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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