries, on average, each year. With few beneficiaries referred by DDSs for VR services, and fewer still accepted by VR agencies as clients, access to VR services through the DDS referral process is limited. DDSs refer for VR services, on average, only about 8 percent of DI and SSI applicants awarded benefits. And although less is known about how many DDS referrals are accepted by state VR agencies, previously we estimated that less than 10 percent of beneficiaries referred by DDSs were accepted by VR agencies as clients.Several factors contribute to limited access. SSA’s national screening guidelines are intended to ensure that all disabled applicants with rehabilitation potential are given the opportunity to receive services. The national guidelines counsel DDSs to refer all applicants for VR services except those with terminal illnesses, severe or rapidly progressive impairments not responding to treatment, or other characteristics that make rehabilitation and sustained work unlikely. Using SSA’s national guidelines as a basis, however, some DDSs, working in conjunction with state VR agencies to reflect state agency priorities, have developed additional criteria for the DDSs to apply in screening out certain categories of beneficiaries for referral. In this way, some VR agencies have limited the types of referrals they receive to those they consider to be the best VR candidates. These added criteria are more restrictive than SSA’s national guidelines. For example, California’s state VR agency and state DDS have agreed to limit referrals to beneficiaries who are high-school-educated (or the equivalent), 18 to 45 years old, and have an orthopedic or visual impairment (if a DI beneficiary) or an orthopedic, visual, or mental retardation impairment (if an SSI beneficiary). California developed its criteria to overcome problems encountered with large numbers of unevaluated referrals that it considered too time consuming and unproductive to deal with. These criteria, if strictly applied, would preclude from referral for VR services, for instance, a DI beneficiary with a mental impairment. Some state policies also restrict VR services to people capable of working a minimum number of hours per week. This restriction, according to the President’s Committee on Employment of People With Disabilities, blocks people with disabilities who can work fewer than a prescribed minimum number of hours per week from VR services that could help them become more employable. Although SSA monitors the volume, timeliness, and quality of the benefit application process, little information is routinely collected on the referral process. To illustrate, although SSA began early in 1996 to track the number of DDS-referred beneficiaries accepted for VR services, SSA does not track the number of DDS-referred beneficiaries successfully rehabilitated (SSA-defined success); SSA does not collect information on the reasons that some DDS referrals are not accepted for services or successfully rehabilitated; and the DDSs do not review the referral process as part of the DDS quality assurance process. Information such as this could help evaluate and improve the referral process, including the quality of the referrals, and also reward employees for their accomplishments in referral activities. Nevertheless, the Joint VR Referral Task Force, a multiagency group that sought to improve the VR referral process, reported that no work credit or other recognition was associated with the referral process in SSA’s field offices. By not routinely monitoring the performance of the referral process, SSA and DDSs tell their employees that referring beneficiaries for VR has relatively low priority compared with claims processing tasks. A message of low priority greatly diminishes the incentive for SSA field office and DDS employees to spend time informing individuals about the referral process and assessing beneficiaries’ potential for referral, thereby negatively affecting the number of referrals. Not all people referred to state VR agencies are accepted for VR services. State VR agencies use their own selection processes to identify individuals they believe will be best served by VR services. Some state VR agency counselors view DI and SSI beneficiaries as relatively less attractive candidates for VR services than VR candidates who are not beneficiaries, thereby reducing the number of DDS referrals that they accept. When choosing between DI and SSI beneficiaries and others, for example, some counselors are influenced by two different perceptions of beneficiaries: they are seen either as less needy than other potential VR candidates who are unemployed and lack disability benefits or as more difficult to rehabilitate because they are more severely disabled and less motivated to participate in rehabilitation than other persons referred for VR services. In either case, some VR counselors are less willing to accept DI and SSI beneficiaries as clients. Moreover, no follow-up exists between the DDS examiner who refers the beneficiary and the VR counselor who receives the referral, unlike other sources of referrals for the VR agencies. In light of the evidence that beneficiaries are sometimes perceived as less attractive VR candidates than non-SSA clients, lack of a support network to advocate personally on behalf of beneficiaries may mean that beneficiaries will be at a disadvantage in the selection of people served by VR agencies when this type of support exists for referrals from other sources. However, attitudes held by some VR counselors toward beneficiaries may not be unrealistic. For instance, the average cost of VR services for a beneficiary who was successfully rehabilitated (VR-defined success) was about $4,000 in fiscal year 1992; in comparison, the cost of services for a successfully rehabilitated nonbeneficiary was about $2,500. Disincentives discussed above can impede beneficiaries’ motivation to return to work and may cause beneficiaries to be unreceptive to VR. Clients with poor motivation to seek and gain employment can prevent VR agencies from achieving a high rate of success. Studies have questioned whether the VR reimbursement system motivates state VR agencies to accept DI and SSI beneficiaries. Through 1981, SSA allocated funds to state VR agencies to finance VR services provided to beneficiaries regardless of rehabilitation outcome. Under the current VR reimbursement program established by the Congress in 1981, SSA reimburses state VR agencies only for costs incurred in successfully rehabilitating DI and SSI beneficiaries (SSA-defined success). The Congress intended this “success-based” reimbursement system to provide state VR agencies with an incentive to rehabilitate beneficiaries to SSA’s standards. We reported previously that VR agencies became more cautious about accepting DI beneficiaries for services following implementation of the current reimbursement system. They were more cautious because of (1) the perceived lower likelihood of success with DI beneficiaries and (2) the uncertainty of getting SSA reimbursement for the cost of VR services because SSA had a considerable backlog of claims for VR reimbursement at the time. The HHS/OIG found little evidence in 1990 that the reimbursement system was inducing states to increase the number of SSA clients served.With two exceptions, the sampled states had made no special efforts to enroll SSA beneficiaries in VR programs, and none had established any special rehabilitation activities for them. In spite of the Congress’ intent to motivate state agencies to rehabilitate beneficiaries, the OIG found that, because of implementation problems, states had little incentive to rehabilitate SSA clients. Problems included, for example, delays in receiving reimbursements from SSA and policies in some states that required reimbursements to be deposited into a state’s general fund rather than into a VR agency’s operating budget. Thus, problems in implementation have hampered testing the full potential of the success-based reimbursement system. SSA field office employees are required by agency regulations to inform applicants for disability benefits that they may be contacted by a state VR agency about an opportunity for rehabilitation. Employees also are required to inform applicants that refusal to accept rehabilitation services offered to them, without good cause, can result in the withholding of benefits. Moreover, employees are expected to give written materials about VR services to anyone who inquires about disability benefits. In spite of these policies, a 1995 HHS/OIG survey of DI and SSI applicants found that respondents were generally uninformed about VR. More than two-thirds of the respondents said that they had not been told or did not recall having been told that they might be contacted about VR services. Three out of every four respondents said that they had not been told or did not recall having been told that benefit payments might stop if they refused to participate in VR. Moreover, three out of every four respondents said they had not received or did not recall having received materials about VR services. If not informed about VR services, the chances of beneficiaries’ becoming rehabilitated and returning to the workforce may be reduced. Responding to findings by the Joint VR Referral Task Force that beneficiaries lacked awareness about rehabilitation opportunities, SSA has recently developed and distributed a brochure on VR for its field offices to disseminate to beneficiaries. The availability of updated materials on VR, however, does not guarantee that a beneficiary will be thoroughly familiar with VR services, as SSA and DDS employees generally lack incentives to educate beneficiaries about VR. In addition to the lack of awareness and support, beneficiaries generally lack encouragement to take part in VR services. For example, some state VR agencies make little or no attempt to contact beneficiaries and involve them in their VR programs or actively encourage them to become interested in VR. Additionally, fewer than half the applicants surveyed by the OIG in 1995 reported that someone had encouraged them to participate in VR. And only one out of every four applicants surveyed reported having received encouragement from SSA employees to take part in VR services. Since beneficiaries’ initial exposure to the possibility of VR occurs at the same time that they are trying to establish inability to work, limited encouragement can further distance them from seeking VR services. Even if a beneficiary is referred for VR services and accepted by a VR agency, studies have questioned the effectiveness of VR services. In 1993, we evaluated the long-term results of state VR services by examining the employment status of VR clients (including SSA beneficiaries) over an 8-year period following receipt of services. We found that gains in employment and earnings of clients who had been successfully rehabilitated (VR-defined success) faded after about 2 years, with earnings for many returning to near or below the pre-VR program level after 8 years. Clients who had been successfully rehabilitated had better work and earnings histories than clients who had dropped out of the VR program. However, clients who had not been rehabilitated, but had received many of the services that rehabilitated clients had received, did no better in later employment and earnings than VR dropouts who had received no services after an initial VR evaluation. Obtaining sustained, gainful work for clients is not always the focus of state VR agencies, which may be one reason that long-term gains are limited. Each client served works with the state VR agency to establish an individual rehabilitation plan. The plan includes an achievable vocational goal considered to be “suitable employment” for the client. The VR agency considers a client to be successfully rehabilitated following 60 days of suitable employment (VR-defined success). Suitable employment need not involve wages or salary and may include, for example, working as an unpaid homemaker or family worker. The suitable employment found for about 10 percent of state VR agencies’ successful cases in fiscal year 1992 was as unpaid homemakers. Moreover, more than one of every four DI beneficiaries rehabilitated in fiscal year 1992 was an unpaid homemaker. The VR 60-day measure of success is less rigorous than SSA’s criterion of employment at SGA for 9 continuous months. State VR agency employees, accountable to their states for success according to the 60-day measure, may not necessarily be geared toward providing beneficiaries with services oriented toward achieving and maintaining long-term gainful employment. Strong organizational incentives—pay, promotion, and recognition—may incline VR counselors toward providing services suitable for short-term employment or homemaker activity rather than for longer-term competitive employment. Moreover, studies show that few beneficiaries receive VR services that are associated with returning beneficiaries to work. SSA researchers reported that certain VR services—job placement, vocational training, and general education—had a significant and positive effect on the tendency for DI beneficiaries to return to work. This finding is supported by another study of the same population, in which about one-half to two-thirds of DI beneficiaries who received these types of VR services indicated that the services helped them return to work or continue working. The latter study found, however, that these VR services were offered to a small segment of the relatively few DI beneficiaries who received VR: only 6 percent received job placement services, 12 percent received vocational training, and 7 percent received general education. A similar message was reported by the 1988 Disability Advisory Council. The Council heard testimony that some state VR agencies did not provide adequate job placement and job retention services, and it recommended that VR programs for beneficiaries be geared toward these services. Findings from research we reviewed generally agreed that rehabilitation, including treatment, offered close to the onset of disabling impairments has the greatest likelihood of success. In fact, the literature emphasizes that “early” intervention for disabled workers is “not a question of months, but of days or even hours.” However, by the time a person applies for DI or SSI benefits, in many cases the chance for early work-site intervention has been lost. SSA survey results indicate that nearly 40 percent of DI/SSI applicants with a work history reported being out of the workforce for more than 12 months in the period immediately prior to applying for disability benefits. The application process further delays the provision of VR services. The period during which applicants are being certified and labeled as disabled is generally a lengthy one during which applicants risk becoming entrenched in their self-perceived inability to work. According to SSA’s Associate Commissioner for Disability, “DDSs refer some individuals...to the state [VR agencies] at the same time we notify these individuals of disability decisions. Arguably, this is the least appropriate time to discuss VR or employment.” The timing of the referral can diminish the effectiveness of VR in rehabilitating individuals and encouraging them to return to work. Extended absence from the workplace reinforces a person’s self-perceived inability to work and drains one’s motivation to work. As a consequence, receptiveness to participate in rehabilitation and job placement activities can decline. The VR service delivery structure may contribute to the limited gains in employment and earnings derived from state VR services. DDSs refer beneficiaries to the state VR agency network for services. Since state VR agencies select the service providers, little competition exists in this network to help ensure that beneficiaries receive high-quality, cost-effective services. Beneficiaries cannot choose among public and private service providers operating in a competitive market to find the one that provides the services they believe are most valuable. New authority in SSA’s regulations allows SSA to refer people to private VR providers when the state VR agencies refuse or are unable to serve referrals. SSA put into place the information system needed to begin implementation of these regulations early in 1996 and expects to have some private entities providing VR to its referrals by the summer of 1996. Although the regulations introduce limited competition in providing VR services to DI and SSI beneficiaries, two factors may limit participation by private VR providers. First, state VR agencies have 4 months to accept or reject a referral before beneficiaries can receive services from private providers. This first right of refusal may result in state agencies’ selecting beneficiaries who are the easiest to rehabilitate and employ, thereby leaving the most difficult cases for the private market to serve. Second, some private providers have criticized the practice of reimbursing for services only after clients have been employed at SGA for 9 continuous months. A representative of these providers calls the timing of this payment mechanism “unworkable” for the private sector because of the financial burden and risk it imposes on providers. In effect, allowing private sector providers access to beneficiaries only after the public sector rejects them means that private sector providers will continue playing a secondary role in the market. Consequently, choice and competition will remain curtailed, and the quality of VR services is not likely to change. In recent years, the potential for some DI and SSI beneficiaries to engage in substantial gainful employment has increased because of advances in assistive technologies and the medical management of disabilities, as well as an increasing trend toward the integration of people with disabilities into society. The Congress has signaled an interest in taking advantage of these changes to enhance the employment opportunities for DI and SSI beneficiaries. A significant portion of people receiving disability benefits may not be likely candidates for rehabilitation and return to work, however. For instance, almost one-half of a cohort of beneficiaries who entered DI in 1988 died or reached the age of 65 in less than 6 years. Furthermore, almost one-half of the adult DI and SSI beneficiary population was aged 50 or older in 1994. On the other hand, there is a meaningful portion of working-age beneficiaries who can be expected to survive for many years, and who may be candidates to return to work. SSA testified before the House Committee on Ways and Means in 1990 that almost one-third of DI and SSI beneficiaries are very good candidates for VR. Furthermore, 35 percent of the 84,000 DI beneficiaries who responded to a questionnaire in May 1993 that asked if their medical conditions had changed indicated an interest in receiving rehabilitation or other services that could help them get back to work. Weaknesses in the design and implementation of the DI and SSI programs, however, mean that little has been done to identify and encourage the productive capacities of beneficiaries who might be able to benefit from rehabilitation and employment assistance. The disability determination process encourages applicants to focus on their incapacities and, coupled with a strong financial incentive to retain benefits, may create little interest in returning to work. Work incentives may not overcome the risk of lost income faced by beneficiaries attempting trial work or the risk of losing medical coverage when successfully employed. SSA does not adequately promote work incentives, and the complexities of the work incentives—especially in the absence of clear guidance from SSA staff—are difficult for beneficiaries to understand. Also, state VR services do not appear to be accessible to many beneficiaries, and their effectiveness in securing long-term financial gains for beneficiaries has been called into question. The cumulative effect of these weaknesses is diminished capacity of the DI and SSI programs to return people to work. Indeed, we testified in May 1995 that SSA required a broader management focus to do more to improve the productive capacity of DI and SSI beneficiaries. In light of these weaknesses, SSA needs to place much greater emphasis on achieving return-to-work outcomes. Doing this will require SSA to restructure its existing strategies for identifying and enhancing the productive capacities of beneficiaries. SSA’s success in restructuring is likely to be dependent upon a multifaceted approach. For instance, expanding VR opportunities may not facilitate long-term employment among beneficiaries if people continue to fear that working their way off the rolls will lead to loss of health insurance. Also, educating beneficiaries about work incentives and VR services may have little impact if beneficiaries are better off financially not working than attempting to work. Examples such as these suggest that the full impact of restructuring return-to-work efforts may be limited unless these efforts are integrated into a unified and consistent strategy. As an initial step in restructuring its return-to-work strategy, SSA needs to identify the size and characteristics of the beneficiary population that has a reasonable chance of achieving gainful employment. SSA also needs to identify how the design and implementation of the DI/SSI application process, benefit structure, work incentives, and VR service provider system can be restructured to facilitate employment opportunities. Throughout such efforts, special attention should be given to developing data on the costs and benefits of various return-to-work strategies, as this will be essential input for policymakers considering redesign options. Finally, success in improving return-to-work rates will be likely to extend beyond the control of SSA alone to other federal agencies—such as the Department of Education and the Department of Labor, which have jurisdiction over issues affecting the rehabilitation and employment of people with disabilities—and to the private sector as well. SSA may find that restructuring its return-to-work strategies requires legislative action. For instance, the experts we interviewed, as well as much of the literature we reviewed, underscored the influence of treatment, supports, and services on the work capacities of people with disabilities. However, current law does not require the evaluation of an individual’s capacities to consider such enabling supports and services. Thus, to the extent that decisions on work capacity and successful return-to-work outcomes depend upon such supports and services, SSA may wish to propose legislative reform to the disability determination process, benefit structure, and other areas of program design. We recommend that the Commissioner of SSA take immediate action to place greater priority on return to work, including designing more effective means to more accurately identify and expand beneficiaries’ work capacities and better implementing existing return-to-work mechanisms. As part of this effort, the Commissioner of SSA should develop a legislative package for those areas in which SSA does not currently have legislative authority to enact change, in order to position the agency to expeditiously redirect its emphasis on return to work. In commenting on a draft of this report, the Commissioner of Social Security concurred with our findings and conclusions (see app. VI) but did not indicate whether or not she would take action to implement our recommendation. The Commissioner agreed that DI and SSI beneficiaries face a number of barriers and disincentives that impede entry into the workforce. She also agreed that many current beneficiaries have the potential to return to work and that making program improvements will involve input from a network of federal, state, and private sector players. The Commissioner made a number of technical comments, which we have incorporated where appropriate.

Summary: Pursuant to a congressional request, GAO provided information on the Social Security Disability Insurance (DI) and Supplemental Security Income (SSI) programs, focusing on program weaknesses that impede the Social Security Administration (SSA) from identifying and expanding beneficiaries' return-to-work capabilities. GAO found that: (1) between 1985 and 1994, the combined DI and SSI beneficiary population increased 70 percent and the inflation-adjusted cost of cash benefits grew 66 percent; (2) increases were due to eligibility expansion, program outreach, fewer continuing disability reviews, economic factors, and demographic changes; (3) the beneficiary population is also growing younger and more beneficiaries have longer-term impairments; (4) the development of effective return-to-work strategies for people with severe disabilities is challenging because individuals may require various and changing levels of medical intervention or support, remedial retraining, education, or job coaching; (5) technological and medical advances and economic and social changes have created more potential for some individuals with disabilities to engage in work; (6) the SSI and DI benefit structure, their focus on inabilities rather than abilities, and poor access to rehabilitation services further complicate the difficult process of making disability and work capability determinations; and (7) although the 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.