Workers’ compensation consists of a complex array of programs that provide benefits to persons injured while working or who suffer occupational diseases. Each state and the District of Columbia requires employers operating in its jurisdictions to provide WC insurance for their employees and to report work-related injuries to the state WC agency; however, the types of information required varies among the states. Although WC programs exist in all states, the programs are not federally mandated, administered, or regulated. Rather, they evolved throughout the 20th century under state laws with the support of labor and management. They established a mechanism to pay injured workers predictable levels of compensation without delay. Administrative approaches, benefits, and reporting requirements vary widely across the states’ WC programs. Depending on state law, employers may purchase WC insurance through private carriers or state-managed funds, or they may self-insure if they can meet state financial standards. A leading property and casualty trade association estimated that fewer than 5,000 entities (mostly insurance carriers and self-insured employers) provide WC insurance. WC programs across the states provide similar types of benefits, although specific eligibility requirements and benefit amounts vary widely. Benefits include tax-free cash to replace wages lost while the employee cannot work, coverage of injury-related medical and rehabilitation expenses, and survivor and burial benefits. Under most WC programs, workers must miss a set number of work-days before cash benefits are payable. Cash benefits are usually two-thirds of the employee’s weekly earnings at the time of injury and programs have caps on the maximum benefits payable based on average wages in a state. State WC laws also contain other provisions that affect the payment of cash benefits. Seventeen states provide for cost-of-living adjustments in benefit amounts. Twenty-nine states and the District of Columbia permit insurers to reduce WC cash payments when the beneficiary also receives other types of benefits, such as those from Social Security retirement, survivor, or disability programs or from publicly or privately funded pension plans. Generally, WC cash benefits are classified into three major categories.Temporary total disability benefits, the most frequently occurring type, are paid during the period when an injured employee is unable to work and are terminated when the injured employee returns to work. Permanent partial disability benefits are paid to compensate workers when they incur some type of permanent impairment that does not preclude a future return to work. These benefits can either be a preestablished amount for specific impairments (loss of eye, hand, toe, etc.) or a defined range of payments over a set period of time if an amount has not been preestablished for a particular impairment. Total permanent disability benefits are paid when employees incur serious permanent impairments that make them unable to return to work. Total permanent benefits are usually payable for the duration of the disability. WC cash benefits are typically periodic payments. However, most WC programs allow benefits to be paid all at once in a lump sum, a method of payment commonly used to resolve disputes in WC cases involving permanent impairments. The disputes most often arise in permanent partial impairment cases when evidence conflicts about the cause of the injury or opinions differ about whether the injury precludes an employee from returning to work. Rather than face the delays and risks inherent in litigation, insurers and injured employees may choose to compromise and set specific terms in settlement agreements. These agreements commonly include a lump-sum payment to the injured worker and list future medical and rehabilitation benefits, if any, that the insurer will provide. The amount of the lump sum and the coverage of future medical and rehabilitation expenses are typically less than the WC program would have provided if the employee had prevailed on all the disputed issues through litigation, but more than if the insurer had prevailed on all disputed issues. The payment of all medical expenses for a work-related injury is a primary benefit provided under WC plans. In contrast to cash benefits, medical benefits are immediately available, and time and monetary limits are rarely imposed on them by state law. Forty-five states, the District of Columbia, Puerto Rico, and the federal government provide full medical benefits, with no time or monetary limitations specified under their WC programs. Some states, however, have established special provisions or requirements that limit medical benefits. For example, Florida requires a $10 copayment for all medical services provided after the worker has reached maximum medical improvement for the impairment. Ohio requires the state WC agency’s medical section to examine employees after they have received temporary total disability benefits for 90 days to determine their eligibility for continued compensation and the appropriateness of the medical treatment that has been provided. Federal programs provide benefits that may be paid to persons also receiving WC benefits. Federal laws can limit access to these benefits when persons also receive workers’ compensation. For example, the Social Security DI program provides benefits to insured persons who are unable to perform any substantially gainful activity by reason of any medically determinable physical or mental impairment. In 1999, SSA paid about $51 billion in benefits to 6.5 million disabled workers and their dependents. In 1965, the Congress required SSA to reduce DI benefits, under certain circumstances, for persons also receiving workers’ compensation. The reduction can apply even if the DI and WC benefits are for unrelated injuries or illnesses. National data identifying WC beneficiaries do not exist. SSA staff, however, has estimated that 5 percent of disabled workers also receive WC benefits. In Richardson v. Belcher, 404 U.S. 78, 83 (1971), the Supreme Court stated that the WC offset provision was intended to provide an incentive for injured employees to return to work because the Congress did not believe it was desirable for injured workers to receive disability benefits that, in combination with their WC benefits, exceeded their preinjury earnings. SSA’s problems administering the WC offset are long-standing and well documented by GAO, SSA’s OIG, and SSA’s quality assurance office. For example, in 1983 we reported that claimants often do not self-report WC benefits and estimated that unreported benefits had resulted in overpayments amounting to $43 million in fiscal year 1981. Subsequent internal SSA evaluations in 1985 and 1991 examined the cases of DI beneficiaries who had advised SSA that they had pending WC claims. In the 1985 study, the Office of Quality Assurance and Performance Assessment (OQA) noted that 15 percent of the examined cases involved overpayments and estimated that the payment errors amounted to more than $7 million annually because DI beneficiaries did not report their subsequent receipt of WC benefits. In 1991, the OIG estimated that overpayment errors in WC offset cases amounted to $35 million between 1986 and 1988. The lack of a reliable source of information to identify WC beneficiaries complicates SSA’s administration of benefit payments under the DI and the SSI programs. SSA relies heavily on individuals to report their WC benefits and this has caused significant payment errors in the DI program. For years, studies have discussed overpayment problems related to the WC offset provision. More recent studies now show that SSA also underpays persons receiving DI benefits. The situation also makes payments under the SSI program vulnerable to error. In addition, SSA’s policies governing the conversion of lump-sum WC payments into a monthly amount permit unrealistically low estimates of the monthly WC benefit foregone by the acceptance of the lump-sum payment, allowing the offset of disability benefits to be avoided. SSA’s long-standing problems with administering the WC offset persist today. In addition to overpayments, a 1998 OIG report showed that voluntary reporting of WC benefits also leads to the underpayment of DI benefits. The OIG reported that it had found underpayment and overpayment errors in 82 percent of the 50 WC offset cases it reviewed from a sample of 100 cases, and projected that they totaled about $527 million ($385 million in overpayments and $142 million in underpayments). The most significant payment errors occurred because SSA relied on beneficiaries to file timely reports on the status of their WC benefits. When SSA is unaware of benefit changes, such as the termination of WC benefits, it continues to offset DI benefits at the same rate, resulting in underpayments. Officials told us that the OIG report prompted OQA to examine another 100 WC offset cases for claims adjudicated between 1985 and 1993. OQA estimated that payment errors occurred in about half of the cases for DI beneficiaries whose benefits were being reduced because they were receiving workers’ compensation. Payment errors were estimated to equal $270 million, most of which were underpayments. In a 1999 payment accuracy study, SSA projected that total payment errors related to the WC offset provision amount to $1.5 billion, with underpayments accounting for $1.3 billion of this amount. In our work, we also examined the potential for payment error by determining how many persons had concurrently received DI and WC benefits and whether SSA knew of the concurrent receipt. We compared WC beneficiary data from Virginia against SSA’s DI beneficiary data as of March 2000. We found that of 3,881 individuals from Virginia who had concurrently received WC and DI benefits, SSA was not aware of the concurrent receipt for about 26 percent (1,012) of these individuals. In over 90 percent of the 1,012 cases, the period of concurrent receipt was limited—up to 1 month—so any overpayment was probably small. However, in 6 percent (63) of the cases, SSA records reflected individuals’ receiving concurrent WC and DI benefits for periods ranging from 6 months to 7 years. Table 1 summarizes the results of our comparison. In response to the payment problems identified by the OIG and OQA, SSA has begun a complete review of more than 61,000 cases involving DI beneficiaries whose benefits are being offset for WC payments. After completing 60 percent of the benefit reviews, SSA has found payment errors in 52 percent of the cases examined. Moreover, its review has shown that many beneficiaries fail to report changes in their WC benefits even when reporting would increase—often substantially—the amount of their DI benefits.