Some DI benefit recipients have incomes low enough to qualify them for SSI as well and receive benefits from both programs. gainful activity because of a severe physical or mental impairment. The standards for determining whether the severity of an applicant’s impairment qualifies him or her for disability benefits are set out in the Social Security Act and SSA regulations and rulings. SSA’s disability claims process is complex, multilayered, and lengthy. Potential beneficiaries apply for benefits at any one of SSA’s local field offices, where applications are screened for nonmedical eligibility: applicants for DI must meet certain work history requirements, and applicants for SSI must meet financial eligibility requirements. If the applicants meet the nonmedical eligibility requirements, their applications are forwarded to a state disability determination service (DDS), which gathers, develops, and reviews the medical evidence and prior work history to determine the individual’s medical eligibility; the DDS then issues an initial determination on the case. Applicants who are dissatisfied with the determination may request a reconsideration decision by the DDS. Those who disagree with this decision may appeal to SSA’s Office of Hearings and Appeals (OHA) and have the right to a hearing before one of the administrative law judges (ALJ) located in hearings offices across the country. Individuals who disagree with the ALJ decision may pursue their claim with SSA’s Appeals Council and ultimately may appeal to a federal district court. This process can be both time-consuming and confusing for the applicants and may compel many of them to seek help from an attorney. Obtaining representation for a pending case has become increasingly popular because disability representatives have been successful in obtaining favorable decisions for their clients upon appeal.In fiscal year 1997, about 70 percent of all cases decided at the ALJ-hearing level involved representatives. The fees attorneys representing DI and SSI applicants can charge are limited by law and must be approved by SSA. In order to be compensated, attorneys must file either a fee agreement—a formal contract signed by the applicant and the attorney setting the fee as a percentage of the applicant’s past-due benefits—or a fee petition that details the specific costs associated with the case. Past-due benefits are calculated by multiplying the monthly benefit amount by the total number of months from the month of entitlement up to, but not including, the month SSA effectuates the favorable disability decision. When fee agreements are filed, attorney fees are limited to 25 percent of the applicant’s past-due benefits, up to $4,000 per case.In fee petition cases, however, SSA can approve any fee amount as long as it does not exceed 25 percent of the beneficiary’s past-due benefits. For DI cases, SSA usually withholds the amount of the fee from the beneficiaries’ past-due benefits and pays the attorneys directly, in effect guaranteeing payment for the attorney. In SSI cases, however, SSA does not have the authority to pay attorneys directly, and only calculates the amount an attorney is due. Attorneys must instead collect their fees from the SSI recipients. Effective February 1, 2000, the Ticket to Work Act imposed a 6.3 percent user fee on attorneys for SSA’s costs associated with “determining and certifying” attorney fees on the basis of beneficiaries’ past-due benefits. This amount is deducted from the approved attorney’s fee. The act also directed us to study a number of issues related to the costs of determining and certifying the attorney fees, “efficiencies” available to reduce these costs, changes to the attorney fee requirements, and the new user fee. While SSA has been paying attorney fees for over 30 years, the payment process itself is inefficient, and the costs of the process are not known. Approving and paying attorney fees is a complex process that involves many steps; a number of staff in different units and locations; and various information systems that are not linked and that, therefore, require considerable manual intervention. Regarding the costs to administer this multistep process, we have not yet fully determined whether SSA’s past estimate appropriately captured the costs associated with administering attorney fees; however, the agency is currently developing a way to capture actual costs. Attorneys are compensated for their services through either a fee agreement or a fee petition. Attorneys told us that the fee agreement is usually an easier, quicker way to get paid and that, although the fee petition is useful, it is also a more cumbersome tool used primarily when potential fees exceed the statutory limits or when attorneys were unable to file a fee agreement at the beginning of a case. In 1999, fee agreements accounted for about 85 percent of attorney payments, and fee petitions accounted for the balance. Figure 1 shows the steps involved in processing attorney fee agreements. First, officials in SSA’s field offices or ALJs in OHA—depending on where the case is being determined—review fee agreements for DI and SSI cases to assess the reasonableness of the attorney fee charges.If a favorable decision is made on the case and SSA approves the fee agreement, both items—the applicant’s case and the fee agreement—are forwarded to a processing center for payment. 5All parties involved—SSA, the beneficiary, and the attorney—may question the amount of the attorney’s fee, and the fee may be changed if warranted. The Ticket to Work Act requires SSA to impose an assessment, or user fee, to pay for the costs the agency incurs when paying attorneys directly from a claimant’s past-due benefits. For calendar year 2000, the act established the user fee at 6.3 percent of the attorney fees; for calendar years after that, the percentage charged is to be based on the amount the Commissioner determines necessary to fully recover the costs of “determining and certifying” fees to attorneys, but no more than 6.3 percent. The actual costs of administering attorney fees are not yet known because SSA was not required to capture these costs in its information systems and did not have a methodology to do so. The 6.3 percent user fee found in the law was based on an estimate prepared by the agency. Documentation SSA provided us indicates that the percentage was computed by multiplying the numbers of fee petitions and fee agreements the agency processed in 1994 by the amount of time SSA determined it spent on various related activities. When data were not available on the volume of activities or the time spent on them, SSA used estimates. The agency’s overall cost estimate included both the time spent by the ALJs reviewing documentation to support the attorney fees—that is, the fee petitions and fee agreements—as well as the processing centers’ costs associated with calculating the fees, choosing the notice language, and preparing the notices. In addition, the agency included the cost of administering the user fee itself. We recently received information on the basis for SSA’s 6.3 percent user fee calculation and have only begun to analyze the assumptions the agency used to compute it. In order to comply with the Ticket to Work Act, SSA is currently in the process of developing a methodology to capture the current costs of administering the attorney fee provisions. These costs could then provide the foundation for the agency’s decisions about what the rate should be to achieve full recovery of costs. SSA has established a work group to identify the components of administering attorney fees and to develop its new methodology. Thus far, the work group has identified four components associated with the cost of administering attorney fees: (1) the time that SSA field office staff spend informing claimants that they are entitled to legal representation when filing an appeal; (2) the time it takes an ALJ to review and approve the fee; (3) the charges incurred by SSA’s Office of Systems to program systems to track attorney fee cases and related computing time to generate a payment file/tape for Treasury to use to pay the attorney; and (4) the process for calculating the attorney fee, entering relevant attorney and other key data into SSA’s information systems, and certifying related amounts for payment. In April and May of this year, SSA work group officials told us that they do not plan to capture cost information from the first two components because it would be time-consuming to do so, and the methods currently available to SSA for capturing these two types of costs may not produce reliable results. For the third component, SSA officials told us they can readily gather cost information related to time spent on programming SSA’s systems to track attorney fees. However, SSA does not have a cost allocation methodology in place to determine related computing time for processing attorney fees. SSA officials indicated that computing time would constitute an insignificant portion of SSA’s total costs to administer attorney fees. To capture data on the fourth component, SSA modified one of its information systems in February 2000 to determine the number of attorney fee cases it administers. Using the number of cases it processes, SSA is working on a methodology to estimate the costs involved in this fourth component for paying attorneys. SSA plans to have this cost data available by the end of fiscal year 2000. However, in commenting on a draft of this statement, SSA officials told us that they do plan to capture costs for the second component—the time it takes the ALJ to review and approve the fee. In reviewing the law, the cost of ALJ time spent reviewing and approving fees appears to be part of the cost of “determining and certifying” fees and may represent a significant portion of the total costs. As SSA determines the ALJ costs in its current approach, it will need an allocation methodology that accurately allocates the costs associated with DI cases for which SSA is paying an attorney directly to those cases. Attorneys we talked with told us they are concerned now that they are paying more than their fair share of the cost of the process.