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.
