Social Security Administration: Systems Support Could Improve
Processing Attorney Fee Payments in the Disability Program
(17-MAY-01, GAO-01-710T).
To ensure that people claiming the Social Security
Administration's (SSA) Disability Insurance program benefits can
obtain legal representation at a fair price, the Social Security
Act requires that SSA regulate the fees that attorneys charge
people to represent their disability claims before the agency.
Balancing the needs of the claimants with those of their
attorneys, the act limits the amount of fees that attorneys can
charge claimants, but also guarantees that those fees will be
paid from the claimants' past-due benefits. Inefficiencies in the
current process increase both the time it takes to pay the
attorney fees and the cost of administration. One segment of
attorney fee processing--the fee approval process--was
substantially simplified in 1991. Systems support could
streamline the second segment of the processing--the fee
payment--thus lowering the annual administrative costs and
cutting processing time. If SSA automated this final segment of
the fee process, it could help improve customer service for both
claimants and their attorneys.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-01-710T
ACCNO: A01017
TITLE: Social Security Administration: Systems Support Could
Improve Processing Attorney Fee Payments in the Disability
Program
DATE: 05/17/2001
SUBJECT: Lawyers
Disability benefits
Disability insurance
Information systems
Legal fees
Old Age and Survivors Insurance Trust
Fund
Social Security Disability Insurance
Program
Social Security Disability Insurance
Trust Fund
SSA Modernized Claims System
Supplemental Security Income Program
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GAO-01-710T
Before the Subcommittee on Social Security, Committee on Ways and Means,
House of Representatives
United States General Accounting Office
GAO For Release on Delivery Expected at 10: 00 a. m. Thursday, May 17, 2001
SOCIAL SECURITY
ADMINISTRATION Systems Support Could Improve Processing Attorney Fee
Payments in the Disability Program
Statement of Barbara D. Bovbjerg, Director Education, Workforce, and Income
Security Issues
GAO- 01- 710T
Page 1 GAO- 01- 710T
Mr. Chairman and Members of the Subcommittee: Thank you for inviting me here
today to report on our study on attorney fees in the Social Security
Administration? s (SSA) Disability Insurance (DI) program. To ensure that
people claiming DI benefits can obtain legal representation at a fair price,
the Social Security Act requires that SSA regulate the fees that attorneys
charge people to represent their disability claims before the agency. 1
Balancing the needs of claimants with those of their attorneys, the act
limits the amount of fees that attorneys can charge claimants, but also
guarantees that those fees will be paid from the claimants? past- due
benefits. Over the years, however, relations between SSA and attorneys
representing DI claimants have become increasingly strained. While SSA
points to the growing administrative burden of processing these fees,
attorneys are frustrated with delays in receiving their fees. The situation
intensified recently after the Ticket to Work Act imposed an assessment (or
?user fee?) to be deducted from the attorney fees. 2 This act tied the
amount of the user fee to SSA?s administrative costs in providing fee
services, requiring SSA to determine (for calendar years after 2000) the
percentage rate necessary for ?full recovery of the costs of determining and
certifying fees,? not to exceed 6.3 percent.
The Ticket to Work Act required us to study various aspects of attorney fee
services in the DI program. My remarks today focus on (1) our evaluation of
SSA?s estimate of its administrative costs, (2) the time it takes SSA to
process the fee payments, (3) whether efficiencies in SSA?s operations might
reduce costs and processing times of fee payments, and (4) other matters
related to the services and the user fee. In June 2000, we reported our
preliminary results to the Subcommittee on Social Security, House Committee
on Ways and Means. 3
In summary, although SSA?s administrative costs serve as the benchmark for
the user fee, precise measurement of these costs is difficult. The fee
services are only a small part of SSA?s operations, and SSA?s information
systems do not routinely track the type of data necessary for careful
measurement of these costs. SSA recently estimated that it cost $54
1 42 U. S. C. 406( a)( 2)( A). 2 Ticket to Work and Work Incentives
Improvement Act of 1999, P. L. 106- 170. 3 Social Security Administration:
Paying Attorneys Who Represent Disability Applicants (GAO/ T- HEHS/ AIMD-
00- 166, June 2000).
Page 2 GAO- 01- 710T
million to process attorney fees in 2000- about 10.5 percent of the total
fees of $512 million paid to attorneys in that year. Our review of this
estimate indicated that it was likely too high. However, because data
limitations and uncertainty as to what costs should be counted made exact
correction impracticable, we attempted instead to calculate a rough
?lower bound? for the amount of these costs. This analysis set the lower
bound for SSA?s administrative costs at $35.4 million, or about 6.9 percent
of total attorney fees, exceeding the 6.3 percent threshold of the user fee.
In the past year, SSA improved the timeliness of its fee payments
considerably, but major delays continue in some cases. Between June and
December 2000, SSA paid fees in 50 percent of the cases within 60 days
following issuance of the final administrative decision finding the claimant
eligible for DI benefits. This was more timely than in the same period in
1999, when it processed only 4 percent of the fee payments within 60 days of
the decision. For the most part, processing time shrank because the Ticket
to Work Act eliminated a 15- day period set aside to allow claimants a
specific time to protest the attorney fee. 4 However, over 20 percent of the
payments made in both years still took longer than 6 months from the date of
the final decision. Factors causing delay in both years include extra time
needed to finish processing certain claims- for example, if a claimant
received state workers? compensation payments, SSA must contact the state to
verify the amount the claimant received and offset the amount against past-
due DI benefits.
According to SSA officials, both staff cost reduction and further
improvements to payment timeliness could result from automating its process
to pay attorneys. SSA?s cost estimate showed the bulk of its administrative
costs as related to a manual process for paying attorneys their fees.
Although we did not attempt to quantify the amount of cost savings from
automating these manual procedures, we believe it would likely be
significant- in 1999, for example, individual clerks manually calculated and
entered data for 166,000 attorney payments. SSA has repeatedly postponed
plans to automate the process, citing higher priorities for other projects.
Currently, however, SSA is planning to automate the attorney payment
process, but has yet to complete its plans or to commit budget funds for the
project.
4 Claimants, attorneys, and SSA officials are still allowed to protest the
fees, however, there is no specified waiting period, as previously required.
Page 3 GAO- 01- 710T
Finally, as required by the Ticket to Work Act, we considered a variety of
potential changes to the attorney fee structure, some of which raised
concerns. For instance, one issue related to a potential change that would
link the user fee to the timeliness of the SSA payment, decreasing the fee
if the SSA payment were not timely. However, some claims for DI routinely
need additional processing time, such as those requiring verification of
workers compensation payments. To fairly administer such a provision, SSA
would need to differentiate between cases where delays involve additional
processing and those cases with no need for additional processing.
The DI program, created in 1954, provides monthly cash benefits to workers
who have become severely disabled and to their dependents and survivors.
These benefits are financed through payroll taxes paid by workers and their
employers and by the self- employed. Proof of disability can involve complex
technical issues, and section 206( a) of the Social Security Act permits
claimants to appoint an attorney to represent them at proceedings before SSA
5 , at any level of administrative review.
The disability claims process is complex, multilayered, and lengthy. The
following scenario portrays the process for DI claimants who are typically
represented by an attorney before SSA- i. e., those cases where the claim is
ultimately appealed to SSA?s Office of Hearing and Appeals (OHA). Initially,
the claimant would have filed a claim for DI benefits with a local SSA field
office. This office would have then forwarded the claim to a state agency to
examine the claimant?s evidence for medical disability. The state agency
would then have denied the claim in an initial review and denied it again
after reconsidering the claim. Once SSA notified the claimant of denial of
benefits, the claimant would have then appealed to OHA. At OHA, the claimant
would have had a hearing before an administrative law judge who would have
reversed the decision of the state agency, finding the claimant eligible for
DI benefits. Generally, the claimant appoints an attorney for the OHA level
appeal. 6
5 42 U. S. C. 406 (a). 6 SSA staff estimate that roughly 90 percent of the
cases with attorney fees involve OHA decisions. However, there are instances
of attorney fee processing for cases handled by SSA?s field offices at the
stages of the initial determination and reconsideration of the case.
Background
Page 4 GAO- 01- 710T
The fees that attorneys representing DI applicants can charge are limited by
law and must be approved by SSA. Since 1967, SSA has administered fee
payments to attorneys representing DI claimants. To be compensated,
attorneys must file with SSA either a fee agreement- a formal contract
signed by the applicant and the attorney setting the fee as a percentage of
the applicant?s past- due benefits- or a fee petition that lists the
specific costs associated with the case. Of the two, the fee agreement is
the much simpler arrangement; generally, it specifies fees limited to 25
percent of the claimant?s past- due benefits up to a maximum of $4,000. 7 In
contrast, the fee petitions require attorneys to itemize expenses and hourly
charges, and SSA must determine a reasonable fee to compensate the
attorneys. Assuming either a fee agreement or a fee petition is approved,
SSA withholds the amount of the fee from the beneficiaries? past- due
benefits and pays the attorneys directly.
Historically, attorneys representing claimants before SSA submitted fee
petitions for their services. As the percentage of claimants represented by
attorneys in DI hearings increased from 19 percent in fiscal year 1967 to 66
percent in fiscal year 1987, fee petitions became a significant
administrative burden for SSA. To alleviate some burden, the Congress
streamlined the fee approval process in 1990 to allow attorneys to use the
much simpler fee agreement in cases where SSA finds the claimant eligible
for past- due benefits. 8 Since the introduction of fee agreements in 1991,
their use has become nearly universal- in 2000, 88 percent of the attorney
fees were based on fee agreements. However, even with the prevalence of the
simpler fee agreement, SSA continued to have significant delays in paying
attorney fees, and attorneys increasingly turned to court action to obtain
their fees.
In 1995, SSA proposed to stop processing attorney fees for DI claimants, and
estimated that, if this were done, it would save $20 million in
administrative costs. This cost estimate was the basis for a 6.3 percent
assessment on attorneys for use of SSA?s processing services enacted in the
1999 Ticket to Work Act, a charge deducted directly from the attorney?s fee.
Under this law, SSA is to determine (for calendar years after 2000) a
percentage rate that allows ?full recovery of the costs of
7 In cases where the 25 percent of past- due benefits is higher than $4,000,
and if the attorney believes that his or her case warranted a fee higher
than the $4, 000, he or she can request a higher fee- not to exceed the 25
percent of past- due benefits.
8 P. L. 101- 508, sec. 5106( a) (Nov. 5, 1990).
Page 5 GAO- 01- 710T
determining and certifying fees to attorneys for the past- due benefits of
the claim,? but is not to exceed 6.3 percent of the total fee. 9 The
proceeds from the collection of the user fee are returned to the Federal
Old- Age and Survivor Insurance Trust Fund and the Federal Disability
Insurance Trust Fund.
SSA?s estimate indicated that its administrative costs for attorney fee
services in 2000 were $54 million for the two major components of these
services: $13.8 million for approval of fee arrangements by OHA and $40.2
million for payment of fees by SSA?s processing centers. 10 Neither OHA nor
the processing centers routinely collect information that specifically
identifies the costs associated these services. To develop its estimate, SSA
relied on various data it adapted from its regular operations, as well as
surveying its regional offices to determine time spent on attorney fees in
OHA. Our review indicated flaws in these data and suggested that the
original estimate should be adjusted downward. However, without adequate
data, we were unable to make exact corrections to the estimate. Instead, we
made rough assumptions with the best available data and we limited our costs
to those related to attorney fee processing but clearly unrelated to normal
case processing. Using these assumptions- which may result in understating
SSA?s actual costs- we approximated the lower bound of SSA?s administrative
costs. From this analysis, we set the lower bound of costs for attorney fee
services at $35.4 million in 2000.
SSA?s cost estimate indicated that it cost $54 million to provide attorney
fee services in 2000. This estimate includes the two major components of fee
services: OHA fee approvals and fee payment in SSA payment processing
centers. Within SSA, its field offices, OHA, and the processing centers all
have important roles in managing a disability claim. However, for the most
part, OHA and the processing centers have the central
9 In accordance with this requirement, on January 19, 2001, SSA published
the findings from their cost study in the Federal Register. 10 For the cost
study included in the Federal Register, SSA used only data from the
processing centers and did not include OHA costs. Inadequate Data Make
Precise Estimate of Administrative Costs Unreliable
SSA Adapted Various Operational Data and Surveyed Some of its Offices to
Develop Cost Estimates
Page 6 GAO- 01- 710T
functions of fee processing. 11 OHA must review and approve fee
arrangements, while the processing centers pay the attorney fee once the
amount of past- due benefits is determined.
For OHA fee approval services, SSA estimated costs of $12 million for 1999-
which we restated in terms of 2000 costs as $13.8 million. 12 Within OHA
only a small portion of staff time is spent reviewing fee arrangements. For
fee agreements, SSA estimated that its staff spent about 1 1/ 2 hours
handling each agreement during an OHA appeal that may take about 1 year to
complete. However, the small amount of time spent reviewing each fee
agreement becomes significant when all such review time is totaled. For
example, OHA processed about 179,000 fee agreements in 1999- if each took 1
1/ 2 hours to process, the total time to process would be the equivalent of
129 work years and result in millions of dollars of costs.
While OHA did not have an information system that routinely collected data
about the time spent on each fee arrangement, it used operational data to
determine the general types of work considered related to these costs- for
example, approving fee agreements, reviewing administrative disputes, etc.
For each category of work, OHA developed a series of tasks necessary to
perform the work. Then, to obtain information on how long it took to
complete each task, OHA surveyed its regional offices.
Most of SSA?s administrative costs, however, were for paying the attorney
fees- in 2000, SSA estimated that this service by its processing centers
cost $40.2 million, or three- quarters of the total estimate of $54 million.
For the most part, this cost relates to manually handling the attorney
payments. Once a claimant?s past- due benefits are determined, a clerk
manually processes the payment- filling out a form that shows what payment
is authorized, calculating the user fee, and giving the form to the data
entry clerks for further processing. As with the OHA fee approvals,
11 SSA also discussed two other organizational components as contributing to
the fee processing services: its Office of Systems and the field offices.
These costs are not included in the estimates because SSA does not routinely
track this workload. Currently, however, SSA is also collecting data on
field office staff time spent inputting data when a DI claimant appoints a
representative.
12 To restate the estimate of OHA costs for 2000, we inflated the 1999
estimate by 6.6 percent- an amount provided by SSA that reflects the cost
increase in OHA between 1999 and 2000.
Page 7 GAO- 01- 710T
even though the time on each task may be small, it becomes significant when
all such time is summed up.
To develop its estimates for payment processing, SSA relied on the cost
allocation system it uses in its normal operations. SSA generally uses this
system to account for the expenses of its various types of work so that the
proper trust fund account can be charged; the system allocates SSA?s
administrative costs to one of the various trust funds SSA administers.
Although the system was not developed to analyze the costs related to fee
payments, SSA has adapted it to collect data on attorney fee work. Even so,
when SSA used the data from this system to make its estimate, it had to
first remove costs unrelated to processing attorney fees for DI claims.
Our review of SSA?s estimate indicated that it is likely too high. We
identified six problems with the SSA estimate:
The estimate for the costs of OHA fee approvals included the cost of
handling cases from the Supplemental Security Income program (SSI), cases
unrelated to DI claims;
The OHA estimate also included excessive staff time for processing the
simplified fee agreements;
In calculating the estimate of the costs for payment processing, SSA used
an erroneous cost allocation category that overstated the costs of the
services;
The estimate for the payment processing did not adjust for one- time use
of premium overtime pay used to reduce processing backlogs in February and
March 2000;
The estimate for the payment processing included costs not clearly
associated with fee payment; and
The estimate for the payment processing used an average of both higherand
lower- salary costs to calculate staff costs; this did not accurately
reflect that staff who routinely work on most payment processing are in the
lower salary group.
However, we were unable to make precise corrections for these adjustments
because of insufficient SSA data and unclear definitions of what should be
counted as a relevant cost. For example, there was no data Flaws in SSA?s
Estimate
Suggest That Downward Adjustment is Needed
Page 8 GAO- 01- 710T
available to calculate exactly how much overtime had been used to process
the payment backlogs. As another example, while SSA officials agreed that
the majority of staff that routinely work on payment processing tasks had
lower salaries than the average calculated, they were unable to provide us
with more specific data on staff costs. Furthermore, it was not always clear
as to what costs should be included in the estimate- for instance, we
eliminated certain costs related to handling attorney inquiries because we
believe that they included instances of normal case processing unrelated to
the steps needed to process attorney payments. SSA officials, on the other
hand, argued that these same costs should be included because they were
handling matters dealing with attorneys.
Although we were unable to precisely correct for each of these adjustments,
we approximated a ?lower bound? of SSA?s administrative costs. To do so, we
made assumptions with the best available data and we limited our costs to
those related to attorney fee processing but clearly unrelated to normal
case processing. Using these assumptions- which may somewhat understate
SSA?s actual costs- our analysis indicates that administrative costs could
be as low as $35.4 million. We discussed each of these adjustments with SSA
officials. (See the appendix for further details on our proposed cost
adjustments.)
We compared our adjusted estimate of $35.4 million with SSA?s original
estimate of $54 million. In 2000, SSA processed $512 million in attorney fee
payments. Comparing the original estimate to these payments, SSA?s
administrative costs were 10.5 percent of the total payments. However, using
the adjusted estimate, SSA?s administrative costs were 6.9 percent of the
attorney payments. Table 1 presents both the original and adjusted
estimates.
Table 1: Comparison of Total Original SSA Estimates With Total Adjusted
Estimates Fee approval process for 1999 Fee payment
process for 2000 Total attorney fee process
Original SSA estimate $13 million $40.2 million Not applicable Original SSA
estimate restated in 2000 costs
$13.8 million (inflated by 6.6%)
$40.2 million $54 million Adjustments to estimate, stated in 2000 costs
($ 7 million) (inflated by 6.6%)
($ 11.6 million) ($ 18.6 million) Total adjusted estimate, stated in 2000
costs
$6.8 million $28.6 million $35.4 million
Page 9 GAO- 01- 710T
Note: SSA data indicated that the OHA costs increased 6.6 percent between
1999 and 2000. Accordingly, we inflated the 1999 costs by this percentage in
order to combine the estimates for the two segments.
Source: GAO analysis of SSA data.
Although most fees were processed in far less time in 2000 than in 1999,
over 20 percent of the fees in both years still took longer than 6 months
from the date of the OHA decision to the date when the attorneys were paid.
While the major reason for the improved performance in 2000 was the
elimination of the 15- day protest period by the Ticket to Work Act, the
underlying reasons for the longest periods of delay remained largely
unchanged. These included factors that are often outside of SSA?s control,
such as the need for additional documentation to complete the calculation of
the claimant?s benefits, for example, verification of state workers?
compensation payments. In a recent report, we documented some of the
difficulties SSA encounters in obtaining workers? compensation information.
13
According to SSA data for the 7- month period from June through December,
payments in 2000 were dramatically faster than for the same period in 1999.
In 2000,12 percent of the payments were processed in 30 days or less from
the date of the OHA decision, and 50 percent of the payments were processed
in 60 days or less. In contrast, only 1 percent of the 1999 payments were
processed in 30 days or less, and only 4 percent of the 1999 payments were
processed in 60 days or less. However, in 2000, 22 percent of the payments
took over 180 days to process, about the same as 1999.
While SSA officials attributed most of the improved processing time in 2000
to elimination of the 15- day protest period 14 (with an added 15- day
mailing period), SSA changed other procedures that improved processing time.
For example, SSA stopped sending case files that needed additional
documentation out of the processing centers to storage centers; instead, the
case files stayed in bins near where staff processed the cases.
13 Workers? Compensation: Action Needed to Reduce Payment Errors in SSA
Disability and Other Programs (GAO- 01- 367, May 2001). 14 Claimants,
attorneys, and SSA officials are still allowed to protest the fees, however,
there is no specified waiting period, as previously required. Attorney Fee
Payments More Timely In 2000 But Major Reasons For Delay Remain
Page 10 GAO- 01- 710T
Processing center staff also contacted OHA staff to better track information
on attorney fee approvals.
However, many of the reasons that it takes an extra period of time to
process an attorney?s payment remained the same- for example, the centers
still need to track down state workers? compensation information, they still
need to have proof of age to process a claimant?s benefits, and they still
need to wait for all claims related to the principal beneficiary to be
resolved to determine what to pay the attorney. Recently, SSA conducted a 1-
day sample of cases with attorney fees that looked at factors, such as those
listed above, that complicate the payment process. Of the 669 attorney fees
processed on August 10, 2000, 48 percent had some factor that complicated
the processing of the case. 15 Furthermore, of the cases with complicating
factors, the most common characteristics were the need to verify information
on workers? compensation (29 percent) and deferred related claims (18
percent).
The bulk of SSA?s administrative costs relate to a manual payment process
that if improved could cut staff time and reduce processing time. Under the
current process, information necessary to make a payment to an attorney is
extracted from the main case information system and handled manually to
prepare for payment. However, the manager of SSA?s largest processing center
indicated that systems support could save one- third of the staff time
currently spent on processing this type of payment. Furthermore, Office of
Systems officials told us that automating the payment process could save
from 3 to 5 days in processing time. Nonetheless, proposals to automate this
process have been repeatedly postponed. SSA has, however, recently developed
a draft plan to automate the attorney fee payment process, but according to
SSA officials, the details related to this plan have not been fully
developed.
In general, DI cases are processed using an information system known as the
Modernized Claims System (MCS). When a claimant first files for DI, a staff
person in one of SSA?s field offices enter the claimant?s case history in to
MCS. After a favorable decision is issued by OHA, the hard copy of the case
file- including information about the attorney and his or her
15 As the 1- day study is not considered statistically valid by SSA
officials, the results of the study cannot be extrapolated to the entire DI
caseload. System Support Could
Help Reduce Inefficiencies in Processing Attorney Fee Payments
Current Payment Process Is Antiquated
Page 11 GAO- 01- 710T
fee- is mailed to a the processing center. When the case file is received at
the processing center, staff update the case history which was previously
entered in to MCS and complete information needed- such as determining
workers? compensation offset- for processing the claim. Once the information
is completed, MCS automatically calculates the claimant?s past- due
benefits, withholding 25 percent or $4,000 (whichever is less).
However, once MCS determines the amount of the past- due benefits owed the
claimant, a series of manual steps is performed to handle the attorney?s fee
payment. The case file is sent to a GS 7 or 9 technician (a
?benefit authorizer?) who fills out a form that transfers the attorney
information to a key punch clerk. The key punch clerk then inputs the data
into a separate stand- alone information system.
In addition to the problems cited above, there are other inefficiencies with
the payment process. For instance, there are no controls to ensure that the
amount withheld from the beneficiary is properly paid out to the attorney
nor are there controls to ensure that duplicate payments to an attorney are
avoided. Furthermore, there is no database (or ?master file?) of attorney
names, addresses, and payments. Without this, any time an attorney reports a
change of address, for example, the new address must be reported for every
claimant the attorney represents. In addition, there is no electronic link
between the OHA fee approval staff and MCS processing system. As a result,
OHA staff mails information on attorney representation and fee arrangements
to a processing center where staff manually enter the attorney data into the
MCS system.
Developing an information system to automate the process may result in
reduced staff time associated with processing these payments. According to
officials in the Office of Systems, automation could eliminate the need for
many staff who are now required to transfer information between the MCS and
the payment systems to process the attorney fees. If, for example, there was
no need to gather further documentation, the payment to the attorney would
be issued automatically at the same time the payment is issued to the
beneficiary. The officials also noted that automation might save from 3 to 5
days in processing time.
In a memorandum dated January 24, 2000, the Associate Commissioner for
Central Operations- the head of the largest DI processing center-
recommended that SSA automate this process, which he termed ?archaic.?
With systems support, he noted that his center would save 34 work years of
staff time, one- third of the total staff time the center spent on attorney
System Support Could
Help Reduce Staff Costs and Time
Page 12 GAO- 01- 710T
fee processing. He also pointed out that an attorney master file would
?eliminate duplicate work with needless reviews and greatly improve the
accuracy of payments.? In 1997, an SSA study group recommended that SSA
improve its automation of the current attorney fee process.
Despite internal recommendations for a new system, SSA has repeatedly
postponed its plans, redirecting funds to other higher- priority projects.
Officials from SSA?s Office of System reported that this systems development
effort has officially been part of SSA?s systems plans since at least 1998.
SSA currently has a draft plan to develop a system that would automate the
process so that payment processing would be linked to the MCS. While the
plan calls for linking the payment records to the claimants? records to
verify whether the payment withheld was also sent to the attorney, it does
not include any provision for an attorney master file or an electronic
connection with the OHA fee approval staff. Moreover, according to the
Office of Systems staff, there is not yet any definite schedule to complete
their plans, nor are any budget funds committed to the project.
The Ticket to Work Act also directed that we examine a number of potential
changes to the current fee structure including (1) linking the user fee to
SSA?s timeliness of payment, (2) making the user fee a fixed charge rather
than a percentage of the fee, (3) raising the caps on attorney fees, and (4)
extending the fee payment services to the SSI program. The act also directed
us to consider whether the recent imposition of the user fee affected
attorney representation of DI claimants. Additionally, we looked at the
possibility of having SSA issue checks made payable to both the beneficiary
and the claimant for the total amount of the past- due benefits. While the
information necessary to fully evaluate these issues is not available, our
review raised concerns about some of the matters.
Though it is not clear that all of the delay in the longest cases is due to
legitimate case processing, any decision to link the payment of the user
fees to SSA timeliness would need to account for unavoidable additional
processing steps.
The SSA 1- day study conducted in August 2000- which cannot be extrapolated
to the entire case population because it is not statistically valid for all
cases- looked at length of payment processing time. The SSA Has Current
Plans to
Automate Other Issues Related To Payments and the User Fee
Linking User Fees to Payment Timeliness
Page 13 GAO- 01- 710T
study compared the processing times to the presence of factors that
complicate case handling. About one- quarter (172) of the cases in the
sample took longer than 120 days from the date of the OHA decision to
process. Of these cases, over one- half (52 percent) had at least one factor
that required additional processing time. Forty- one percent (71 cases) had
issues requiring verification of state workers? compensation payments.
However, 48 percent (84 cases) of the cases with the longest processing
times had no complicating factors at all.
Currently, SSA does not routinely identify cases that require extra case
processing because of complicating factors such as state workers?
compensation payments. However, fair implementation of a link between the
user fee and SSA?s timeliness of payments- for example, reducing or
eliminating user fee payments if SSA did not pay the attorney within 120
days of the OHA decision- should treat such cases differently from other
cases with no complicating factors at all. From our review of the SSA
processing system, it is not clear, as a practical matter, how SSA could
separate and account for the different types of cases without considerable
extra administrative burden.
Technically, the vast majority of attorney fee payments each cost the same
amount to process; however, equity concerns arise when considering a fixed
fee instead of a percentage. The vast majority of fees are based on fee
agreements (88 percent in 2000 according to SSA) and the steps to process an
approval and payment of a fee agreement remain the same regardless of the
ultimate amount of the payment- which is dependent upon the claimant?s past-
due benefits, not the amount of work performed. Thus, because the costs are
the same regardless of the amount of the payment, a fixed fee more
accurately reflects the actual costs borne by SSA per payment.
However, the impact of a fixed charge per payment could vary significantly,
depending solely on the final amount of the claimant?s pastdue benefits. To
illustrate, according to SSA data, 17 percent of the attorney fees paid out
in 1999 were for amounts of $1,000 or less, and 39 percent were for $2,000
or less, although it is not clear exactly what amount was finally paid an
attorney (there can be multiple payments to one attorney). Since fee
agreements were applicable in most instances, this would mean that these
were cases where the claimant?s past- due benefits were for amounts of
$8,000 or less. Fixed Charge Versus
Percentage User Fee
Page 14 GAO- 01- 710T
Using 1999 costs and payments, if attorneys were charged a fixed amount for
each payment rather than a 6.3 percent user fee, the fixed charge would have
been $176 per payment. 16 Under a fee agreement specifying that the attorney
would be paid 25 percent of the past- due benefits, if the claimant?s past-
due benefits were $8, 000 a user fee of $176 would be 8.8 percent of the
attorney?s payment of $2,000. If, on the other hand, the claimant?s past-
due benefits totaled $16,000, then the fee would be $4,000 and the same
fixed charge would be 4.4 percent of the attorney?s payment. The impact on
attorneys representing claimants with smaller benefit claims can be
relatively greater than that on attorneys with claimants who are owed larger
benefits.
The current fee cap- limiting fees under fee agreements to 25 percent of
past- due benefits or $4,000, whichever is less- was first set 10 years ago
in 1991 and has not changed since that time. However, although the actual
cap has not changed, the DI benefits on which the fees are based have been
annually increased to account for inflation in the cost of living. Thus,
unless attorney fees hit the $4,000 cap, fees should have gradually
increased as benefits have risen.
However, the data from SSA are not clear as to how frequently attorneys may
reach the maximum fee of $4,000 in their cases. According to SSA data, the
breakdown of attorney fee payments in various dollar ranges has stayed
fairly consistent between 1995 and 1999. Thus, about 40 percent of payments
have been less than $2,000, about 20 percent have been between $2,000 and
$3,000, while the remaining 40 percent have been between $3,000 and $4,000.
SSA does not keep records on how many payments are issued for the maximum
$4,000. In SSA?s recent study of a one- day sample of payments processed on
August 10, 2000, of 625 fee agreement cases processed that day, one- third
(33 percent) had been paid at the $4, 000 limit. SSA officials, however,
believe that this percentage may have been unusually high. Without reliable
data, we were unable to ascertain the full impact of the current cap on
attorney fees.
16 In 1999, SSA paid out $464 million in 166,000 fee payments. Applying 6.3
percent to the total paid would have resulted in $29. 2 million in total
user fees. If, however, these fees were paid in a fixed amount for each
payment, the user fee per payment would have been $176. Raising the Cap on
Attorney Fees
Page 15 GAO- 01- 710T
The SSI program was created in 1972 as an income assistance program for
aged, blind, or disabled individuals whose income and resources are below a
certain threshold. SSI payments are financed from general tax revenues, and
SSI recipients are usually poorer than DI beneficiaries. While SSA currently
approves the fee arrangements between SSI claimants and their attorneys, it
does not withhold money from the past- due benefits to send to the
attorneys.
SSA and some advocates for the poor have argued against the extension of the
fee payment services to SSI claimants. According to their view, SSI
recipients tend to be poorer than DI beneficiaries, and deducting an
attorney fee from their past- due benefits would take money from those who
need it the most. SSA also points to the added administrative burden that
the additional fee services would entail.
On the other hand, others believe that the fee payment services should be
extended to the SSI claimants because providing a certain source of
compensation for attorneys would tend to increase the representation of SSI
claimants and possibly result in more successful cases by the SSI claimants.
According to 1999 data from OHA, applicants for DI benefits (or DI and SSI
together) were more likely to be represented by an attorney than those
applying only for SSI benefits. An official representing SSA hearing
officers told us that he believed that applicants with a legal
representative tended to fare better than those without one because the
cases are better presented in the OHA proceedings.
In general, legal representation of DI claimants in OHA proceedings has
steadily increased in the past 2 years. During the first quarter of calendar
year 1999, attorneys represented DI claimants in 73.4 percent of cases
presented to OHA. By the end of calendar year 2000, legal representation of
DI claimants had risen to 76 percent.
However, there was a slight dip in attorney representation for DI cases in
the second full calendar quarter- the months of July through September 2000-
following the implementation of attorney fees in February 2000. The
percentage of attorneys representing claimants for DI benefits only (not SSI
benefits as well) declined to 74.3 percent from 75.3 percent in the months
of April though June. In the next quarter (October through December 2000),
though, the percentage of attorney representation rose again- to 76 percent.
For the first quarter of the calendar year 2001, the rate dipped once more
to 75.4 percent. Extension of SSA Fee
Payment Services to Attorneys Representing SSI Claimants
Legal Representation of DI Claimants Since Implementation of the User Fee
Page 16 GAO- 01- 710T
Currently, once SSA determines the past- due benefits owed to DI claimants,
it issues two checks- one to the claimant and another to the claimant?s
attorney. One proposal would change this process by issuing one single check
for the total amount of the past- due benefits- made out jointly to the
claimant and the attorney- sent directly to the attorney. The attorney would
deposit the check into an escrow account and pay the past- due benefits,
minus his or her fee, to the claimant.
Such a change could have serious policy implications, however. For instance,
SSA currently attempts to pay the claimant as soon as possible after a
favorable decision. Joint checks might delay payment to the claimant because
the claimant would need to wait until the attorney deposited the check into
an escrow account. Also, using a joint check would reduce SSA?s ability to
enforce the fee limits and could increase the risk that attorneys might
short- change claimants. A number of administrative issues would need to be
addressed, as well. Because SSA must report the claimant?s benefits to the
Internal Revenue Service, it must track the amount each claimant receives.
With joint checks, the attorney would need to certify to the amount provided
to the claimant. In addition, SSA?s DI claims processing system would need
to be adjusted to handle joint checks.
Inefficiencies in the current process increase both the time it takes to pay
the attorney fees and the costs of administration. One segment of attorney
fee processing- the fee approval process- was substantially simplified in
1991. Systems support could streamline the second segment of the processing-
the fee payment- thus lowering the annual administrative costs and cutting
processing time. If SSA automated this final segment of the fee processing,
it could help improve customer service for both claimants and their
attorneys.
Mr. Chairman, this concludes my prepared statement. At this time, I will be
happy to answer any questions you or other Members of the Subcommittee may
have.
For information regarding this testimony, please contact Barbara Bovbjerg at
(202) 512- 7215. Individuals who made key contributions to this testimony
include Shirley Abel, Kelsey Bright, Nancy Peters, and Dan Schwimer. Joint
Check Issued to
Attorney and Claimant Conclusions GAO Contacts and Staff Acknowledgments
Page 17 GAO- 01- 710T
This appendix describes our adjustments to the Social Security
Administration?s (SSA) estimate of the costs of its fee process services.
SSA estimated the costs for the two major components of these services (1)
the 1999 Office of Hearings and Appeals (OHA) fee approval process; and (2)
the 2000 fee payment process. We describe our adjustments to the costs of
each component in separate sections below. In general, we were unable to
precisely correct the estimate because of inadequate data and unclear cost
definition. However, with rough adjustments to the original estimate, we
have attempted to approximate a ?lower bound? of the SSA costs. We have
discussed each of our adjustments, and our proposed corrections, with SSA
officials.
According to SSA?s estimate, OHA staff spent 236 work years on about 206,000
fee approval actions, at a cost of $13 million in 1999. These actions
included approval of both fee agreements and fee petitions, as well as
reviews of disputes over fees. The vast majority of these actions involved
approval of fee agreements- in 1999, OHA approved about 179,000 fee
agreements.
The cost estimate, however, included work not related to disability
insurance (DI) cases and used an unrealistically high estimate of staff time
taken to review fee agreements. While we could identify these problems, we
could only approximate the actual adjustment needed to correct the original
estimate because of insufficient data.
First, the estimate included costs spent on cases that were not DI cases. In
1999, there were about 185,000 OHA cases with attorney representation that
resulted in favorable decisions for the claimant. However, of these cases,
only about 79 percent (146,000) involved claims for DI benefits and the
remaining 21 percent (39,000) involved claims for benefits under the SSI
program only. SSA officials acknowledged that their estimate included work
on fee approvals for other than DI cases, but they were unable to provide us
with a more detailed breakout of workload (e. g., the number of fee
agreements that were also DI cases).
In addition, the SSA estimate appears to overstate the time it takes to
routinely handle a fee agreement. Over the past 10 years, SSA?s role in
regulating attorney fees have become much less burdensome. With the
simplified fee agreement, SSA staff can, for the most part, verify that the
claimant has agreed to pay his or her attorney 25 percent of past- due
benefits, instead of reviewing itemized hourly charges commonly presented in
fee petitions. Despite the steady trend towards uniform use of Appendix I:
Specific Adjustments to the SSA
Cost Estimate OHA Fee Approval Process
Page 18 GAO- 01- 710T
the simplified fee agreement, the most recent estimate of the time it takes
to review a fee agreement is twice that used in SSA?s 1995 cost estimate. In
1995, SSA estimated that it took about 45 minutes of staff time to review
and process a fee agreement. In 1999, however, its estimate of the same
review had risen to 94 minutes per agreement. The 1999 estimate included
about 47 minutes to evaluate whether each agreement meets the regulatory
criteria- 32 minutes by a senior case technician, and once this is done, 15
minutes by the administrative law judge (who also takes 6 minutes to sign
each agreement). After the judge signs the order, the estimate included 16
minutes for a clerk to mail the fee approval agreement (with the rest of the
case file) to the payment processing center.
While we were unable to quantify the actual staff time, the 1995 estimate of
45 minutes appears to be the better approximation of staff time spent
handling routine fee agreement approvals, particularly in view of the
increasingly uniform use of this simplified fee contract. To develop the
1999 estimate of staff time, SSA officials told us that they polled the OHA
regional offices in a 4- day period. They received responses from only 6 of
the 10 regional offices, and those responses included wide variations for
staff time- for instance, the estimate for the review by the administrative
law judge went from 1 minute to 5 days. Additionally, the time for the
mailing the fee agreement included the time spent to mail the entire OHA
decision.
Our review suggests that the OHA costs in 1999 may be as low as $6.4
million, or 51 percent of the original estimate. Our adjustments to the OHA
estimate are as follows:
1. Because SSA could not provide us with a detailed breakout of the OHA work
on DI cases, we reduced the total estimate by 21 percent- the proportion of
non- DI cases in the OHA 1999 workload. This adjustment reduced the estimate
by $2.7 million, to $10.3 million.
2. Once we removed the non- DI cases from the estimate, we then reduced the
estimate of staff time spent on fee agreement approval by one- half, roughly
the difference between the 1995 and the 1999 staff estimate. This change
lowered the OHA estimate by $3.9 million (30 percent), to $6.4 million.
3. We restated the estimated costs in terms of costs in 2000, to be
comparable to SSA estimates of processing costs. To do this, we
Page 19 GAO- 01- 710T
inflated the estimated costs (and our proposed adjustments) by 6.6 percent,
the amount by which the cost of the average OHA staff year increased in 2000
over 1999.
The original OHA estimate, our adjustments to the estimate, and the
limitations to these adjustments are shown in table 2.
Table 2: GAO Adjustments of SSA?s Estimate of 1999 Fee Approval Costs
Dollars in millions
OHA estimate in 1999 dollars
OHA estimate Restated in 2000 dollars Percentage
reduction Limitation on adjusted estimate
SSA original estimate of fee approval costs
$13 $13.8 Not applicable Not applicable Adjustment for inclusion of Non- DI
cases
($ 2.7) ($ 2.9) (21) Unable to precisely allocate workload to DI cases
Adjustment for excessive staff time
($ 3.9) ($ 4.1) (30) Actual staff time for fee approval tasks unknown Total
adjustments ($ 6.6) ($ 7) (51) Not applicable Total adjusted estimate $6.4
$6.8 Not applicable Not applicable
Source: GAO analysis of SSA data.
According to SSA, its payment processing centers took 673 work years to
process $512 million in attorney fee payments in 2000, at a cost of $40.2
million. SSA developed this estimate from the standard system of cost
allocation it uses at the payment centers. Under this cost allocation
system, each payment center?s workload is quantified by a random check,
conducted daily, of the work done by all employees at the center. Each type
of work at the payment centers is categorized, and one major category of
work includes that done on attorney fee processing. This work category
(called ?atfee? in the centers) includes all work done at the payment
centers related to handling and paying fee agreements and fee petitions. The
work includes all cases that involve attorney fees- field office cases
(initial determinations and reconsiderations) as well as OHA cases. Fee
Payment Processing
Costs
Page 20 GAO- 01- 710T
Our review indicated that the payment processing estimate appears high. It
included an incorrect cost amount; failed to adjust for one- time use of
premium overtime pay to reduce processing backlogs; included costs not
clearly associated with fee payments; and it used average salary costs when
the staff who routinely work on most payment processing receive below-
average pay. However, we were, for the most part, unable to make precise
adjustments for these problems because of limited data and unclear
definitions as to what counts as a fee processing cost.
First, the original estimate erred in a calculation of the total estimate by
using the wrong amount of total costs for the largest processing center. In
creating the estimate, SSA used an incorrect category from its cost
accounting system to calculate the center?s costs. This cost category
included costs unrelated to the work necessary to process attorney fees.
Second, the estimate did not adjust for premium overtime pay. Because the
user fee required by the Ticket to Work Act was effective February 1, 2000,
SSA staff worked overtime in February and March to clear out the backlog of
fee payment cases pending as of February 1. According to testimony by SSA?s
Assistant Commissioner before the Subcommittee on Social Security, House
Committee on Ways and Means, in June 2000, SSA provided an extra 111 staff
work years to handle the backlog of fee cases, diverting resources from
other workloads to process the claims on a priority basis.
Third, the general ?atfee? work category used to designate attorney fee
processing in the centers appears to include subcategories of work too broad
to be included in the estimate- in our view, the subcategories include work
that would be necessary for normal case processing even if SSA did not pay
attorney fees. According to staff in the centers, the subcategory ?atfee
misc? includes correspondence from attorneys that cannot be clearly
categorized as dealing with either fee agreements or fee petitions. For
example, a letter would be classified as ?atfee misc? if it included issues
related to the claimant as well as a question about fees. One supervisor
told us that the designation of work category was made by a GS 4 or 5 file
clerk who would classify any correspondence with an attorney?s letterhead as
?atfee misc? if the letter could not be clearly identified to another
specific work category.
Finally, the staff salary costs included in the estimate should be adjusted
to reflect more accurately the lower staff salaries of the technicians who
routinely work on payment processing. SSA?s estimate is based on the average
salary of all its employees who work on DI cases involving OHA
Page 21 GAO- 01- 710T
decisions. However, the staff working on these cases includes both claims
authorizers (generally paid a GS- 11 salary) and benefit authorizers
(generally paid between GS- 7 and GS- 9 salaries). For the most part, the
lower- paid benefit authorizers process the attorney fees, while the
higherpaid claims authorizers perform the main case processing. From SSA
data, it appears that over 50 percent of the work on DI cases with OHA
decisions is case processing work routinely performed by the higher- paid
claims authorizers.
Taking into account the points noted above, we believe that the ?lower
bound? costs for the processing centers could be as low as $28. 6 million.
Our calculation of the adjusted estimate is as follows:
1. We corrected the SSA estimate for an error in its calculations of the
processing center costs. This correction reduced the estimate by $1.9
million (5 percent) to $38.3 million.
2. We adjusted for the premium overtime pay. We reviewed data provided by
SSA on the increase in overtime pay in 2000 over the prior year. Using this
information, we allocated a part of the increase in overtime pay to the
center?s attorney fee work, reducing the estimate by $0.5 million (1
percent) to $37.8 million.
3. We eliminated the costs associated with the subcategory ?atfee misc? from
the costs. When these costs were subtracted from the estimate, the original
estimate was reduced by $5.5 million (13.7 percent) to $32.3 million.
Because some of the work included in this subcategory was likely to be
directly related to the fee processing, eliminating this subcategory most
likely understated some of SSA?s actual costs.
4. We adjusted the estimate to better reflect the below- average pay of the
staff who routinely handle attorney fee processing. SSA was unable to
provide us with data to precisely allocate the salary costs of those working
on fee processing; hence, we assumed that all staff who worked on attorney
fee processing were paid at a GS- 8 step 5 level ($ 33,202) in 2000, while
all the rest of the staff who worked on the same cases were paid at GS- 11
step 5 level ($ 44,369). This adjustment reduced the original estimate by
$3.7 million (9.2 percent) to $28.6 million.
The adjustments to the payment processing estimate are summarized in table
3.
Page 22 GAO- 01- 710T
Table 3: GAO Adjustments of SSA Estimate of 2000 Payment Processing Costs
Dollars in millions
Amount Percentage reduction Limitation on adjusted estimate
SSA original estimate of payment processing costs in 2000
$40.2 Not applicable Not applicable Correction of SSA estimate ($ 1.9) (5)
Not applicable Adjustment for premium pay ($ 0.5) (1) Unable to quantify
with
SSA data Adjustment for overly broad work category ?atfee misc?
($ 5.5) (13.7) Eliminated entire work category, even though it most likely
includes some work directly related to attorney fees Adjustment for lower
staff salaries ($ 3.7) (9.2) Data on salaries are from
an SSA estimate; no specific data on salary allocation available Total
adjustments ($ 11.6) (28.9) Not applicable Total adjusted estimate $28.6 Not
applicable Not applicable
Source: GAO analysis of SSA data.
When we combined the total adjusted estimate for the OHA fee approval
process ($ 6.8 million) and that of the payment processing centers ($ 28.6
million), our total adjusted estimate was $35.4 million. This adjusted
estimate is 34 percent of the original SSA estimate of $54 million. When
compared to the $512 million of total attorney fees paid out in 2000, the
original SSA estimate is 10. 5 percent of the fees, while the adjusted
estimate is 6.9 percent. OHA Fee Approval and
Payment Processing Center Costs Combined
(207102)
*** End of document. ***