Thursday, September 10, 2015

NCSSMA Position Paper On Simplifying Workers Compensation And Public Disability Offset



 DRAFT - NCSSMA Position Paper
Simplifying Workers’ Compensation and Public Disability Offset


Workers’ Compensation (WC) and Public Disability Benefit (PDB) offset to Social Security Administration (SSA) benefits are extremely complex.  This makes WC/PDB offset an area that is costly to administer, difficult for the general public to understand, and prone to payment errors.  As a result, NCSSMA believes that WC/PDB offset is an area that should be simplified.  The following provides information that explains the complexities of this subject and our simplification proposals. 

In a Fiscal Year (FY) 2013 SSA Office of Budget, Finance, Quality and Management Study, 380 WC/PDB cases were randomly selected and analyzed for payment errors.  Fifty-nine of the cases reviewed had dollar errors, and 70 individual dollar errors were identified in the 59 cases.  Twenty-eight of these cases were overpayment (OP) errors and 42 were underpayment (UP) errors.  The 70 individual errors projected to $48,785,532 in annualized improper payments.  In addition, in a FY 2013 Title II Stewardship Report, WC/PDB offset had the second highest annual average deficiency dollar error for FY 2009 to FY 2013 behind the Substantial Gainful Activity (SGA) category.  In this study, WC/PDB offset constituted $196,379,477 in OP dollars and $144,573,433 in UP dollars, for a total of $340,952,910 in total deficiency dollars.

Complexities of WC/PDB Offset - Each case is unique in how the settlement is determined.  Cases may have periodic payments that begin and end multiple times with different monetary rates and/or lump sum settlements that are prorated out over the life expectancy of the beneficiary or a set timeframe.  WC may be paid weekly, every two weeks, twice a month, monthly, every 4 weeks (28 days) or in a lump sum.  The most common types of WC payments are temporary payments, temporary total (TT), temporary partial (TP), permanent payments, permanent partial (PT), disfigurement payments and Second Injury Fund.  Each of these types of payments has detailed descriptions on the reason and duration of the payments.  Additionally, each state has its own set of WC laws that determine entitlement to and payment of WC/PDB benefits, which require the administrator to not only have an understanding of SSA’s policies, but each state’s specific regulations to properly impose WC/PDB offset.  In many cases, the Bureau of Workers’ Compensation (BWC) printouts are difficult to interpret and often are misinterpreted leading to incorrect data entry and incorrect offset application.

Every WC/PDB offset calculation uses the following concepts: Average Current Earnings (ACE), Total Family Benefit (TFB) and Applicable Limit of the number holder (NH), which leads to complications in computations of SSA benefits.  The ACE has three computation methods: High-1, High-5, or Average Monthly Wage (AMW).  The highest of these methods is used to determine whether or not offset will be imposed.  The figures are different for each NH.  The High-1 ACE is based on the one calendar year in which the worker’s unindexed covered earnings were highest.  This year is selected from the period consisting of the year of current DIB onset and the five years immediately preceding the year of onset.  The High-5 ACE is based on the five consecutive years after 1950 with the highest unindexed covered earnings.  The Average Monthly Wage (AMW) is based on the unindexed covered earnings used to determine the Disability Insurance Benefits (DIB) Primary Insurance Amount (PIA).  The following chart illustrates the computation for each ACE method:



High-1
High-5
AMW
Select the highest yearly earnings from the year of current onset and the 5 previous years
Take the sum of the 5 consecutive years after 1950 with the highest unindexed earnings 
Divide the total unindexed earnings for the computation years (dividend) by number of months in the computation years (divisor)
Divide the yearly total by 12 months
Divide by 60 months

Round to the next lower dollar amount
Round to the next lower dollar amount
Round to the next lower dollar amount
* The highest of these methods is used to compute the ACE

The next component needed to compute potential offset is the Total Family Benefits (TFB).  The TFB is the total of all disability insurance benefits (DIB) monthly amounts for the number holder (NH) and any auxiliaries entitled on the NH’s SSN in the first considered date of onset.  Lastly, the applicable limit must be determined. The applicable limit is the amount used to determine if WC/PDB offset applies.  The applicable limit is the higher of: the TFB or 80 percent of the ACE.  Subtract the monthly WC/PDB amount from the applicable limit to determine if the disability insurance benefit (DIB) is offset.

Offset is applied when total benefits payable to the worker and any entitled auxiliaries, plus WC/PDB exceed the higher of 80 percent of the worker’s ACE or TFB payable to the worker and any auxiliaries in the first possible month of offset.  The combined WC/PDB and Social Security disability payments after the reduction can never be less than the amount of the total Social Security disability payments after the reduction. 

Adding to the complexity of the WC/PDB offset provisions is the incorporation of lump sum (LS) awards.  The following information must be verified before prorating a lump sum: gross amount of the LS, LS start date or periodic payment ending date, weekly rate at which to prorate, and excluded expenses included in the gross amount of the LS.  This information can be very difficult and time consuming to obtain and often causes delay in the processing of the initial DIB award or processing the award without accurate information, which leads to payment errors.  There are three methods of prorating a LS with excludable expenses.  Each method must be considered to determine the most advantageous.   

Every change in the family composition requires an additional offset calculation.  Excludable expenses can further complicate the offset calculation.  Excludable expenses can be legal, medical, future medical and related expenses.  The administrator must be able to recognize whether or not expenses can be excluded and the method under which these approved expenses are excludable.  In addition, if there are children receiving benefits as auxiliaries on the record, the offset is applied to their benefits first and then to the Number Holder (NH).  This is true even if the children do not live in the same household.  There are many examples where children living in a separate household receive no benefits from SSA because the NH on the record has WC/PDB offset.





WC/PDB Offset Causes Overpayments - The current complexity of applying WC/PDB offset to SSA benefits combined with our dependency on the beneficiary to report when they receive WC/PDB payments to SSA causes numerous overpayments.  Additional causes of overpayments are beneficiaries failing to report changes, or to report the changes timely, and WC payers providing incorrect or incomplete information.  Not only do different states have different laws and multiple types of WC benefits, but any delay in information or missing information further complicates the situation.  Due to the complexity and time consumption of these computations, administrators often delay working these cases.  Any of these factors will result in an overpayment to the SSA record.  SSA records with WC involvement are high overpayment-prone workloads. 

WC/PDB Offset Simplification Options

We propose two solutions to simplify WC/PDB offset of SSA benefits.  The first is to support legislation to move to a flat benefit adjustment.  The second is to do a reverse offset, having the individual states apply the offset before paying the State WC benefit.  The flat rate benefit rate reduction option is preferred as it should approach being cost neutral for administrative costs. 

Flat Benefit Rate Reduction - Our first simplification suggestion is to change how the WC is offset by moving to a flat benefit rate reduction.  With a flat benefit rate reduction, SSA would still need to use a formula to calculate the offset amount, although the new formula would be simplified and therefore much more accurately applied than the current formulas.  Flat benefit rate reduction would eliminate the use of the TFB and the ACE in the WC/PDB Offset calculation.  SSA could use a designated percentage of the individual’s monthly WC/PDB amount, and use that percentage to determine offset.   SSA did propose this in 2007 and 2008.  The proposal was to incorporate a flat benefit reduction equal to the lesser of the worker's monthly WC/PDB benefit or 31 percent of the Social Security disability benefit (DIB) when the worker receives both DIB and a WC/PDB benefit. (SSA selected the 31 percent figure to make the proposal cost neutral to the workers' compensation offset provision in the long range. That is, on average, the lifetime benefits withheld as a result of the offset would be the same as under current law.)  In addition, under the provision, offset would end after the worker has been entitled for 60 months.
SSA’s proposal noted that under current law the offset falls disproportionately on lower earners.  By replacing the existing complicated offset with a uniform offset, the proposal would more evenly distribute the offset among higher and lower earners by offsetting all workers, regardless of their pre-disability earnings levels.  Because of relatively low State law limits on the amount of WC payments, it is common for higher earners to escape the offset because combined Social Security and WC benefits for these earners are below the present law cap (80 percent of their average pre-disability earnings) that triggers the offset.  In addition, the provision would provide for a more equitable application of WC/PDB offset in regards to auxiliary benefits by applying the same percentage of offset to the auxiliaries as to the worker.  (Under current law, there can be situations in which the auxiliaries' benefits are fully offset, but the worker's benefit is only partially offset or not offset at all.)

Reverse Offset - A reverse offset would involve the individual states offsetting workers’ compensation benefits instead of SSA offsetting its own benefits.  This would be a much simpler computation than the current offset process since SSA benefits generally only change when the cost of living is increased or if the benefits are suspended or terminated.  SSA benefits stay the same for an entire year and are paid monthly.  SSA benefits are much more standardized and predictable than state WC/PDB benefits.  SSA has some data exchanges currently in place with states that allow SSA employees to obtain this information when we request it.  The information is available immediately and the agency updates its records regularly.  The states could look up the NH’s SSA benefits and do their own computations and applicable offsets to the state WC/PDB benefits.  This would also prevent any offset to children’s SSA benefits.  SSA has a legislative proposal in the Budget Overview published in February 2015 that would require states and entities that administer WC benefits and PDB to report WC/PDB to SSA which would be used to correctly offset DIB benefits as required.  If reverse offset were in place, SSA would not need this requirement of state reporting.  SSA currently honors 15 State Reverse Offset plans that were in effect on or before February 18, 1981.  This would remove any potential for SSA overpayments and would save trust fund dollars as many overpayments are never fully collected or are waived as the NH or entitled auxiliaries are found without fault and have the inability to repay the overpaid monies.

Conclusion - There is a strong need for program simplification in regards to WC/PDB benefits.  NCSSMA supports the proposals posed in this paper and will advocate for a flat benefit rate reduction or a reverse offset.