    Workers' Compensation: Action Needed to Reduce Payment Errors in
    SSA Disability and Other Programs (04-MAY-01, GAO-01-367).

    This report focuses on how benefit programs administered by the
    Social Security Administration (SSA) and other agencies are
    affected by workers' compensation (WC) benefits. GAO (1) examined
    the effects of WC benefits on SSA programs, focusing on SSA's
    progress in administering the WC offset provision, (2) discussed
    other federal programs whose benefit payments are also affected
    by WC benefits, and (3) discussed options for addressing federal
    benefit payment errors related to workers' compensation. GAO
    found that SSA's administration of the WC offset provision
    continues to be undermined by the lack of reliable information
    identifying the receipt of WC benefits by Social Security
    Disability Insurance (DI) beneficiaries, causing some
    beneficiaries to be overpaid and others to be underpaid. No
    national reporting system identifies WC beneficiaries. Instead,
    SSA largely relies on applicants and beneficiaries to report
    their receipt of WC benefits and any changes that occur in the
    benefit amounts--an approach that makes it very difficult for SSA
    to make accurate benefit payments. Other federal agencies also
    need WC information to make accurate benefit payments, and face
    similar difficulties identifying WC beneficiaries. Like SSA,
    Medicare relies on its applicants and beneficiaries to
    self-report WC benefits and is vulnerable to payment errors when
    they do not. In addition, food stamp programs and Section 8
    rental housing assistance consider WC benefits as income or
    assets, and an inability to obtain information on such benefits
    could affect the accuracy of benefit payments. There are ways to
    address the difficulty of reliably identifying WC beneficiaries.
    However, the fragmented structure of WC programs and the lack of
    federal involvement in state WC programs defy a simple solution.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-01-367
        ACCNO:   A00954
      TITLE:     Workers' Compensation: Action Needed to Reduce Payment
                 Errors in SSA Disability and Other Programs
         DATE:   05/04/2001
      SUBJECT:   Disability insurance
    	     Federal social security programs
    	     Social security benefits
    	     Workers compensation
    	     Overpayments
    	     Underpayments
    	     Interagency relations
    	     Reporting requirements
    	     State programs
    	     Medicare Program
    	     HUD Section 8 Certificate Program
    	     HUD Section 8 Voucher Program
    	     Supplemental Security Income Program
    	     Old Age Survivors and Disability
    	     Insurance Program
    	     Food Stamp Program

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    GAO-01-367

    Report to Congressional Committees

    United States General Accounting Office

    GAO

    May 2001 WORKERS' COMPENSATION

    Action Needed to Reduce Payment Errors in SSA Disability and Other Programs

    GAO- 01- 367

    Page i GAO- 01- 367 Workers' Compensation Payment Errors Letter 1

    Appendix I Scope and Methods 29

    Appendix II Comments From the Social Security Administration 31

    Appendix III Comments From the Department of Health and Human Services 36

    Tables

    Table 1: Concurrent Receipt of DI and WC Benefits 10 Table 2: Estimated
    Monthly Benefit Amounts Under the Current

    Approach Versus Monthly Amounts if Invested at Various Rates of Return 14

    Abbreviations DI Social Security Disability Insurance EVS Employee
    Validation Service HCFA Health Care Financing Administration HUD Department
    of Housing and Urban Development OIG Social Security Administration?s Office
    of Inspector General OQA Social Security Administration?s Office of Quality

    Assurance and Performance Assessment SSA Social Security Administration SSI
    Supplemental Security Income SSN Social Security number USDA Department of
    Agriculture WC workers? compensation Contents

    Page 1 GAO- 01- 367 Workers' Compensation Payment Errors

    May 4, 2001 The Honorable Charles E. Grassley Chairman The Honorable Max
    Baucus Ranking Member Committee on Finance United States Senate

    The Honorable William M. Thomas Chairman The Honorable Charles B. Rangel
    Ranking Minority Member Committee on Ways and Means House of Representatives

    Between 1991 and 1998, workers received an average of about $43 billion each
    year in cash and medical benefits through the nation?s workers? compensation
    (WC) programs to cover work- related injuries. 1 WC beneficiaries may also
    be eligible for federal program benefits, such as Social Security Disability
    Insurance (DI) and Supplemental Security Income (SSI). 2 In such programs,
    the law often limits access or reduces benefits for those receiving workers?
    compensation. For example, if a person receives both DI and WC benefits, and
    together these benefits exceed 80 percent of the injured worker?s average
    current earnings, the Social Security Administration (SSA) generally reduces
    the DI benefit. This reduction in benefits is referred to as the WC offset.
    Over the years, evaluations by GAO, SSA, and SSA?s Office of Inspector
    General (OIG) have found significant overpayment and underpayment errors
    related to the WC offset provision. Because these payment error problems are
    long

    1 All states have enacted WC laws requiring employers to provide various
    cash and medical benefits to their injured workers. The federal government
    also has established its own WC program to cover federal employees. In
    addition, the federal government administers WC benefits paid to coal miners
    suffering from black lung and oversees WC payments available to longshoremen
    and harbor workers.

    2 The DI program provides benefits to fully insured persons who are unable
    to work because of a physical or mental impairment that can be expected to
    result in death or that has lasted or can be expected to last for a
    continuous period of not less than 12 months. SSI provides monthly cash
    payments to aged, blind, or disabled persons whose countable income and
    assets are below program limits.

    United States General Accounting Office Washington, DC 20548

    Page 2 GAO- 01- 367 Workers' Compensation Payment Errors

    standing, we undertook a review- under our own statutory authority- to
    determine how benefit programs administered by SSA and other agencies are
    affected by WC benefits. This report (1) examines the effect of WC benefits
    on SSA programs, focusing on SSA?s progress in administering the WC offset
    provision; (2) discusses other federal programs whose benefit payments are
    also affected by WC benefits; and (3) discusses options for addressing
    federal benefit payment errors related to workers? compensation.

    To examine how WC benefits affect SSA?s administration of its disability
    programs, we reviewed laws and regulations pertaining to the DI and SSI
    programs; interviewed program administrators; and met with administrators of
    several state WC programs, attorneys for WC beneficiaries and insurers, and
    representatives from trade associations of WC insurance companies and self-
    insured employers. We also compared WC records from Virginia (which
    maintained a central database for state WC cases and provided us access to
    its records) with SSA beneficiary records to identify persons receiving both
    DI and WC benefits and to determine how frequently such situations are
    reported to SSA.

    To examine how WC benefits affect other federal programs, we focused our
    analysis on Medicare, which is administered by the Health Care Financing
    Administration (HCFA). We chose Medicare because it covers medical expenses
    for persons who have received DI benefits for 2 years and because WC
    insurers are supposed to be the primary payer and Medicare the secondary
    payer of medical expenses that arise from workrelated injuries and are
    covered under a WC program. We examined HCFA?s rules and regulations related
    to its role as a secondary payer, met with HCFA staff responsible for the
    Medicare program, and used the Virginia WC data to identify beneficiaries
    receiving Medicare benefits. We also examined regulations and practices
    followed by several other federal programs to examine how WC benefits affect
    other programs. These programs included the Department of Agriculture?s
    (USDA) Food Stamp program, the Department of Housing and Urban Development?s
    (HUD) Section 8 Rental Voucher and Certificate programs, and child support
    enforcement activities.

    We conducted our work between March 2000 and March 2001. We did not
    independently verify the accuracy of the automated data provided by state WC
    agencies; with this exception, our work was performed in accordance with
    generally accepted government auditing standards. Appendix I further
    describes the scope and methods of our work.

    Page 3 GAO- 01- 367 Workers' Compensation Payment Errors

    SSA?s administration of the WC offset provision continues to be undermined
    by the lack of reliable information identifying the receipt of WC benefits
    by DI beneficiaries, causing some beneficiaries to be overpaid and others to
    be underpaid. No national reporting system identifies WC beneficiaries.
    Instead, SSA largely relies on applicants and beneficiaries to report their
    receipt of WC benefits and any changes that occur in the benefit amounts- an
    approach that makes it very difficult for SSA to make accurate benefit
    payments. Ongoing SSA reviews of benefit payments indicate that more than 50
    percent of DI beneficiaries whose benefits are being offset have been paid
    inaccurately. Another study projected $1.5 billion in payment errors related
    to the WC offset. About 85 percent of these errors are underpayments of
    entitled benefits that result when DI beneficiaries do not report reductions
    in their WC benefits. Our examination of WC files in Virginia, which cannot
    be projected nationwide, showed that SSA was unaware that about 26 percent
    of Virginia DI beneficiaries concurrently received WC benefits for some
    period of time, usually about 1 month. However, among these unrecognized
    concurrent benefit cases, about 6 percent had received WC benefits for
    periods of 6 months to 7 years. In addition, SSA policies governing the
    offset treatment of lump- sum WC payments- which can be received in lieu of
    a periodic WC benefit payment- do not produce close approximations of the
    benefit value of the lump- sum payments as called for by the Social Security
    Act. Rather, they often result in unrealistic approximations of the monthly
    benefit value of a lump- sum payment, allowing the offset to be legally
    avoided and thereby increasing DI benefit payments.

    Other federal agencies also need WC information to make accurate program
    benefit payments, and face similar difficulties identifying WC
    beneficiaries. Like SSA, Medicare relies on its applicants and beneficiaries
    to self- report WC benefits and is vulnerable to payment errors when they do
    not. In a group of cases from our Virginia sample of joint Medicare and WC
    benefit cases that HCFA staff reviewed for us, HCFA was often unaware that
    beneficiaries were also receiving WC benefits. Among our sample of Virginia
    cases, we found that about 39 percent of the joint WC and Medicare
    beneficiaries had received some Medicare benefits for treatments (such as
    for spine surgery) that were potentially related to the WC injury (for
    example, those involving back injuries). Although these data are not
    nationally representative, they show that HCFA faces difficulties similar to
    SSA in identifying WC beneficiaries. Difficulties identifying WC
    beneficiaries could extend beyond Medicare. Program regulations for food
    stamps and Section 8 rental housing assistance consider WC benefits as
    income or assets, and an inability to obtain Results in Brief

    Page 4 GAO- 01- 367 Workers' Compensation Payment Errors

    information on such benefits could affect accuracy of benefit payments.
    Child support enforcement agencies can also use WC beneficiary information
    to locate missing parents and assets to meet support obligations, but about
    half the states do not use it.

    There are ways to address the difficulty of reliably identifying WC
    beneficiaries. However, the fragmented structure of WC programs and the lack
    of federal involvement in state WC programs defy a simple solution. As an
    initial step, federal agencies could test whether sharing the WC data that
    each agency has independently developed would benefit the government as a
    whole. In addition, a more comprehensive method could be developed to better
    obtain the input of WC insurers. Insurers are the best source of information
    about beneficiaries because they know to whom, when, and why they are paying
    benefits, and the amount of such benefits. Collecting pertinent beneficiary
    information from insurers, on either a voluntary or mandatory basis, would
    improve the accuracy of federal payments from agencies needing to know about
    WC benefits. One possible approach would be to encourage WC insurers to
    participate in a voluntary reporting process. However, WC insurers are
    concerned about the costs of any reporting process and may need an incentive
    to cooperate. Moreover, because Medicare is the secondary payer to WC
    insurers, it may not be in the insurers? economic interests to share their
    beneficiary data with HCFA. If a viable voluntary reporting process is not
    feasible, a mandatory reporting process could be established.

    This report recommends that SSA and HCFA test the extent to which the
    sharing of WC beneficiary information with each other, and with other
    federal programs, would improve the accuracy of federal benefit payments. It
    also recommends that SSA take several actions to test the viability of a
    voluntary reporting process with WC insurers and revise its policies
    governing how the monthly benefit value of a lump- sum payment should be
    determined for offset purposes. Finally, we note that the Congress may need
    to consider legislative action to resolve long- standing operational
    problems that a number of federal agencies face when trying to identify WC
    beneficiaries.

    In commenting on a draft of this report, SSA and HCFA generally supported
    our recommendation to share information with one another in order to
    identify recipients of WC benefits. SSA also generally agreed that it needs
    to improve its administration of the WC offset provisions, including
    provisions governing lump- sum payments in settlement agreements. However,
    SSA raised some concerns about implementing the SSA- HCFA data exchange,
    providing SSN verification services to WC

    Page 5 GAO- 01- 367 Workers' Compensation Payment Errors

    insurers, and balancing the need for better WC information with privacy
    issues. SSA was also concerned that obtaining better WC information would
    likely result in increased administrative expenditures and program costs. We
    believe that SSA?s concerns about data exchanges, verification services, and
    privacy issues can be addressed. We also believe that protecting program
    integrity is worth some additional spending. Moreover, since most of the
    payment errors are underpayments, the additional program expenditures
    resulting from the correction of these errors would be made to beneficiaries
    who are currently not receiving the benefits to which they are entitled. SSA
    also provided a few technical comments, which we incorporated where
    appropriate. SSA?s and HCFA?s comments are shown in appendixes II and III.

    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. 3 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

    3 Most WC coverage (about 70 to 80 percent) is provided either by employers
    purchasing insurance through private carriers or by self- insurance. In six
    states, employers must purchase WC insurance through state- managed funds,
    and in 21 states employers have the option to purchase WC insurance through
    state funds. Background

    Page 6 GAO- 01- 367 Workers' Compensation Payment Errors

    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. 4
    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

    4 A fourth category is sometimes discussed: temporary partial disability.
    These benefits can be paid when a worker experiences some continuing wage
    loss as the result of a workrelated injury.

    Page 7 GAO- 01- 367 Workers' Compensation Payment Errors

    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. 5
    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,

    5 The Social Security Act also has an exception to the application of the WC
    offset. SSA cannot offset disability benefits if the state WC program allows
    the insurers to reduce the amount of WC benefits they would normally pay to
    an injured worker when the worker also receives Social Security DI benefits.
    Originally, this exception was available to all states, but in 1981 the
    Congress limited recognition of such exceptions to the 14 states that had
    established them by Feb. 18, 1981.

    Page 8 GAO- 01- 367 Workers' Compensation Payment Errors

    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. 6 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.

    6 Better Case File Monitoring of the Workers? Compensation Offset Provision
    by the Social Security Administration Could Save Millions (GAO/ HRD- 83- 90,
    Sep. 30, 1983); Workers? Compensation/ Public Disability Benefits
    Verification Study (SSA Office of Insurance Program Quality, March 11,
    1985); Unreported Workers? Compensation Payments (SSA OIG, OEI- 06- 89-
    00900, Nov. 1991). SSA Faces Difficulties

    Administering Disability Payments Involving WC Benefits

    Page 9 GAO- 01- 367 Workers' Compensation Payment Errors

    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. 7
    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. 8

    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?

    7 Effects of State Awarded Workers? Compensation Payments on Social Security
    Benefits (SSA OIG, A- 04- 96- 61013, Sep. 1998). 8 SSA Title II Stewardship
    Report, SSA Office of Quality Assurance and Performance Assessment (Oct.
    1999). Reliance on the SelfReporting

    of WC Benefits Makes SSA Payments Vulnerable to Errors

    Page 10 GAO- 01- 367 Workers' Compensation Payment Errors

    receiving concurrent WC and DI benefits for periods ranging from 6 months to
    7 years. 9 Table 1 summarizes the results of our comparison.

    Table 1: Concurrent Receipt of DI and WC Benefits Concurrent receipt period
    Number of cases

    Up to 1 month 936 1 month up to 6 months 13 6 months up to 1 year 15 1 year
    up to 2 years 17 2 years up to 3 years 12 3 years up to 5 years 13 5 years
    up to 7 years 6

    Total 1,012

    Source: GAO analysis of Virginia?s WC data and SSA DI beneficiary data as of
    March 2000.

    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. 10 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. Nearly 85 percent of the payment errors have been underpayments
    that occur when beneficiaries do not report the termination or reduction of
    their WC benefits. Among the reviewed cases, SSA has found more than 200
    beneficiaries who were underpaid by at least $30,000 each over the course of
    their eligibility.

    In addition to reconsidering its benefit payments in these cases, SSA has
    taken other actions to improve its administration of the WC offset,
    including sending mailers to remind beneficiaries to report changes in their
    WC benefits. The agency has also provided training on WC cases to its staff
    and revised its operating instructions. The agency is continuing a

    9 Because of the time that would be needed to assess whether any of these
    cases involved overpayments, we did not attempt to determine whether the
    offset would have applied in these cases.

    10 The cases being reviewed only cover beneficiaries who became entitled to
    benefits between 1966 and 1993. An SSA official told us that, in October
    2001, the agency plans to begin reviewing the accuracy of payments made in
    WC offset cases for beneficiaries entitled to DI benefits after 1993.

    Page 11 GAO- 01- 367 Workers' Compensation Payment Errors

    long- time effort to obtain on- line access to the databases of state WC
    agencies to improve its ability to identify WC beneficiaries. However,
    despite nearly 2 decades of efforts, SSA has been able to obtain on- line
    access to state WC data in only eight states. Many states are unwilling or
    unable to cooperate, citing state privacy limitations on sharing the data,
    incompatible computer systems, or insufficient resources. Further, the
    benefits of accessing state records are limited because state records are
    not always comprehensive. For example, many states do not require data from
    self- insured employers about WC claims.

    Payment errors resulting from self- reporting of WC benefits may also be a
    problem for the SSI program. Because periodic WC benefits are considered
    income and lump- sum payments are considered assets, they can also
    complicate the payment of SSI benefits. The SSI program is the nation?s
    largest cash assistance program for the poor. To be eligible for SSI, an
    individual or family must have income and assets below specified levels. 11
    Although not all income and assets count toward eligibility decisions,
    periodic WC benefits are counted as income and lump- sum payments from a WC
    settlement would be considered an asset. Recently, we reported that as of
    1999 SSI?s accumulated overpayments totaled $3.8 billion. 12 Although the
    portion of this debt caused by WC payments has not been determined, a large
    part of the overpayment problem was caused by SSA?s reliance on SSI
    recipients to report their financial circumstances (including the receipt of
    WC benefits) and the agency?s insufficient verification of recipient income.
    Moreover, as in the DI program, underpayments could also result if SSI
    beneficiaries fail to report the reduction or termination of their WC
    benefits.

    Because a lump- sum payment in a WC settlement is a substitute for future
    periodic payments, the Social Security Act requires SSA to determine the
    monthly benefit equivalent of the lump- sum payment so that SSA can
    determine whether the combination of monthly DI and WC benefits exceeds 80
    percent of what the worker made at the time of injury. 13 The

    11 In calendar year 2001, the countable monthly income could not exceed $530
    for a single adult or $796 for a couple, and assets could be no more than
    $2, 000 for a single person or $3,000 for a couple.

    12 Major Management Challenges and Program Risks: Social Security
    Administration (GAO- 01- 261, Jan. 2001). 13 SSA deducts medical, legal, and
    related expenses paid or incurred by a worker in connection with a WC claim
    for offset calculation purposes. SSA Policies Allow LumpSum

    Settlements to Avoid the WC Offset

    Page 12 GAO- 01- 367 Workers' Compensation Payment Errors

    law requires SSA to closely approximate the amount of the WC benefit
    foregone by the acceptance of a lump- sum payment. SSA?s policy and
    procedures specifies the use of one of three benefit rates in making this
    determination:

     The periodic benefit rate specified in a settlement agreement;

     If the agreement did not specify a benefit rate, the most recent monthly
    benefit rate that was paid before the settlement; or

     If neither of the first two rates was used, the maximum monthly benefit
    rate allowed by the WC program at the time of the injury.

    Settlement agreements often specify a monthly benefit rate for a lump- sum
    payment. However, SSA procedures do not state how this monthly rate should
    be determined by the settlement parties or by SSA staff so that it is
    equivalent to the periodic value of the lump sum. In recent years,
    settlement agreements have calculated the benefit rate by evenly
    distributing the lump sum over the injured employee?s remaining life
    expectancy. In doing so, settlements can usually state a monthly benefit
    well below the beneficiary?s most recent WC monthly benefit rate or the
    maximum benefit rate under a WC program. This lower monthly benefit rate
    means that the chances of the combined DI and WC benefits exceeding 80
    percent of preinjury income are greatly reduced and frequently eliminated,
    thereby preserving the injured worker?s DI benefits.

    For example, consider a case involving a $50,000 lump- sum payment in which
    a worker?s preinjury earnings were $1,000 a month and the settlement
    agreement did not specify a monthly benefit rate. The worker could receive
    up to $800 in combined WC and DI benefits- 80 percent of preinjury earnings-
    before the WC offset would apply. If the worker had been receiving a WC
    monthly benefit of $600 before a lump- sum settlement, SSA would use this
    amount in determining the offset. Thus, if the worker?s DI benefit is $500,
    the combination of both benefits would be $1,100 per month, exceeding the
    $800 maximum by $300. Under this situation, SSA would reduce the DI benefit
    from $500 to $200 per month.

    However, when a settlement does specify a monthly benefit rate, and does so
    based on remaining life expectancy, the rate is often low enough that the
    offset does not apply. For example, if the settlement in the above case
    specified that the worker?s remaining life expectancy is 38.3 years (460
    months), the monthly benefit rate for the payment stated in a settlement
    would be $108.70 ($ 50,000 divided by 460 months). In this case, combined WC
    and DI benefits would equal $608. 70 a month ($ 108. 70 plus the $500 DI

    Page 13 GAO- 01- 367 Workers' Compensation Payment Errors

    benefit). Because combined benefits are below $800, the worker?s DI benefits
    would not be reduced.

    Because calculating the monthly benefit rate based on life expectancy makes
    the monthly rate relatively low and thus reduces the chance that the WC
    offset will apply, it has been used intentionally for this purpose. We
    examined articles in various legal publications that discuss the use of life
    expectancy in settlements to avoid offset of their client?s Social Security
    benefits. The articles caution attorneys practicing WC law that not knowing
    ?how to structure the settlement so there would be little or no offset?
    exposes them to potential malpractice claims. 14

    Our review of Virginia cases involving persons receiving both DI and WC
    benefits showed that stating a benefit rate based on remaining life
    expectancy was relatively common and the WC offset was often avoided. From a
    sample of 139 cases, 76 percent (105) were resolved by a negotiated
    settlement with a lump- sum payment. In 37 percent (39) of the lump- sum
    cases, the settlement stated an award rate based on the person?s remaining
    life expectancy. 15 In 46 percent (18) of the 39 cases, SSA did not offset
    DI benefits and in 41 percent (16 cases) SSA did offset DI benefits. In the
    remaining 13 percent (5 cases), SSA records did not indicate that SSA knew
    that the beneficiary received WC benefits.

    The manner in which remaining life expectancy is being used to establish a
    monthly benefit rate for a lump- sum payment raises concerns because it does
    not account for the time value of money and does not calculate an equivalent
    benefit rate that consistently reflects benefits levels under state WC
    programs. In the end, the practice does not produce realistic monthly
    benefit equivalents.

    14 Sandra J. Perry and Thomas M. Henry, ?Maximizing Workers Compensation
    Awards; Controlling Offset From Social Security Disability Payments,? Trial
    (March 1994); Michael J. Walkup, ?Social Security Offsets and Workers?
    Compensation Settlements,? Chicago Daily Law Bulletin (July 8, 1992); and
    James D. Leach, ?Minimizing the Workers

    Compensation Offset in Social Security Cases,? Practical Litigator (July
    1994). 15 Because this and other percentage estimates resulting from our
    work are based on a sample, each estimate is subject to sampling error. The
    sampling error for this estimate is plus or minus 9.7 percentage points.
    This means that at the 95- percent confidence level, the true percentage is
    between 27. 3 and 46. 7. All other percentage estimates resulting from our
    sample have sampling errors of 14 percentage points or less.

    Page 14 GAO- 01- 367 Workers' Compensation Payment Errors

    First, this practice fails to recognize the time value of money. That is, a
    given amount of money received at one time, as in the case of a lump- sum
    payment, is of greater value to the recipient than the same amount of money
    received in a series of payments spread over a future period. The value is
    greater because the recipient can invest the lump- sum payment and earn a
    return on it. Those who argue that the value of a lump- sum settlement is
    equal to a series of payments that would total the amount of the lump sum
    ignore the additional value that results from the investment opportunities
    provided by the lump- sum form of payment. Depending on the investment?s
    return rates and duration, significant differences in the estimated monthly
    benefit amounts are derived by considering the time value of money rather
    than the current practices that ignore it.

    For a hypothetical lump- sum payment of $50,000, table 2 compares the level
    of monthly benefit amounts implicit under the current approach (derived by
    dividing the lump- sum payment by the number of expected months of remaining
    life), which assumes the money is not invested, to the monthly withdrawal
    amount possible under each of several alternative investment rates of
    return. 16 For example, given a 6 percent return on investment, $276.65 can
    be withdrawn at the beginning of every month for 38.3 years on a $50,000
    lump- sum investment. This is about 155 percent higher than the $108.70
    amount that assumes no investment.

    Table 2: Estimated Monthly Benefit Amounts Under the Current Approach Versus
    Monthly Amounts if Invested at Various Rates of Return

    Rate of return Estimated monthly benefit amount a Difference in monthly

    benefit amounts Current approach (ignores time value of

    money) Approach that

    considers time value of money

    * 5.0 $108.70 $243.42 $134.72 5.5 108.70 259.83 151.13 6.0 108.70 276.65
    167.95 6.5 108.70 293.86 185.16 7.0 108.70 311.42 202.72 7.5 108.70 329.30
    220.60 a Estimates are based on a $50,000 lump- sum payment expected to last
    for 38. 3 years (460 months).

    16 The rates of return shown in the analysis reflect nominal rates of return
    that might be expected from relatively conservative investments in long-
    term bonds rather than higherrisk investments in stocks.

    Page 15 GAO- 01- 367 Workers' Compensation Payment Errors

    Second, the unrestricted use of life expectancy to establish a monthly
    benefit rate for a lump- sum payment often does not reflect how long WC
    benefits would have been received if the injured worker had not elected to
    receive a lump- sum payment. Advocates for injured workers argue that,
    because their impairments are permanent and preclude future earnings, it is
    reasonable to calculate the periodic benefit rate over their remaining life
    expectancy. However, this use of life expectancy may be inconsistent with
    the benefit payment periods established under state WC laws. While states
    allow for the payment of WC benefits for the duration of a disability, this
    is usually associated with impairments that are considered to be permanent
    and total in character. These types of cases account for about 1 percent of
    all WC cases. In contrast, permanent partial impairments are the type of WC
    cases most often disputed and closed by a lump- sum settlement and account
    for about 30 percent of WC cases. 17 In permanent partial impairment cases,
    the negotiated lump- sum payment is based mostly on the need to pay WC
    benefits for only a limited period of time, not the person?s remaining life
    expectancy. For example, a Department of Labor report shows that 35 state WC
    programs limit the time that cash benefits are payable for permanent partial
    disability cases.

    Finally, in many cases, the use of remaining life expectancy results in
    unrealistically low estimates of monthly benefit amounts foregone, well
    below the minimum monthly benefit established by a WC program. We found that
    the benefit amounts specified in the 39 Virginia settlements that used
    remaining life expectancy to calculate a benefit rate were indeed very low
    and would not provide any meaningful lifetime economic security for disabled
    workers. For example, 54 percent (21 of the 39 cases) stated a monthly
    benefit rate for a lump- sum payment that was less than $100 per month. The
    amounts in these cases are well below the minimum monthly benefit levels
    established by the Virginia WC program, which, depending on the year of WC
    settlement for cases in our sample, ranged from $418 to $606 per month.

    For some time, SSA had been concerned about the practice of basing WC
    benefit rates for lump- sum payments on a beneficiary?s remaining life
    expectancy. In 1997, SSA proposed requiring that the periodic benefit amount
    specified in a settlement had to be based ?on the percentage of the worker?s
    average weekly wage required by state law.? Because this

    17 Workers? Compensation: Benefits, Coverage, and Costs, 1997- 1998 New
    Estimates, National Academy of Social Insurance (May 2000).

    Page 16 GAO- 01- 367 Workers' Compensation Payment Errors

    phrasing is ambiguous, we asked SSA staff to elaborate. They explained that
    this change was intended to prevent the use of remaining life expectancy to
    establish a monthly benefit rate. As such, the staff said it would require
    the use of either the last WC benefit amount paid or the maximum WC benefit
    amount payable under the WC program.

    SSA?s proposal drew numerous negative comments when it was published in the
    Federal Register. One of the major arguments raised by opponents was that
    the offset was unfair to the working poor because they are
    disproportionately affected by it. Persons with high average current
    earnings will not have their DI benefits reduced when their earnings are so
    high that even maximum DI and WC benefits fall below 80 percent of their
    earnings. However, this fairness issue can also be looked at from another
    perspective. If the lower- income worker faces a reduction in DI benefits,
    it is because he or she is receiving combined benefits that exceed 80
    percent of his or her preinjury average earnings. In comparison, the
    combined WC and DI income of a disabled worker with high average preinjury
    earnings may result in a replacement rate well below 80 percent.
    Nevertheless, because of substantial opposition, SSA dropped its proposed
    change and continues to accept the use of remaining life expectancy as a
    basis for determining the monthly payment amount.

    Other federal agencies also need WC information to effectively administer
    their programs. For example, HCFA relies on Medicare beneficiaries to report
    the receipt of their WC benefits. Other programs, such as Food Stamps and
    Section 8 Rental Voucher and Certificate Programs, need income data to
    determine eligibility and benefit amounts. Like SSA, each of these programs
    is vulnerable to payment problems caused by an inability to reliably
    identify beneficiaries receiving WC benefits. In addition, child support
    enforcement agencies can use WC information to locate missing parents and
    uncover assets to meet support obligations. Lack of WC

    Information Hinders Administration of Other Programs

    Page 17 GAO- 01- 367 Workers' Compensation Payment Errors

    Medicare provides health insurance to people who are 65 or older, have
    received Social Security DI benefits for 2 years (regardless of age), or
    have end- stage kidney disease. 18 The Social Security Act precludes
    Medicare from paying medical expenses covered under a WC program. Under WC
    programs, the employer or insurance carrier is the primary payer of medical
    expenses related to the injury/ illness, and Medicare is a secondary payer.
    Medicare only pays medical expenses for a work- related injury if a WC
    program does not, there is no other primary payer, and the needed treatment
    is covered by Medicare. To properly implement this secondarypayer
    requirement, HCFA must know whether a Medicare beneficiary receives workers?
    compensation. Although SSA informs HCFA when persons become eligible for
    Medicare benefits, it does not pass along information it may have on whether
    these beneficiaries are or may be receiving workers? compensation. 19

    Like SSA, HCFA primarily relies on its beneficiaries to report their WC
    benefits. To identify persons receiving WC benefits, HCFA sends a
    questionnaire to all newly eligible beneficiaries that asks whether the new
    beneficiary is receiving medical services for a work- related injury or
    illness and whether he/ she has filed or will file a claim for workers?
    compensation. HCFA officials told us that about 78 percent of the newly
    enrolled beneficiaries respond to its questionnaire. HCFA also relies on
    medical service providers who treat patients and on its intermediaries and
    carriers to provide information that would identify persons receiving WC
    benefits.

    WC cases that are closed by negotiated settlements are a particular concern
    for HCFA because the terms of the settlements can place limits on the amount
    of future medical expenses for which a WC insurer is responsible. By
    regulation, HCFA will not recognize WC settlements that appear to shift
    responsibility for paying medical expenses related to a WC covered injury
    from the insurer to the Medicare program. HCFA

    18 Medicare has two parts. Hospital insurance (Part A) helps pay for
    inpatient care, up to 100 days of skilled nursing facility care, home health
    care, and hospice services. Medical insurance (Part B) helps pay for a wide
    range of services such as physician services, laboratory services, medical
    equipment, and outpatient hospital services. HCFA contracts with insurance
    companies to examine and pay Medicare claims and ensure the accuracy of
    payments under Part A and Part B.

    19 SSA provides HCFA a listing that identifies each eligible person?s name,
    Social Security number, date of birth, address, gender, and whether the
    individual elected to enroll in the optional Part B coverage, including
    persons who qualify by virtue of receiving DI benefits. Lack of WC
    Information

    Makes HCFA Vulnerable to Medicare Payment Errors

    Page 18 GAO- 01- 367 Workers' Compensation Payment Errors

    regulations require settlements to give reasonable recognition to both cash
    benefits and future medical expenses that are provided under WC programs. If
    a settlement does not designate a portion of the lump sum for future medical
    expenses, HCFA can determine the amount of the lump sum that should have
    been set aside for future medical expenses and it can seek that amount from
    the worker. A HCFA official said that settlements must be examined on a
    case- by- case basis relative to the injury, and settlements should usually
    make some provision for future medical expenses.

    Without knowing whether a person is receiving WC benefits, HCFA is
    vulnerable to paying for medical expenses related to the WC injury or
    illness. We used our sample of 139 joint DI and WC beneficiaries from
    Virginia to evaluate HCFA?s awareness of WC benefits and whether its
    reliance on self- reporting made it vulnerable to Medicare payment errors.
    From our sample of 139 beneficiaries, 78 percent (108) persons were enrolled
    in Medicare. Of those enrolled, 83 percent (90) had closed their WC claims
    through settlements. In these 90 settled cases, 40 percent (36 persons)
    fully waived their WC coverage of future medical expenses, designating no
    money from the lump sum to cover future medical expenses and ending the
    insurer?s liability for covering future medical expenses. In the remaining
    60 percent (54 cases), some provision was made for future medical expenses,
    often covering related medical expenses for short periods of time after the
    settlement, typically 6 to 12 months. Given that HCFA regulations state that
    WC settlements need to satisfy Medicare?s interests relative to the payment
    of future medical expenses, we examined the Virginia WC files for our sample
    cases to determine whether there was any indication that the parties sought
    HCFA?s approval of the settlement terms. Our WC case file review did not
    find any evidence that the parties to the WC settlement advised HCFA of the
    terms of the settlement or sought its input on their acceptability.

    To further consider HCFA?s awareness of beneficiary?s receiving WC benefits,
    we asked Medicare to provide any WC information it had on the persons in our
    sample. Because HCFA had to manually search its records, it limited the
    search to no more than 2 dozen persons in our sample. We selected a
    nonrandom sample of 24 WC cases covering persons who were enrolled in
    Medicare and who had received Medicare Part A benefits. HCFA officials
    provided information indicating it knew 8 of the 24 beneficiaries had
    received WC benefits. In the remaining 16 cases, it did not know the
    Medicare beneficiary had received WC benefits.

    Page 19 GAO- 01- 367 Workers' Compensation Payment Errors

    To consider HCFA?s vulnerability to payment errors, we examined the 108
    persons in our Virginia sample who were enrolled in Medicare and their
    associated Medicare- paid claims for inpatient services. We compared the
    principal diagnoses listed on the Medicare claims with the WC injuries
    incurred. This comparison allowed us to identify Medicare payments for
    services that were potentially related to the WC injury. 20 Of the 108
    Medicare enrollees in our sample, we found that 64 percent (69 persons)
    received medical treatment paid for by Medicare. In 39 percent of these
    cases (27 of the 69 persons), we also found that Medicare had paid for
    services potentially related to WC injuries. Although these data are not
    nationally representative and do not prove that payment errors occurred,
    they show that HCFA faces difficulties similar to SSA in identifying WC
    beneficiaries and may be paying for services that it should not cover.

    HCFA officials have estimated that about 8 percent of its beneficiaries have
    medical claims that may be the responsibility of another health insurer,
    liability insurer, or WC program. In a recent GAO report about actions that
    could improve HCFA?s identification and collection of overpayments, we
    discussed the difficulty HCFA faces trying to identify Medicare secondary-
    payer- related overpayments. We noted that commercial insurers share
    information on their policyholders to identify beneficiaries having more
    than one source of medical insurance so that they can coordinate their
    benefit payments. However, because Medicare is generally the secondary payer
    to other insurers, it may not be in other insurers? economic interests to
    share their beneficiary data with HCFA. Indeed, while HCFA has attempted to
    arrange for voluntary data sharing with other medical insurers, few have
    opted to participate, thereby reducing HCFA?s ability to identify claims
    that are the responsibility of another insurer. In the report, we suggested
    that the Congress consider requiring all private health insurers to comply
    with HCFA requests for the names and identifying information of their
    enrolled beneficiaries. 21

    20 To be potentially related to a WC injury, a medical diagnosis for a
    Medicare benefit claim had to be closely associated with the injury
    described in the WC case file. For example, if the WC file we examined cited
    a back injury, then we considered claims for medical expenses related to
    back or spinal conditions and subsequent to the date of the injury to be
    potentially related to a WC injury.

    21 Medicare: HCFA Could Do More to Identify and Collect Overpayments (GAO/
    HEHS/ AIMD- 00- 304, Sep. 2000).

    Page 20 GAO- 01- 367 Workers' Compensation Payment Errors

    Other federal programs, including Food Stamps, Section 8 Rental Voucher and
    Certificate Programs, and child support enforcement, also need information
    about the receipt of WC benefits by their program applicants and
    participants to effectively administer their operations. 22 For example,
    USDA?s Food Stamp program assists qualified recipients in purchasing
    groceries. To qualify for food stamps, beneficiaries? incomes and assets
    must not exceed program limits. Under USDA?s regulations, workers?
    compensation is considered a form of income so managers need to know when
    food stamp applicants and beneficiaries receive it. Although we did not
    specifically examine how WC benefits affect the Food Stamp program, we
    reported in 1999 that millions of dollars of overpayments in the Food Stamp
    program occur because agencies don?t have reliable information to determine
    the eligibility of applicants and recipients. 23

    In addition, the Section 8 Rental Voucher and Certificate Programs need
    information about WC benefits. Funded by HUD, these programs are the main
    form of housing assistance for low- income tenants. Residents in units
    subsidized by these programs generally pay 30 percent of their income for
    rent and HUD pays the balance. Under HUD regulations, applicants must report
    their WC benefits because they are counted as a source of annual income when
    making eligibility and benefit- level determinations. In a 1999 report, we
    stated that high levels of improper payments exist in these programs because
    HUD does not have adequate internal controls to verify tenants? self-
    reported income. 24 Although the HUD Inspector General did not specifically
    identify WC benefits, she has also stated that tenants often do not report
    income, or underreport it, causing overpayments of HUD subsidies. 25

    22 Because this is not a comprehensive list, some programs not mentioned
    here may also benefit from being able to better identify WC beneficiaries.
    23 See Major Management Challenges and Program Risks: Department of
    Agriculture (GAO/ OCG- 99- 2, Jan. 1999). In a January 2001 report, we
    reemphasized the need for the

    department to continually address and minimize the amount of fraud and abuse
    in Food and Nutrition Service programs, citing the Food Stamp program where
    over $1 billion in overpayments were made in 1999. See Major Management
    Challenges and Program Risks: Department of Agriculture (GAO- 01- 242, Jan.
    2001).

    24 See Major Management Challenges and Program Risks: Department of Housing
    and Urban Development (GAO/ OCG- 99- 8, Jan. 1999). In 2001, we again cited
    the Section 8 Rental Voucher Program as a high- risk federal program. See
    Major Management Challenges and Program Risks: Department of Housing and
    Urban Development (GAO- 01- 248, Jan. 2001). 25 Report transmitting the
    audit of the HUD financial statements as of Sep. 30, 1999, 00- FO177- 0003
    (Feb. 23, 2000). Lack of WC Information

    Could Affect Other Program Operations

    Page 21 GAO- 01- 367 Workers' Compensation Payment Errors

    Finally, we also found that more reliable WC data would assist efforts to
    locate missing parents and uncover assets that could pay child support
    obligations. To help locate missing parents, the Personal Responsibility and
    Work Opportunity Reconciliation Act of 1996 required the states to submit
    data on newly hired employees, as well as quarterly data on wages and
    unemployment insurance that most employers must file with the state each
    quarter. Data on WC beneficiaries are not included in the reports that the
    national Office of Child Support Enforcement uses to assist state
    enforcement agencies in locating missing parents and identifying possible
    sources of income to meet their support obligations. However, we found that
    26 states use WC information in their enforcement activities. 26 These
    states said they matched information in their state WC records to locate
    missing parents and the match helped to increase child support collections.
    One state agency told us that they strongly recommend such matching because
    it often identifies persons in construction and seasonal work who move
    around and can otherwise be difficult to locate.

    Because of the fragmented structure of WC programs and the lack of direct
    federal involvement in state WC programs, developing a reliable source of
    information to identify WC beneficiaries for federal agencies defies a
    simple solution. While SSA has been working with state WC agencies to
    improve its access to WC benefit data and to improve its internal processes,
    additional actions that might assist SSA and other agencies to obtain better
    data on beneficiaries receiving workers? compensation could be explored. For
    example, because SSA and HCFA independently develop information on their
    beneficiaries who also receive WC benefits, exchanging information between
    these agencies might prove fruitful. As noted earlier, we found situations
    in which SSA knew of a person?s receipt of WC benefits and HCFA did not. At
    the same time, administrators of other federal benefit programs might also
    benefit from this information. Like SSA and HCFA, they too need to know when
    beneficiaries receive WC benefits.

    Another possible effort would involve periodically obtaining information
    about WC benefit payments directly from entities that pay WC benefits and
    recording that information in a central database. WC benefit payers-

    26 Forty- seven child support enforcement agencies responded to a
    questionnaire we sent to all the states and the District of Columbia asking
    whether they used WC data to locate missing parents and identify income to
    meet existing support obligations. Options for Improving

    Access to Workers? Compensation Information

    Page 22 GAO- 01- 367 Workers' Compensation Payment Errors

    insurance companies, self- insured employers, and state insurance funds- are
    the best source of information about WC beneficiaries and their benefits.
    Benefit payers know to whom, when, how much, and why they are paying
    benefits. The reporting process would provide SSA with information that
    identifies WC beneficiaries (for example, names, Social Security numbers
    (SSN), dates of birth, and addresses) for a reporting period. With this type
    of information, SSA and other authorized federal program managers could
    compare their application and payment files with the central registry to
    determine whether they needed to investigate eligibility decisions or the
    amount of a beneficiary?s payment.

    While such reporting could provide independent WC information, doing so on a
    voluntary basis presents operational difficulties. Probably foremost among
    these difficulties is obtaining the cooperation of about 5,000 WC benefit
    payers. While they are sympathetic to the needs of federal agencies to
    properly steward federal benefit payments, insurance industry trade
    associations indicated to us that WC insurers have little to gain by sharing
    WC beneficiary information with the government, especially if it involves
    reporting information about all WC beneficiaries. They said that a reporting
    system covering every person receiving WC benefits in a specific reporting
    period would be excessive because most WC cases involve temporary absences
    from work or payments for medical expenses only. These types of cases are
    unlikely to result in persons qualifying for federal program benefits
    because the injured workers return to work. Consequently, reporting
    information about all WC benefit cases would be unnecessarily burdensome and
    raise privacy issues. One official said that any reporting process should
    focus on cases involving permanent injuries- that is, cases in which cash
    benefits have been paid for a long period of time, perhaps 1 or 2 years.

    To encourage participation in a voluntary reporting system, it would be
    beneficial to provide WC insurers with an incentive to participate. Insurers
    are concerned about fraud and abuse in WC programs. During our review, we
    learned that WC insurers might be interested in validating the identities
    (names and SSNs) used by their beneficiaries. SSA maintains a registry of
    the persons to whom it has issued an SSN. Given this potential interest, it
    might be possible to develop a voluntary WC beneficiary reporting process
    whereby WC benefit payers would periodically identify persons to whom they
    have paid either significant amounts of WC benefits or made payments for
    significant periods of time. In exchange, SSA could validate the name and
    SSNs being used by the beneficiaries of participating WC insurers.

    Page 23 GAO- 01- 367 Workers' Compensation Payment Errors

    Although SSA does not validate identities for WC insurers, SSA provides a
    similar type of service to employers through its Employee Verification
    Service (EVS). Under EVS, employers and third parties (accountants, tax
    filing services, etc.) are encouraged by SSA to send the names and SSNs of
    their employees to SSA at any time throughout the year. SSA then matches the
    submitted name and SSN data to its records to identify whether the queried
    name and SSN match and the combination is a valid identifier. SSA
    established EVS to improve benefit calculations in its retirement, survivor,
    and disability benefit programs. Social Security benefit amounts are based
    on a person?s average earnings. To assure that workers receive accurate
    benefit payments, SSA records each person?s annual earnings to their account
    (identified by name and SSN).

    Because SSA can validate employees? names and SSNs and reduce employers?
    wage report processing costs, it may be possible for SSA to validate the
    beneficiary names and SSNs for WC insurers who agree to voluntarily exchange
    information that identifies their WC beneficiaries. Whether every WC insurer
    would voluntarily participate in a reporting system even with an incentive
    is unknown. If SSA could use EVS for this purpose, however, it could pilot
    test such an approach to gauge WC insurer interest, and the benefits and
    costs of such a system.

    If a satisfactory voluntary reporting process to identify WC beneficiaries
    cannot be established, WC benefit payers could be required to provide
    information. A mandatory reporting requirement could be established, perhaps
    by requiring WC insurers to identify beneficiaries as part of the new hire
    reporting process previously discussed. This action would require
    legislation.

    For years, federal agencies have relied on beneficiaries to report their
    receipt of WC benefits. Self- reporting has not been an entirely effective
    practice and SSA?s experience demonstrates that program beneficiaries often
    do not report their WC benefits even when it is in their own interest to do
    so. Moreover, federal agencies cannot provide proper stewardship over
    federal expenditures and assure that persons receive the benefits to which
    they are entitled in matters related to WC benefits without a reliable
    source of information to identify WC beneficiaries.

    Several options exist to improve the management of federal programs relative
    to identifying WC beneficiaries. SSA, HCFA, and other federal agencies can
    test ways to share information about beneficiaries who are or may be
    receiving workers? compensation. Although the data these Conclusions

    Page 24 GAO- 01- 367 Workers' Compensation Payment Errors

    agencies have on workers compensation are limited, such a test would
    determine whether a full exchange of WC beneficiary information among
    agencies might be beneficial to the government as a whole. In addition,
    SSA?s policies governing the conversion of lump- sum payments into monthly
    amounts should be revised to be consistent with the benefit payment amount
    and timeframes of the individual programs. Its policies need to recognize
    that the programs establish minimum benefit levels and often limit the
    length of time that WC benefits are payable. They should also require that
    benefit rates stated in settlements recognize the time value of money. These
    changes should allow SSA to more closely approximate the monthly benefit
    amount of a lump- sum payment.

    For comprehensive reform, however, SSA and other agencies periodically need
    information from WC insurers that identifies beneficiaries who may qualify
    for federal benefits. Any reporting process that is developed should be
    centralized in a single agency, such as SSA, which can share that
    information with other authorized users. Such a reporting process would also
    seek to minimize burdens for insurers and ensure the privacy interests of WC
    beneficiaries. Ideally, SSA should explore with WC insurers whether a viable
    voluntary system can be created. However, if a viable voluntary reporting
    process is not feasible, congressional action to mandate the reporting of WC
    beneficiary information will be needed to improve the accuracy of federal
    benefit payments.

    To improve current operations related to WC information needs, we recommend
    that the Commissioner of Social Security and the Administrator of the Health
    Care Financing Administration test the extent to which sharing information
    that identifies persons who are or may be receiving WC benefits improves the
    accuracy of their benefit payments. If sharing this type of information is
    cost effective, further tests to similarly evaluate the costs and benefits
    of sharing WC information with other federal agencies needing WC information
    should be conducted.

    We also recommend that the Commissioner of Social Security ensure that the
    following actions are taken to improve administration of the WC offset
    provision:

     SSA officials should meet with representatives from the WC insurance
    industry to determine whether a viable voluntary reporting process can be
    established that would provide the government with information that
    periodically identifies WC beneficiaries. Recommendations for

    Executive Action

    Page 25 GAO- 01- 367 Workers' Compensation Payment Errors

     SSA should revise its policies and procedures governing the establishment
    of monthly benefit amounts stated in settlements for lump- sum payments. At
    a minimum, the regulations should require that estimates of the monthly
    benefit amounts consider the time value of money and the minimum payment
    amounts under state law. In addition, the appropriate amortization period
    for determining the monthly benefit amount should be consistent with benefit
    payment requirements under state WC program rules.

    If SSA is unable to establish a viable voluntary WC beneficiary reporting
    process with WC insurers, the Congress should consider establishing a
    periodic reporting requirement that provides the federal government with
    information that identifies WC beneficiaries. This information should be
    reported by WC insurers to a single federal agency authorized to use those
    data for its own administrative purposes and to share the information with
    other agencies needing it to meet their statutory obligations. Any system
    that is established should include features to prevent improper disclosure
    of that information and should restrict access to authorized purposes only.

    We provided a draft of this report to SSA and HCFA. In commenting on this
    report, SSA and HCFA generally supported our recommendation to share
    information with one another to identify recipients of WC benefits.
    Concerning our recommendation that SSA determine the viability of a
    voluntary reporting process with WC insurers to provide the government with
    information that identifies WC beneficiaries, HCFA noted that voluntary
    reporting of information is always the preferred method of doing business.
    However, HCFA noted that it had previously supported a related, but more
    broadly stated, recommendation in an earlier GAO report stating that the
    Congress should consider requiring all private health insurers to comply
    with HCFA requests for the names and identifying information of their
    enrolled beneficiaries. 27

    SSA generally agreed that it needs to improve its administration of the WC
    offset provisions. Regarding our recommendation that SSA revise its policies
    and procedures governing lump- sum payments in settlement agreements, SSA
    stated that it recognizes the need to standardize its current policies and
    procedures for prorating WC lump- sum settlements and said that it will step
    up its efforts to improve the standard by which to

    27 Medicare: HCFA Could Do More to Identify and Collect Overpayments (GAO/
    HEHS/ AIMD- 00- 304, Sep. 7, 2000). Matters for

    Congressional Consideration

    Agency Comments and GAO?s Response

    Page 26 GAO- 01- 367 Workers' Compensation Payment Errors

    prorate lump- sum settlements. With regard to our other recommendations, SSA
    raised several issues and concerns.

    SSA noted that an SSA- HCFA data exchange would not provide all of the
    information that either SSA or HCFA needs to make accurate benefit payments.
    In addition, SSA also raised some concerns about our suggestion to provide
    SSN verification services to WC insurers. SSA stated that such verification
    would create a substantial additional workload for SSA and could require
    legislation to conform to the Social Security Act and Privacy Act.

    SSA also raised concerns about the effectiveness of computer matching versus
    on- line access to obtain better WC information. SSA stated that it is
    currently developing an SSA- wide policy for future data exchanges and is
    also evaluating the effectiveness of its computer matching activities.
    Moreover, SSA stated that it needs to complete a full analysis of states? WC
    reporting practices and the identification of the largest WC insurers in the
    United States before committing to providing information to private entities
    or to any particular method (computer matching or on- line access) of
    obtaining WC data. And finally, SSA expressed concern that the
    administrative resources expended to obtain better WC information, including
    the systems costs for setting up the data exchanges recommended in our
    report, would be significant. The agency also noted that program costs are
    also likely to increase since most payment errors are underpayments.

    We recognize and agree with SSA that a data exchange with HCFA would not
    provide sufficient information for either agency to make accurate benefit
    payments. Rather, we believe that this comparison of records could identify
    DI and Medicare beneficiaries receiving WC benefits of whom SSA and HCFA may
    have no previous knowledge. The agencies could then use this information as
    an indicator that further examination of a case or claim is warranted.

    With regard to SSA?s concerns about expanding SSN verification, SSA already
    provides verification services to several WC state programs. Moreover,
    because the EVS is already offered to millions of employers, including WC
    insurers in their role as employers, it is questionable whether this would
    substantially increase SSA?s workload in this area. In addition, such
    verification could significantly improve the accuracy of payments in DI
    cases that have long been prone to error. We agree that expanding the
    verification system requires SSA?s careful consideration, including whether
    it could be done under current law or whether additional legislation would
    be required. However, as we have pointed out

    Page 27 GAO- 01- 367 Workers' Compensation Payment Errors

    in an earlier report on data sharing, the objective of improving program
    efficiency and integrity can be compatible with the objective of individual
    privacy and it is possible to improve access to important data sources in a
    manner that is consistent with protections in the Privacy Act. 28 Any
    verification system that is established should include features to prevent
    the improper disclosure of the information being verified and should
    restrict access to authorized purposes only.

    Regarding SSA?s concerns about the effectiveness of computer matching versus
    on- line access to obtain better WC information, we agree that it is
    appropriate for SSA to proceed cautiously in an area as complex as workers?
    compensation. However, as we noted earlier in the report, despite nearly 2
    decades of effort, SSA has been able to obtain on- line access to state WC
    data in only eight states. Even if SSA could gain the cooperation of more
    states, the benefits of accessing state records are likely to be severely
    limited in the many states that do not require data about WC claims from
    self- insured employers.

    Finally, with regard to SSA?s concerns about increases in administrative
    resources and program expenditures that are likely to result from obtaining
    better WC information, we believe that protecting program integrity is worth
    some additional spending on administrative resources to correct payment
    errors. Moreover, since most of these payment errors are underpayments, the
    additional program expenditures resulting from such corrections would be
    made to beneficiaries who are entitled to such benefits but are not
    currently receiving them.

    SSA also provided a few technical comments, which we incorporated where
    appropriate. SSA?s and HCFA?s comments are printed in appendixes II and III.

    Copies of this report are being sent to the federal agencies administering
    programs that need WC information and to state agencies that administer WC
    programs. We will make copies available to other interested parties on

    28 Benefit and Loan Programs: Improved Data Sharing Could Enhance Program
    Integrity (GAO/ HEHS- 00- 119, Sep. 13, 2000).

    Page 28 GAO- 01- 367 Workers' Compensation Payment Errors

    request. If you or your staff have any questions concerning this report
    please call me or Carol Dawn Petersen on (202) 512- 7215. Other major
    contributors to this report are William Staab, Gerard Grant, and Jill Yost.

    Barbara D. Bovbjerg Director, Education, Workforce,

    and Income Security Issues

    Appendix I: Scope and Methods Page 29 GAO- 01- 367 Workers' Compensation
    Payment Errors

    To examine the Social Security Administration?s (SSA) implementation of the
    workers? compensation (WC) offset provision, we reviewed the offset
    requirement in the Social Security Act and SSA?s implementing regulations
    and program operating procedures. To obtain a perspective on the operation
    of WC programs, we reviewed reports prepared by the Office of Workers
    Compensation Programs in the U. S. Department of Labor, the National Academy
    of Social Insurance, and the U. S. Chamber of Commerce, and spoke to an
    official of the International Association of Industrial Boards and
    Commissions. We examined numerous rulings by federal courts and
    administrative law judges related to SSA?s policies for implementing the WC
    offset provision. We reviewed reports from GAO, from SSA?s Office of
    Inspector General (OIG), and other SSA reports about the administration of
    the WC offset provision and met with SSA staff responsible for policy and
    operational aspects. We met with state WC agency officials in California,
    Tennessee, Maryland, Virginia, and Pennsylvania and contacted WC officials
    in Michigan, Illinois, Texas, North Carolina, Washington, and Alabama to
    discuss their WC programs and the availability of WC benefit data with which
    to compare to SSA benefit data. We also met with private attorneys
    representing WC insurers, injured workers, and Social Security Disability
    Insurance (DI) beneficiaries, and with several WC judges/ adjudicators.
    Finally, we met with officials from the American Insurance Association and
    UWC, Inc. Strategic Services on Unemployment and Workers? Compensation- two
    trade associations representing WC insurers.

    To identify persons simultaneously entitled to both DI and WC benefits and
    to assess SSA?s awareness of WC benefits among its DI beneficiaries, we
    compared WC beneficiary data from Virginia for 1995 and 1996 to SSA?s master
    beneficiary records. We used data from Virginia because it maintains a
    central database on all WC cases and provided us with access to its data.
    The match identified 4,376 persons receiving DI and WC benefits. In 495
    cases, however, certain dates needed to determine whether DI and WC benefits
    were simultaneously received were missing. Thus, we only were able to
    identify 3,881 simultaneous DI and WC beneficiaries. We did not match
    beneficiaries of federally administered WC programs, such as Black Lung,
    because SSA was either already making such a match or had plans to begin
    this matching.

    To evaluate the treatment of lump- sum payments in WC cases for offset
    purposes, we randomly selected 150 cases from Virginia for detailed
    analysis. Our sample was drawn from a population of 4, 376 cases in which WC
    benefits were paid to persons receiving DI benefits. The purpose of Appendix
    I: Scope and Methods

    Analysis of the Social Security Administration?s Implementation of the
    Workers? Compensation Offset

    Appendix I: Scope and Methods Page 30 GAO- 01- 367 Workers' Compensation
    Payment Errors

    our sample was to identify the proportion of these dual benefit cases that
    were closed through lump- sum settlements and how the lump sum payment was
    described in the settlement for WC offset purposes. The Virginia WC
    Commission was able to readily locate the case files for 139 of the 150
    cases in our sample.

    To examine Medicare?s administration of the secondary payer provision in the
    Social Security Act relative to workers? compensation, we reviewed pertinent
    regulations and procedures and met with HCFA policy and operations
    officials. We also met with attorneys who represent insurers and injured
    workers as well as state WC officials to discuss how Medicare benefits
    affect WC settlement decisions. We also used our sample of 139 Virginia WC
    cases to assess Medicare?s vulnerability to payment errors. From the sample,
    we identified the dates when Medicare beneficiaries were injured at work;
    the type of injury incurred; and, if the cases were settled, whether any
    type of coverage for future medical expenses was provided under the
    settlement. We then examined Medicare enrollment and claim data for the
    years 1991 to 1999 for the sampled cases to determine (1) how many of the WC
    beneficiaries were enrolled in Medicare, (2) how many of the enrolled
    beneficiaries received benefits under Part A, and (3) whether the medical
    treatments that Medicare covered were potentially related to the WC injury.

    We also asked HCFA staff if they would examine their databases and provide
    us with any information showing their knowledge of WC benefits for each
    Medicare beneficiary in our sample. Because this would require a case- by-
    case review, they agreed to examine 2 dozen cases. We selected 24 cases of
    persons who were enrolled for Medicare and had received Medicare benefits
    for treatments that were potentially related to their work- related injury.

    To determine how workers? compensation affects payments under other federal
    programs, we reviewed pertinent program regulations and past GAO and OIG
    reports related to payment practices for these programs. In addition, we
    sent a questionnaire to child support enforcement programs in each of the 50
    states and the District of Columbia to obtain information about how WC
    benefit information is used to locate missing parents and their assets. We
    received 47 responses. Analysis of Effects of

    WC Benefits on Medicare and Other Federal Agencies

    Appendix II: Comments From the Social Security Administration

    Page 31 GAO- 01- 367 Workers' Compensation Payment Errors

    Appendix II: Comments From the Social Security Administration

    Appendix II: Comments From the Social Security Administration

    Page 32 GAO- 01- 367 Workers' Compensation Payment Errors

    Appendix II: Comments From the Social Security Administration

    Page 33 GAO- 01- 367 Workers' Compensation Payment Errors

    Appendix II: Comments From the Social Security Administration

    Page 34 GAO- 01- 367 Workers' Compensation Payment Errors

    Appendix II: Comments From the Social Security Administration

    Page 35 GAO- 01- 367 Workers' Compensation Payment Errors

    Appendix III: Comments From the Department of Health and Human Services

    Page 36 GAO- 01- 367 Workers' Compensation Payment Errors

    Appendix III: Comments From the Department of Health and Human Services

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