Social Security Disability: Multiple Factors Affect Return to Work
(Testimony, 03/11/99, GAO/T-HEHS-99-82).

Pursuant to a congressional request, GAO discussed return-to-work issues
facing the Disability Insurance (DI) and Supplemental Security Income
(SSI) programs, focusing on: (1) structural and operational weaknesses
in the current DI and SSI programs that impede return to work; (2)
factors that working beneficiaries believe are helpful in becoming and
staying employed; and (3) challenges that exist in improving program
incentives to work.

GAO noted that: (1) program eligibility requirements and the application
process encourage people to focus on their inabilities, not their
abilities; (2) moreover, work incentives offered by the programs do not
overcome the risk of returning to work for many beneficiaries, and the
complexities of work incentives can make them difficult to understand
and challenging to implement; (3) also, there is little encouragement to
use rehabilitation services, which are relatively inaccessible to
beneficiaries seeking them; (4) some DI beneficiaries who work despite
these program weaknesses cited improved ability to function in the work
place, resulting from successful health care, and encouragement from
family, friends, health care providers, and coworkers as the most
important factors helping them find and maintain work; (5) GAO's
analysis of some of the proposed changes to work incentives--such as
gradually reducing the DI cash benefit level as earnings
increase--indicates that there will be difficult trade-offs in any
attempt to change work incentives; and (6) moreover, determining the
effectiveness of any of these proposed policies in increasing work
effort and reducing caseloads would require that major gaps in existing
research be filled.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-HEHS-99-82
     TITLE:  Social Security Disability: Multiple Factors Affect Return 
             to Work
      DATE:  03/11/99
   SUBJECT:  Disability insurance
             Workfare
             Program graduation
             Vocational rehabilitation
             Persons with disabilities
             Disability benefits
             Rehabilitation programs
             Social security benefits
             Federal social security programs
IDENTIFIER:  Social Security Disability Insurance Program
             SSI
             SSA Disability Determination Program
             Medicare Program
             Medicaid Program
             Supplemental Security Income Program
             
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Cover
================================================================ COVER


Before the Subcommittee on Social Security, Committee on Ways and
Means, House of Representatives

For Release on Delivery
Expected at 10:00 a.m.
Thursday, March 11, 1999

SOCIAL SECURITY DISABILITY -
MULTIPLE FACTORS AFFECT RETURN TO
WORK

Statement of Cynthia M.  Fagnoni, Director
Income Security Issues
Health, Education, and Human Services Division

GAO/T-HEHS-99-82

GAO/HEHS-99-82T


(207059)


Abbreviations
=============================================================== ABBREV

  ADA - Americans With Disabilities Act
  DDS - disability determination service
  DI - Disability Insurance
  HIV -
  SSA - Social Security Administration
  SSI - Supplemental Security Income
  VR - vocational rehabilitation

SOCIAL SECURITY DISABILITY: 
MULTIPLE FACTORS AFFECT RETURN TO
WORK
============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

Thank you for inviting me to testify on return-to-work issues facing
the Disability Insurance (DI) and Supplemental Security Income (SSI)
programs.  The Social Security Administration (SSA) pays out about
$5.1 billion in cash payments to DI and SSI beneficiaries each month. 
While providing a measure of income security, these payments, for the
most part, do little to enhance work capacities and promote
beneficiaries' economic independence.  Yet, as embodied in the
Americans With Disabilities Act (ADA), attitudes have shifted toward
goals of economic self-sufficiency and the right of people with
disabilities to full participation in society.  Moreover, medical
advances and new technologies now provide more opportunities to work
than ever before for people with disabilities. 

The DI and SSI programs, however, have not kept pace with the trend
toward returning people with disabilities to the work place.  Fewer
than
1 percent of DI beneficiaries, and few SSI beneficiaries, leave the
rolls to return to work each year.  Yet, even relatively small
improvements in return-to-work outcomes offer the potential for
significant savings in program outlays.  For example, if an
additional 1 percent of the working-age SSI and DI beneficiary
population was to leave SSA's disability rolls by returning to work,
lifetime cash benefits would be reduced by an estimated $3 billion.\1
To help improve return-to-work outcomes, Members of the Congress and
advocates for people with disabilities have recently proposed various
reforms--such as allowing working beneficiaries to keep more of their
earnings, safeguarding medical coverage, and enhancing vocational
rehabilitation. 

Today, I would like to focus my remarks on (1) structural and
operational weaknesses in the current DI and SSI programs that impede
return to work, (2) factors that working beneficiaries believe are
helpful in becoming and staying employed, and (3) challenges that
exist in improving program incentives to work.  My testimony is based
on a series of GAO reports on Social Security disability program
design and implementation as well as a report on factors facilitating
work for a group of DI beneficiaries.  (A list of related GAO
products appears at the end of this statement.)

In summary, program eligibility requirements and the application
process encourage people to focus on their inabilities, not their
abilities.  Moreover, work incentives offered by the programs do not
overcome the risk of returning to work for many beneficiaries, and
the complexities of work incentives can make them difficult to
understand and challenging to implement.  Also, there is little
encouragement to use rehabilitation services, which are relatively
inaccessible to beneficiaries seeking them.  Some DI beneficiaries
who work despite these program weaknesses cited improved ability to
function in the work place, resulting from successful health care,
and encouragement from family, friends, health care providers, and
coworkers as the most important factors helping them find and
maintain work.  Finally, our analysis of some of the proposed changes
to work incentives--such as gradually reducing the DI cash benefit
level as earnings increase--indicates that there will be difficult
trade-offs in any attempt to change work incentives.  Moreover,
determining the effectiveness of any of these proposed policies in
increasing work effort and reducing caseloads would require that
major gaps in existing research be filled. 


--------------------
\1 The estimated reductions are based on data provided by SSA's
actuarial staff and represent the discounted present value of the
cash benefits that would have been paid over a lifetime if the
individual had not left the disability rolls by returning to work. 
These reductions, however, would be offset, at least in part, by
rehabilitation and other costs that might be necessary to return a
person with disabilities to work. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

DI and SSI--the two largest federal programs providing cash to people
with disabilities--grew rapidly between 1988 and 1998, with the size
of the working-age beneficiary population increasing from about 4.4
million to 7.6 million.  Administered by SSA and state disability
determination service (DDS) offices, DI and SSI paid cash benefits
totaling about $61.3 billion in 1998.  According to the law, to be
considered disabled by either program, an adult must be unable "to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to
result in death or has lasted or can be expected to last for a
continuous period of not less than 12 months."\2 Moreover, the
impairment must be of such severity that the person not only is
unable to do his or her previous work but, considering his or her
age, education, and work experience, is unable to do any other kind
of substantial work nationwide. 

Established in 1956, DI is an insurance program funded by Social
Security payroll taxes.  The program is for workers who, having
worked long enough and recently enough to become insured under DI,
have lost their ability to work--and, hence, their income--because of
disability.  In addition, Medicare coverage is provided to DI
beneficiaries after they have received cash benefits for 24 months. 
About 4.7 million working-age people (aged 18 to 64) received about
$39.9 billion in DI cash benefits in 1998.\3

In contrast, SSI is a means-tested income assistance program for
disabled, blind, or aged individuals, regardless of their prior
participation in the labor force.\4 Established in 1972 for
individuals with low income and limited resources, SSI is financed
from general revenues.  In most states, SSI entitlement ensures an
individual's eligibility for Medicaid benefits.\5 In 1998, about 3.6
million working-age people with disabilities received SSI benefits;
federal SSI cash benefits paid to these and other disabled
beneficiaries amounted to $21.3 billion.\6

The Social Security Act states that people applying for disability
benefits should be promptly referred to state vocational
rehabilitation (VR) agencies for services in order to maximize the
number of such individuals who can return to productive activity.\7

Furthermore, to reduce the risk a beneficiary faces in trading
guaranteed monthly income and subsidized health coverage for the
uncertainties of employment, the Congress has established various
work incentives intended to safeguard cash and health benefits while
a beneficiary tries to return to work. 


--------------------
\2 Currently, individuals with disabilities are considered to be
engaging in substantial gainful activities (SGA) if earnings exceed
$500 per month.  The monthly SGA level for persons who are blind is
$1,110 per month. 

\3 Included among the 4.7 million DI beneficiaries are about 720,000
beneficiaries who were dually eligible for SSI disability benefits
because of the low level of their income and resources. 

\4 References to the SSI program throughout the remainder of this
testimony address blind or disabled, not aged, recipients. 

\5 States can opt to use the financial standards and definitions for
disability they had in effect in January 1972 to determine Medicaid
eligibility for their aged, blind, and disabled residents, rather
than making all SSI recipients automatically eligible for Medicaid. 
Often, the Medicaid financial standards used by states are more
restrictive than SSI's. 

\6 This amount represents payments to all adult SSI blind and
disabled beneficiaries, including those age 65 and over. 

\7 State VR agencies also provide rehabilitation services to people
not involved with the DI and SSI programs. 


   STRUCTURAL AND OPERATIONAL
   WEAKNESSES IN DI AND SSI IMPEDE
   RETURN TO WORK
---------------------------------------------------------- Chapter 0:2

In a series of reports, we have discussed how DI and SSI design and
operational weaknesses do not encourage beneficiaries to maximize
their work potential.\8 The cumulative impact of these weaknesses,
summarized in table 1, is to understate beneficiaries' work capacity
and impede efforts to improve return-to-work outcomes. 



                                Table 1
                
                     Summary of Program Design and
                       Implementation Weaknesses

Weakness          Description
----------------  ----------------------------------------------------
Work capacity of  Medical conditions alone are generally a poor
DI and SSI        predictor of work incapacity. While impairment has
beneficiaries     some influence over capacity to work, other factors-
may be            -vocational, psychological, economic, environmental,
understated.      motivational--are often considered to be more
                  important determinants of work capacity.

Disability        "All-or-nothing" decision gives incentive to promote
determination     inabilities and minimize abilities. Lengthy
process may       application process to prove one's disability can
encourage work    also erode motivation and ability to return to work.
incapacity.

Benefit           The prospect of losing cash and health benefits can
structure can     reduce motivation to work and receptivity to VR and
provide           work incentives, especially when low-wage jobs are
disincentive to   the likely outcome. People with disabilities may
low-wage work.    have less time available for work than others,
                  further influencing a decision to opt for benefits
                  over work.

Work incentives   Few beneficiaries are aware that work incentives
are ineffective   exist. Regardless, work incentives are complex,
in motivating     difficult to understand, and poorly implemented, and
people to work.   they do not overcome the prospect of a drop in
                  income for those who accept low-wage employment.

VR plays limited  Studies have questioned the effectiveness of state
role in           VR agency services. Access to VR services through
disability        DDS referrals is limited. Restrictive state VR
programs.         policies limit categories of people referred by DDS
                  offices, the referral process is not monitored
                  (reflecting its low priority and removing the
                  incentive to spend time on referrals), and the
                  success-based VR reimbursement system is ineffective
                  in motivating VR agencies to accept beneficiaries as
                  clients. In addition, applicants and beneficiaries
                  are generally uninformed about and not encouraged to
                  seek VR, affording little opportunity to opt for
                  rehabilitation and employment.
----------------------------------------------------------------------
In recent years, SSA has made efforts to better promote return to
work.  Also, the Congress and others have proposed various
alternatives at program reform. 


--------------------
\8 SSA Disability:  Program Redesign Necessary to Encourage Return to
Work (GAO/HEHS-96-62, Apr.  24, 1996); SSA Disability: 
Return-to-Work Strategies From Other Systems May Improve Federal
Programs (GAO/HEHS-96-133, July 11, 1996); and Social Security: 
Disability Programs Lag in Promoting Return to Work (GAO/HEHS-97-46,
Mar.  17, 1997). 


      WORK CAPACITY OF DI AND SSI
      BENEFICIARIES MAY BE
      UNDERSTATED
-------------------------------------------------------- Chapter 0:2.1

The Social Security Act requires that the assessment of an
applicant's work incapacity be based on the presence of medically
determinable physical and mental impairments.  SSA maintains a
listing of impairments for medical conditions that are, according to
SSA, ordinarily severe enough in themselves to prevent an individual
from engaging in any gainful activity.  About 50 percent of new
awardees are eligible for disability because their impairment is
listed or meets the severity of a listed impairment.\9 But findings
of studies we reviewed generally agree that medical conditions are a
poor predictor of work incapacity.\10 As a result, the work capacity
of DI and SSI beneficiaries may be understated. 

While disability decisions may be more clear-cut in the case of
people whose impairments inherently and permanently prevent them from
working, disability determinations may be much more difficult for
those who may have a reasonable chance of work if they receive
appropriate assistance and support.  Nonmedical factors may play a
crucial role in determining the extent to which people in this latter
group can work. 


--------------------
\9 This percent is based on DI and SSI decisions made at the initial
level of determination by the DDS offices and subsequent decisions
made by administrative law judges on appealed cases from September
1992 through April 1995. 

\10 For example, S.  O.  Okpaku and others, "Disability
Determinations for Adults With Mental Disorders:  Social Security
Administration vs Independent Judgments," American Journal of Public
Health, Vol.  84, No.  11 (Nov.  1994), pp.  1791-95; and H.  P. 
Brehm and T.  V.  Rush, "Disability Analysis of Longitudinal Health
Data:  Policy Implications for Social Security Disability Insurance,"
Journal of Aging Studies, Vol.  2, No.  4 (1988), pp.  379-99. 


      PROGRAM WEAKNESSES IMPEDE
      EFFORTS TO IMPROVE
      RETURN-TO-WORK OUTCOMES
-------------------------------------------------------- Chapter 0:2.2

Because a disability determination results in either a full award of
benefits or a denial of benefits, applicants have a strong incentive
to overstate their disabilities to establish their inability to work
and thus qualify for benefits.  Conversely, applicants have a
disincentive to demonstrate any capacity to work because doing so may
disqualify them for benefits.  Furthermore, many believe that the
documentation involved in establishing one's disability can create a
"disability mind-set," which weakens motivation to work.  Compounding
this negative process, the length of time required to determine
eligibility can erode skills, abilities, and habits necessary to
work. 

In addition, VR has played a limited role in the DI and SSI programs,
in part because of restrictive state VR policies and limits on
alternatives to providers in the state VR system.  Beneficiaries have
generally been uninformed about the availability of VR services and
have been given little encouragement to seek them.  Moreover, the
effectiveness of state VR services in securing long-term financial
gains has been mixed, at best. 

Work incentive provisions that are complex, difficult to understand,
and poorly implemented further impede return-to-work efforts. 
Because SSA has not promoted them extensively, few beneficiaries have
been aware that work incentives exist.  Despite providing some
financial protection for those who want to work, work incentives do
not appear to be sufficient to overcome the prospect of a drop in
income for those who accept low-wage employment. 

For example, DI work incentives provide for a trial work period in
which a beneficiary may earn any amount for 9 months (which need not
be consecutive) within a 60-month period and still receive full cash
and health benefits.  At the end of the trial work period, if a
beneficiary's countable earnings are more than $500 a month, cash
benefits continue for an additional 3-month grace period and then
stop, causing a precipitous drop in monthly income from full benefits
to no cash benefits.\11 SSA researchers have noted that such a drop
in income is a considerable disincentive to finishing the trial work
period as well as to begin working.  It may be more financially
advantageous for beneficiaries--especially those with low
earnings--to continue to receive disability payments by not working
or by limiting earnings than to earn more than $500 a month in
countable income. 


--------------------
\11 For 36 months after the trial work period ends, cash benefits
will be reinstated for any month in which the person does not earn
more than $500 a month in countable income; this is referred to as
the extended period of eligibility. 


      NUMEROUS PROGRAM REFORMS
      HAVE BEEN PROPOSED
-------------------------------------------------------- Chapter 0:2.3

Our work has called for SSA to develop a comprehensive, integrated
return-to-work strategy that includes intervening earlier, providing
return-to-work supports and assistance, and structuring benefits to
encourage work.  SSA has agreed that there are compelling reasons to
try new return-to-work approaches. 

Recently, SSA told us that it has (1) contracted with over 400 public
and private VR providers, (2) trained state VR agency staff on SSA
work incentives and reimbursement procedures, and (3) positioned
itself to contract with state agencies to research ways to improve
service integration for beneficiaries attempting to return work.  In
addition, SSA has proposed to demonstrate the effectiveness of
vouchers (or "tickets") for beneficiaries to obtain VR services from
public or private providers reimbursed on an outcome basis.  SSA has
also proposed increasing the substantial gainful activities level for
beneficiaries, thereby allowing them to have a higher earned income
before leaving the disability rolls. 

In addition to SSA's proposed reforms, the Congress and advocates for
people with disabilities have offered various reforms.  Such reforms
have proposed allowing working beneficiaries to keep more of their
earnings, safeguarding medical coverage, and using tickets to enhance
vocational rehabilitation. 


   MULTIPLE FACTORS ASSIST
   BENEFICIARIES' MOVEMENT INTO
   THE WORKFORCE
---------------------------------------------------------- Chapter 0:3

To understand how DI beneficiaries overcome the challenges and
disincentives to work, we conducted survey interviews with 69 people
who were receiving DI benefits and working in one of three
metropolitan areas.\12 The working DI beneficiaries we interviewed
cited a number of factors as helpful to becoming employed (see table
2).  The two most frequently reported factors--health interventions
and encouragement to work by family members and others--appear to
have been the most critical in helping beneficiaries become employed. 
First, health interventions--such as medical procedures, medications,
physical therapy, and psychotherapy--reportedly helped beneficiaries
by stabilizing their conditions and, consequently, improving
functioning.  Not only were health interventions perceived as
important precursors to work, they were also seen as important to
maintaining ongoing work attempts.  Encouragement to work from
family, friends, health professionals, and coworkers was also
critical, according to respondents. 

Although other factors were reported less frequently, any single
factor can be the key determinant in an individual's becoming
employed.  These factors include a flexible schedule (particularly to
have time off to visit a health professional), job-related training
and vocational rehabilitation services (especially job search and
on-the-job training), the trial work period and extended period of
eligibility, and high self-motivation.  To a somewhat lesser extent,
religious faith, job coaches, assistive devices and equipment, and
ADA provisions were useful.  In general, similar proportions of
respondents with physical impairments and those with psychiatric
impairments cited these factors as helpful to being employed. 
However, people with physical impairments found coworkers and the
trial work period more helpful than did those with psychiatric
impairments. 



                                         Table 2
                         
                           Factors That Facilitated Working DI
                         Beneficiaries' Employment, by Frequency
                                       of Reporting

Factor     Description                             Significance
---------  --------------------------------------  --------------------------------------
Primary
-----------------------------------------------------------------------------------------
Health     Health interventions provided medical   Early return to work without health
intervent  stabilization and improved              intervention may be difficult for
ion        functioning.                            some.

Encourage  Family, friends, coworkers, and health  Desire to work can be influenced
ment       professionals provided encouragement    positively, and possibly negatively,
           and emotional support.                  by social forces.


Secondary
-----------------------------------------------------------------------------------------
Flexible   Number of hours and work schedule were  Typical 5-day, 40-hour work week may
work       responsive to respondents' needs and    be unrealistic for some beneficiaries.
schedule   capabilities.

Job-       Training and services were directly     This factor has implications for
related    related to finding and performing a     retaining workers in the labor force
training   job.                                    who otherwise might apply for Social
and                                                Security disability benefits.
services

Trial      SSA provisions allowed beneficiaries    Trial work period reported as useful,
work       to test their work capacity without     although some felt that 9 months is
period/    jeopardizing benefits and to ease       too short and $200 earnings level is
extended   their transition to the workforce.      too low.
period of
eligibili
ty

High       Respondents strongly wanted or needed   Motivation to work may develop over
self-      to work, especially compared with       time, as about 3 in 10 did not expect
motivatio  disabled peers without jobs.            to work upon program entry.
n


Tertiary
-----------------------------------------------------------------------------------------
Religious  Religious faith reported as providing   Interview did not specifically address
faith      source of strength and guidance.        religious faith; it may be more
                                                   important than reported.

Job        On-site job coach or similar            This factor has implications for
coaches    specialist taught work skills.          retaining workers in the labor force
                                                   who otherwise might apply for Social
                                                   Security disability benefits.

Assistive  Among most frequently mentioned items   Usefulness of assistive devices and
devices    were back and leg braces, canes and     equipment is largely limited to people
and        crutches, adapted computers and         with physical impairments.
equipment  keyboards, and wheelchairs.

Provision  Respondents reported that ADA provided  About one-third were aware of ADA, and
s          rights, accommodations, and hiring      over one-half of those who were aware
provided   opportunities.                          said ADA was not helpful.
by ADA
-----------------------------------------------------------------------------------------
Note:  Factors are categorized into three groups--primary, secondary,
and tertiary--on the basis of how often all respondents reported
them.  In some instances, we combined related areas of support and
services in developing the factors and assigning relative importance. 

Beneficiaries' comments illuminate the importance of these factors in
helping them return to work.  For example, Carol, an administrative
support worker in her thirties with a manic depressive disorder,
pointed to encouragement and medical intervention as factors that
enabled her to continue working: 

     My family members .  .  .  encouraged me to go to work and not
     rely on disability income.  They were helpful to me in assessing
     the merits and benefits of potential job offers.  .  .  .  I am
     using a combination of Prozac and lithium medications to control
     my condition and [enable] me to work regularly where I don't use
     my sick days.  Therapy with my counselor for over 4 years has
     really allowed me to work and function in a work environment. 

Similarly, Mark, a maintenance worker in his thirties with epilepsy,
said

     Medications for [my] epilepsy help keep [my] condition under
     control, which minimizes seizures and the risk of getting fired. 
     .  .  .  [My supervisor] checks from time to time to make sure
     everything is okay [and] even suggests taking days off. 

Stephen, a bartender in his thirties with HIV, identified various
individuals in the community who support him: 

     [My] infectious disease doctor [is] encouraging and is very
     supportive.  He wrote a letter to [my] employer explaining [my]
     condition and my capabilities.  [My] parents are very supportive
     [and my] medications have made me physically able to work. 
     [Coworkers are] providing emotional support. 

Yvonne, a cashier in her forties with an anxiety disorder, found--in
addition to medical intervention and community support--ADA helpful: 

     Psychotherapy and group therapy [have] been helpful.  Also,
     medication has been
     helpful.  .  .  .  My psychotherapist has gone out of his way to
     help me.  I can call him at any time.  The pastor of my church
     has also counseled me.  At the college I attended, a director of
     the disabled talks to my professors and tells them about my
     condition so that they can take this into account when assigning
     work and evaluating my performance.  .  .  .  ADA has helped
     because I believe that [my employer] would not have hired me
     because of my problems. 


--------------------
\12 Our findings from these interviews are reported in Social
Security Disability Insurance:  Multiple Factors Affect
Beneficiaries' Ability to Return to Work (GAO/HEHS-98-39, Jan.  12,
1998).  Because neither the metropolitan areas selected nor the
people we interviewed constituted a random sample, our results are
not generalizable to the entire population of working DI
beneficiaries. 


      LONGER TERM WORK DECISIONS
      WERE ALSO AFFECTED BY HEALTH
      CONCERNS
-------------------------------------------------------- Chapter 0:3.1

Not surprisingly, personal health appears to be an overriding issue
as beneficiaries consider their future status in the DI program and
at the work site.  Among the 44 respondents without employer-based
health insurance coverage, 29 plan to stay on the DI rolls into the
foreseeable future or are unsure of their future plans.  In contrast,
15 of 24 respondents with such coverage plan to exit the rolls. 
Moreover, when asked if anything would make it harder to work, about
one-half of the 46 respondents who responded affirmatively said that
poorer health would inhibit employment.  Similarly, some said that
improved health would facilitate work.  We found little difference in
future work and program plans between people with physical and
psychiatric impairments. 


      WORK INCENTIVES AND SSA
      STAFF PLAYED LIMITED ROLE
-------------------------------------------------------- Chapter 0:3.2

DI program incentives for reducing risks associated with attempting
work appear to have played a limited role in beneficiaries' efforts
to become employed.  Although the trial work period was considered
helpful by 31 respondents, others indicated it had shortcomings or
were unaware that it existed.  For instance, several respondents
indicated the amount signifying a "successful" month of earnings
($200) was too low, an all-or-nothing cutoff of benefits after 9
months was too abrupt, and having only one trial period did not
recognize the cyclical nature of some disabilities.\13 Respondents'
mixed views of the design of the trial work period suggest that while
they value a transitional period between receiving full cash benefits
and losing some benefits because of work, they might be more
satisfied with a different design.  Finally, over one-fifth were
unaware of the trial work period and therefore may have unknowingly
been at risk of losing cash benefits. 

Moreover, many respondents were unaware of other work incentives as
well.  Consequently, fewer respondents reported these incentives as
helpful than might have had they been better informed.  For example,
41 respondents were unaware of the provision that allows
beneficiaries to deduct impairment-related work expenses from the
amount SSA considers the threshold for determining continued
eligibility.\14 Using the deduction could make it easier for a
beneficiary to continue working while on the rolls without losing
benefits.  Moreover, 42 respondents were unaware of the option to
purchase Medicare upon leaving the rolls.  As a result, some of these
beneficiaries may have decided to limit their employment for fear of
losing health care coverage, while others who planned to leave the
rolls may have thought they were putting themselves at risk of
foregoing health care coverage entirely upon program termination. 

Generally, respondents told us that SSA staff with whom they
interacted provided neither much help in nor were much of a hindrance
to return-to-work efforts.  Fifty-nine respondents answered "no" when
asked if people from SSA assisted them in becoming employed. 
However, 52 of the 69 respondents told us that they did not have
experiences with SSA that made it difficult to become employed.  For
the 17 people reporting difficulties, the most common examples cited
were the limited assistance offered and poor information provided by
SSA. 


--------------------
\13 Similarly, some beneficiaries noted that the $500 monthly
earnings threshold used in the formula to determine if a person with
a disability other than blindness is working at a gainful activity
level (and therefore no longer eligible for benefits) is set too low. 

\14 Examples of expenses likely to be deductible include attendant
care services performed in the work setting, structural modifications
to a vehicle used to drive to work, wheelchairs, and regularly
prescribed medical treatment or therapy that is necessary to control
a disabling condition. 


   DIFFICULT CHALLENGES AND
   TRADE-OFFS INVOLVED IN
   IMPROVING WORK INCENTIVES
---------------------------------------------------------- Chapter 0:4

Because the current work incentives have either impeded or played a
limited role in helping beneficiaries return to work, the Congress
and others have recognized the need to reform the current work
incentives, particularly those in the DI program.  However, our work
has found that changing the work incentives involves difficult
challenges and tradeoffs.  Because of the complex interactions
between earnings and disability benefits, some types of work
incentive changes may help some beneficiaries more than others. 
Moreover, tradeoffs exist between trying to increase the work effort
of beneficiaries without decreasing the work effort of people with
disabilities who are not currently receiving disability benefits. 

Two illustrations using data from Virginia Commonwealth University's
Employment Support Institute underscore the complex interactions
between earnings and benefits.\15

For example, figure 1 shows that under current law, a DI
beneficiary's net income may drop at two points, even as gross
earnings increase.  The first "income cliff" occurs when a person
loses all of his or her cash benefits because countable earnings are
above $500 a month and the trial work and grace periods have ended
(which, in figure 1, occurs when the individual earns $750 a month). 
A second income cliff may occur if Medicare is purchased when
premium-free Medicare benefits are exhausted (which, in figure 1,
occurs when the individual earns $1,500 a month). 

   Figure 1:  Comparison of Net
   Income for DI Beneficiaries
   Under Current Law and Under
   Proposed Tax Credit and Sliding
   Scale Medicare Buy-In

   (See figure in printed
   edition.)

Source:  Employment Support Institute, Virginia Commonwealth
University. 

Figure 1 also illustrates what happens to net income when a tax
credit is combined with a Medicare buy-in that adjusts premiums to
earnings.\16 In this particular example--although the tax credit may
cushion the impact of the drop in net income caused by loss of
benefits--it does not eliminate the drop entirely.  However, as
figure 2 shows, the income cliff is eliminated when benefits are
reduced $1 for every $2 of earnings above the substantial gainful
activity level. 

   Figure 2:  Comparison of Net
   Income for DI Beneficiaries
   Under Current Law and Under
   Proposed 50-Percent Benefit
   Reduction Rate and Sliding
   Scale Medicare Buy-In

   (See figure in printed
   edition.)

Source:  Employment Support Institute, Virginia Commonwealth
University. 

In addition, changing work incentives may or may not increase the
work effort of current beneficiaries, depending on their behavior in
response to the type of change and their capacity for work and
earnings.  But even if changes in work incentives increase the work
effort of the current beneficiaries, a net increase in work effort
may not be achieved.  This point is emphasized by economists who have
noted that improving work incentives may make the program attractive
to those not currently in it.\17 Allowing people to keep more of
their earnings would make the program more generous and could cause
people who are currently not in the program to enter it.  Such an
effect could reduce overall work effort because those individuals not
in the program could reduce their work effort to become eligible for
benefits.  Moreover, improving work incentives by allowing people to
keep more of their earnings could keep some in the program who might
otherwise have left.  Decreases in the exit rate could reduce overall
work effort because people on the disability rolls tend to work less
than people off the rolls.  The extent to which increased entry
occurs and decreased exit occurs will affect how expensive these
changes could be in terms of program costs. 

The costs of proposed reforms are difficult to estimate with
certainty because of the lack of information on entry and exit
effects.  Although our work sheds additional light on this issue, the
lack of empirical analysis with which to accurately predict outcomes
of possible interventions reinforces the value of testing and
evaluating alternatives to determine what strategies can best tap the
work potential of beneficiaries without jeopardizing the availability
of benefits for those who cannot work. 


--------------------
\15 The Employment Support Institute at Virginia Commonwealth
University developed WorkWORLD software, which allows individuals to
compare what happens to their net income (defined as an individual's
gross income plus noncash subsidies minus taxes and medical and work
expenses) as earnings levels change under current law and when work
incentives are changed. 

\16 The tax credit used in this example assumes that the credit is
refundable and supplements the existing Earned Income Tax Credit. 

\17 See Hillary Williamson Hoynes and Robert Moffitt, "The
Effectiveness of Financial Work Incentives in Social Security
Disability Insurance and Supplemental Security Income:  Lessons From
Other Transfer Programs," Disability, Work, and Cash Benefits, edited
by Jerry L.  Mashaw and others (Kalamazoo, Mich.:  W.  E.  Upjohn
Institute for Employment Research, 1996), and Hillary Williamson
Hoynes and Robert Moffitt, "Tax Rates and Work Incentives in the
Social Security Disability Insurance Program:  Current Law and
Alternative Reforms" (May 1997), unpublished. 


-------------------------------------------------------- Chapter 0:4.1

Mr.  Chairman, this concludes my prepared statement.  At this time, I
will be happy to answer any questions you or the other Members of the
Subcommittee may have. 

RELATED GAO PRODUCTS

Social Security Disability Insurance:  Factors Affecting
Beneficiaries' Return to Work (GAO/T-HEHS-98-230, July 29, 1998). 

Social Security Disability Insurance:  Multiple Factors Affect
Beneficiaries' Ability to Return to Work (GAO/HEHS-98-39, Jan.  12,
1998). 

Social Security Disability:  Improving Return-to-Work Outcomes
Important, but Trade-Offs and Challenges Exist (GAO/T-HEHS-97-186,
July 23, 1997.)

Social Security:  Disability Programs Lag in Promoting Return to Work
(GAO/HEHS-97-46, Mar.  17, 1997). 

People With Disabilities:  Federal Programs Could Work Together More
Efficiently to Promote Employment (GAO/HEHS-96-126, Sept.  3, 1996). 

SSA Disability:  Return-to-Work Strategies From Other Systems May
Improve Federal Programs (GAO/HEHS-96-133, July 11, 1996). 

Social Security:  Disability Programs Lag in Promoting Return to Work
(GAO/T-HEHS-96-147, June 5, 1996). 

SSA Disability:  Program Redesign Necessary to Encourage Return to
Work (GAO/HEHS-96-62, Apr.  24, 1996). 

PASS Program:  SSA Work Incentive for Disabled Beneficiaries Poorly
Managed (GAO/HEHS-96-51, Feb.  28, 1996). 

Social Security Disability:  Management Action and Program Redesign
Needed to Address Long-Standing Problems (GAO/T-HEHS-95-233, Aug.  3,
1995). 

Supplemental Security Income:  Growth and Changes in Recipient
Population Call for Reexamining Program (GAO/HEHS-95-137, July 7,
1995). 

Disability Insurance:  Broader Management Focus Needed to Better
Control Caseload (GAO/T-HEHS-95-164, May 23, 1995). 

Social Security:  Federal Disability Programs Face Major Issues
(GAO/T-HEHS-95-97, Mar.  2, 1995). 


*** End of document. ***