Social Security's New Deal for Disability
It’s a tragedy when any employee is disabled. It’s also a significant cost to employers because most companies provide long-term disability insurance, which is partially offset through Social Security Disability Insurance. And if three ambitious new initiatives to streamline Social Security Administration programs are enacted, employers’ disability costs may actually drop further.
Facing projections of red ink, Social Security Commissioner Jo Anne Barnhart is responding by actively rebuilding the bureaucratic agency, which is often criticized by employers for inefficiency. Many experts believe that the disability system itself may actually contribute to keeping people dependent. They argue that some people fall into the Social Security safety net but may have other options that aren’t explored, and they express concern about disability fraud. The thrust of the SSA’s new programs to improve SSDI includes disability process redesign, a "Ticket to Work" program and early intervention.
Anatomy of a permanent disability
In the existing employer disability system, here’s how cases often progress:
Joe is absent on sick leave. His case is virtually unmanaged for two weeks or more, since most absences are resolved without the services of costly management.
Joe opens a short-term disability claim. Because of HIPAA privacy rights, his health-care data is off-limits to the employer. The employer looks for an accommodation to get him back to work. Several things affect the match, including health care, Joe’s attitude, his family issues and the flexibility of his supervisor.
Joe opens a long-term disability claim. The company re-examines all the factors affecting his claim. The clock is ticking: Joe is getting a monthly LTD claim payment, so the company’s carrier or administrator wants him back at work, or qualified for SSDI. If Joe gets $1,500 from LTD, the SSDI supplement might cut the monthly LTD payment to half or less. Less than 1 percent of SSDI claimants ever return to work.
Which employee disability claims will wind up like Joe’s? It can be hard to tell during sick leave and STD, when most programs focus on claims that are obviously severe, and on controlling administrative costs. Some high-cost claims slip through the net until the employee becomes eligible for LTD, and by then it may be too late to prevent most of their cost. Some of that higher cost is absorbed by SSDI, which helps justify the decision to contain administrative costs during STD.
Most people regard SSDI as the nonoccupational equivalent of a "permanent and total" workers’ comp claim.
The large subsidy from SSDI makes it an important partner for a company’s disability programs. SSA’s three initiatives to improve SSDI--disability process redesign, Ticket to Work and early intervention--will add even more value. They could also stimulate profound change in a company’s disability coverage. They will reward employers that invest more up front to identify claimants with special needs, and provide extra care for these people. Some employers like PepsiCo already follow this model, but changes at the SSA may make this approach economically viable for more employers.
Disability process redesign
Most people regard SSDI as the nonoccupational equivalent of a "permanent and total" workers’ comp claim. To qualify for SSDI, people must be unable to perform their former job, or any other occupation for which they might qualify, and that condition must be expected to continue for at least 12 months. Twelve months is hardly "permanent."
About 10 to 30 percent of SSDI claimants could return to work, says David Vandergoot, a disability researcher and professor at Hunter College in New York. LTD usually provides 60 to 70 percent of an employee’s income, subject to ceilings, and SSDI doesn’t augment this, but merely reduces the LTD payment.
Blame for the poor return-to-work rate is often aimed at the initial screening process. "It takes so long to document a disability, and the process has so many layers of appeals, that by the time people get to the other end, they usually identify themselves in terms of their disability," Vandergoot says. A recent SSA study found that the length of time required to move through the entire appeal process was 1,153 days, including 525 days due to backlogged cases.
An LTD program usually requires claimants to apply for SSDI or risk losing part of their monthly check. Although most LTD programs provide an advocacy service to secure SSDI benefits more quickly, the delay still can be substantial. The delay has other impacts. After two or more years of staying out of the workforce to qualify for SSDI, claimants have dwindling chances for re-employment, and shrinking financial resources. Many no longer have employer-provided health benefits, so they want to qualify for SSDI because two years later, they’ll qualify for Medicare. It’s an open question whether this environment does more to create disabilities than it does to serve people with disabilities.
To turn this around, SSA wants to reduce the SSDI claim backlog and processing time, and to develop a fast-track decision process for people with severe disabilities. The agency plans to remove one layer of the appeal process, it’s rolling out a paperless claim system, and Congress has approved a larger administrative budget to whittle down the claims backlog.
The greatest challenge for Ticket to Work may be its location in the disability-claim sequence. It serves claimants only after they’ve gone through the dysfunctional SSDI application process.
An attempt to "re-engineer" SSA disability programs in the 1990s fell through. Barnhart’s current approach may be better designed to turn a large ship. A first round of incremental fine-tuning has shown some success, and a larger administrative budget is reducing the backlog. If the paperless claim system launches well this year, it could finish the job of selling the reform agenda to rank-and-file SSA employees.
In the near term, successful reform would benefit virtually all SSDI stakeholders, with the possible exception of attorneys. A shortened decision process could reduce your company’s cost to apply for SSDI, and SSDI and Medicare offsets could begin sooner. For your employees, a shortened decision process might remove some impediments to returning to work.
SSA’s disability process redesign project might consider serious cost-reduction targets, given the need to prevent the red ink projected for 2018 by the General Accounting Office. Although the SSDI definition of disability is incontrovertible, SSA has discretionary power to modify various aspects of the implementing regulations. During the Reagan era, for example, SSA began using claim reviews to find and remove inappropriate claimants. The SSA could tweak its application process to reduce the number of people who qualify for SSDI. This would raise costs for the private sector and force a reduction in the number of people who qualify for LTD.
The attempt to cut costs during the Reagan era backfired, however, helping to spawn the advocacy services that now represent SSDI claimants through the appeal process. Perhaps Barnhart learned from history. Last September, when announcing the process redesign project to Congress, she never used the word cost. Even if the SSA disability trust cut its cost in half, however, it would make only a small dent in the losses from the much larger pension trust. To the relief of employers and their vendors, it seems unlikely that the process redesign project will aggressively tackle costs.
Ticket to Work and early intervention
Congress funded Ticket to Work with a landslide vote in December 1999. The program helps SSDI claimants return to work by removing most of the system’s built-in disincentives. It provides:
- a safety net of continuing Medicare coverage
- a trial work period for nine months when cash benefits continue.
- instant return to cash benefits for another 37 months if the claimant cannot continue working because of the original impairment
- a new fast-track vocational-rehabilitation program using private-sector "employment networks" in addition to the existing State Vocational Rehabilitation agencies
SSA began introducing Ticket to Work in early 2002 and will finish by October 2004. California and Texas are among the final 17 states where SSA is now mailing out the initial "Good News" letter to inform SSDI and Supplemental Security Incomeclaimants about the program. The program doesn’t require employers to rehire former employees--they can go to work anywhere--but provides a tax incentive to employers. So far, Ticket to Work hasn’t improved on SSDI’s dismal return-to-work rate because of several remaining challenges.
The program can produce better results when an employment network reviews a block of LTD claims to identify and recruit SSDI claimants, says Tom Foran, vice president of Integrated DisAbility Resources in Connecticut. Foran reports that 20 percent of the LTD/SSDI claimants whom they approach express interest in using the program to return to work. It’s too soon to verify return-to-work results, but this approach shows potential to go well beyond the current results.
The greatest challenge for Ticket to Work may be its location in the disability-claim sequence. It serves claimants only after they’ve gone through the dysfunctional SSDI application process. By then, many believe they’ll never work again, and they mistrust SSA. It would be a major service to let more severe claims bypass the SSDI grinder and receive Ticket to Work support soon after a major disability event. That’s the logic driving SSA’s Early Intervention research project. When employers and their vendors hear about Ticket to Work, they usually say, "That’s interesting, but…" When they hear about Early Intervention, they ask, "When did you say that’s coming out?"
The Early Intervention research project plans a nationwide demonstration in 2005/06; late 2006 is probably the earliest that Congress could fund a full program. Barnhart wants to apply early-intervention tools before then in SSA’s disability redesign project. The full promise of SSA customer-service initiatives is still unrealized, and many challenges are yet to be solved, but this silent partner could help cut employers’ disability insurance costs.
Workforce Management, March 2004, pp. 73-75 -- Subscribe Now!