The Social Security Administration (SSA) operates the Disability Insurance (DI) and Supplemental Security Income (SSI) programs—the nation’s two largest federal programs providing cash benefits to people with disabilities. From 1985 through 1994, the number of working-age DI and SSI beneficiaries (aged 18 to 64) increased 59 percent, from 4.0 million to 6.3 million, and cash benefits (adjusted for inflation) increased 66 percent.This magnitude of growth has caused concerns that are compounded by the fact that less than half of 1 percent of DI beneficiaries ever leave the rolls by returning to work. In our recent study of SSA’s disability programs, we reported that despite the magnitude of program growth, SSA has not improved its emphasis and efforts in returning disability beneficiaries to the workplace. By contrast, the private sector, in response to growth in disability, has begun developing and implementing strategies to improve return-to-work programs for disabled workers. Moreover, the emphasis on return to work is not limited to the private sector in the United States—disability programs financed by social insurance systems in other countries also focus on return to work and have implemented practices similar to those in the U.S. private sector. This report focuses on identifying return-to-work practices in the private sector and other countries that may hold lessons for improving SSA’s return-to-work efforts. Improving SSA’s return-to-work efforts has important implications not only for the individuals who can return to productive activity in the workplace, but also for controlling the costs of federal disability programs. SSA estimates that lifetime cash benefit payments are reduced by about $60,000 when a DI beneficiary leaves the rolls by returning to work and by about $30,000 when an SSI disability beneficiary leaves the rolls by returning to work. In comparison with the workers served by private sector programs, many people with disabilities served by SSA have little or no work history or current job skills. SSA also serves a population with a wide range of disabilities that often may be more severe than the disabilities of the average person served by private sector programs. For example, many workers served by private sector programs have short-term disabilities, which SSA’s programs do not cover. SSA serves people with long-term disabilities, many of whom have not been successful in returning to work through private sector programs. Thus, SSA may face greater difficulty in returning some of its clients to the workplace. However, the experiences of Germany and Sweden show that return-to-work strategies are applicable to a population with a wide range of work histories, job skills, and disabilities. Moreover, even relatively small gains in return-to-work successes offer the potential for significant savings in program outlays. For example, if an additional 1 percent of the 6.3 million beneficiaries were to leave SSA’s disability rolls by returning to work, lifetime cash benefits would be reduced by an estimated $2.9 billion. The magnitude of disability costs has caused growing concern in the private sector. Some disability-related costs borne by the private sector are more obvious than others. The most apparent costs include insurance premiums, cash benefits, rehabilitation benefits, and medical benefits paid through workers’ compensation and employer-sponsored disability insurance programs. Workers’ compensation laws require employers to bear the cost of disabilities caused by an individual’s job, and some employers offer short-term or long-term insurance or both for disabilities not caused by the individual’s job. However, in addition to the costs of such programs, there may be other, less obvious costs such as payments to employees who must work overtime, the added expense of training and using temporary workers, and retraining disabled employees when they return to work. Taking such costs into account, studies have estimated that the employer’s full cost of disability ranges from 6 to 12 percent of payroll. At one time, the common business practice was to encourage someone with a disability to leave the workforce. In recent years, however, concern has grown about the effect of disability on costs, productivity, competitiveness, and employee and customer relations. As a result, the private sector has begun to develop and implement strategies for helping disabled workers return to work as quickly as possible. These efforts include intervening as soon as possible after a disabling event occurs, helping the worker set return-to-work goals, providing the services the worker needs to return to work, and offering incentives that encourage return to work. Similar approaches have also been implemented in the social insurance disability programs of other countries. To develop information on private sector return-to-work practices for this report, we surveyed 21 people from the private sector recognized for their involvement in developing disability management programs that focus on return to work. As well as working to develop return-to-work programs within their own companies, all 21 have been actively involved in efforts by the Washington Business Group on Health or the Health Insurance Association of America to develop and promote such programs. As a group, these 21 individuals represented extensive experience in managing disability under workers’ compensation and disability insurance programs. We conducted in-depth interviews with five respondents to supplement the survey responses. (See app. I for a list of individuals contacted during our review.) Technological, medical, and societal changes have increased the potential for more people with disabilities to work, and some SSA data indicate that as many as 3 out of 10 persons on the disability rolls may be good candidates for return to work. However, few beneficiaries ever leave the rolls by returning to work. For example, less than half of 1 percent of the beneficiaries have left the DI program annually during the last several years because they returned to work, according to SSA data. As we recently reported, SSA focuses little attention on returning beneficiaries to the workplace. SSA’s capacity to identify and assist in expanding beneficiaries’ productive capacities have been limited by weaknesses in the design and implementation of the DI and SSI programs. SSA does not have a system for functionally evaluating each individual’s return-to-work potential and identifying the return-to-work services needed by those who have the potential to return to the workplace. Instead, SSA’s primary focus is on processing disability applications to determine whether applicants meet disability criteria and then paying benefits to those found eligible. The DI and SSI programs pay disability benefits to people who have long-term disabilities. To be eligible for benefits, an adult must have a medically determinable physical or mental impairment that (1) is expected to last at least 1 year or result in death and (2) prevents the individual from engaging in substantial gainful activity. Regulations currently define substantial gainful activity as work that produces countable earnings of more than $500 a month for disabled individuals and $960 a month for individuals who are blind. Furthermore, to qualify, an individual not only must be unable to do his or her previous work, but—considering age, education, and work experience—the individual also must be unable to do any other kind of substantial work that exists in the national economy. Although both programs use the same definition of disability, they differ in important ways. Established under title II of the Social Security Act, DI is an insurance program funded by payroll taxes paid by workers and their employers into a Social Security trust fund. Similar to private long-term disability insurance programs, the DI program is for workers who have lost their source of income because of long-term disability. To be insured under DI, an individual must have worked for certain minimum periods with a specified minimum level of earnings in jobs covered by Social Security. Reflecting the program’s long-term disability character, DI benefits generally cannot begin until 5 months after the onset of disability. Medicare coverage is provided to beneficiaries 24 months after entitlement to DI cash benefits commences. By contrast, the SSI program, established under title XVI of the Social Security Act, is not an insurance program and has no prior work requirements. Financed from general tax revenues, SSI is a means-tested income assistance program for disabled, blind, or aged individuals who have low income and limited resources, regardless of work history.Unlike the DI program in which benefits generally cannot begin until 5 months after disability onset, SSI benefits begin immediately upon entitlement. In most cases, SSI entitlement makes an individual eligible for Medicaid benefits. Because the SSI program is a means-tested income assistance program with no work history requirements, many of the beneficiaries it serves may have different characteristics than those served by private sector programs. By definition, individuals qualify for employer-sponsored disability benefits because they were employed at the time they became disabled. They therefore have recent work histories and current job skills when they apply for benefits. In contrast, many SSI applicants have little or no recent work history or current job skills. An SSA study in 1994 found that 42 percent of SSI applicants reported leaving their last job more than 12 months before applying for benefits, and another 27 percent said they did not know when they left their last job. When individuals apply for DI or SSI disability benefits, SSA relies on state Disability Determination Services, agencies that are funded by SSA, to determine the medical eligibility of applicants. If found disabled, the beneficiary receives benefits until he or she dies, converts to Social Security retirement at age 65, or is determined by SSA to be no longer eligible for benefits because of earnings or medical improvement. The law requires SSA to conduct a continuing disability review (CDR) at least once every 3 years to redetermine the eligibility of DI beneficiaries if medical improvement is possible or expected. Otherwise, SSA is required to schedule a CDR at least once every 7 years. SSA’s process for determining disability generally does not directly assess each applicant’s functional capacity to work. The Social Security Act defines disability in terms of the existence of physical or mental impairments that are demonstrable by medically acceptable clinical and laboratory diagnostic techniques.