Reforming Administrative Legal Review in Disability Insurance

The Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) programs have many financial and structural problems. In a recent editorial, we detailed problems with the system of benefit claim appeals, presided over by administrative law judges, and we proposed several solutions.¹ Because the editorial, based on an earlier study by Mark J. Warshawsky,² was published in The Wall Street Journal, it garnered attention from the public, the media, and others. We therefore thought it worthwhile to continue, up- date, and deepen our examination of the topic, adding reviews of some recent comprehensive reports — econometric, analytical, and based on case studies — from academic and government sources. Also, we undertook our own empirical analysis of judicial decisions over a longer period that includes more recent data. 

It is difficult to come to a definitive conclusion based on any one study, report, or analysis, but when varied sources reach similar conclusions through different methods and approaches, they build a compelling case. Here we find such a case, in which serious failings by the ALJ system — at a time of large claim backlogs — have led, on net, to large losses for taxpayers. We estimate that more than $72 billion will be paid to claimants over their lifetimes through likely unwarranted disability benefit awards given by ALJs over the 10-year period from 2005 through 2014. Recent public scrutiny and administrative changes have curbed some of the worst excesses, but serious problems with the benefit claim appeals process remain. Moreover, the problems’ original magnitude could easily return when public and management attention moves elsewhere or when political pressure builds again to reduce the claim backlog. Therefore, serious permanent administrative reform is needed to lock in the recent changes and to build on them to enhance their positive effects. The appropriate time to do so is now, as the disability insurance program is expected to be insolvent in less than two years. 

Background 

The Social Security Administration (SSA) manages two large federal disability programs: SSDI and SSI. As of 2014 about 19.4 million individuals receive about $200 billion annually in benefits through these two programs. Individuals enrolled in SSDI for two years are also automatically en- rolled in Medicare, which costs taxpayers about $80 billion a year. SSI recipients are eligible for Medic- aid immediately. 

When an individual applies for disability benefits, the case is initially decided by state employee examiners in Disability Determination Services (DDS). There is also an automatic pre-effectuation review — an internal review of a decision before it is finalized and communicated to the claimant — of 50 percent of DDS allowance decisions. In 40 states and in most of California, an applicant who is denied benefits may appeal to a different reviewer in the same office. The SSA, which oversees each state’s DDS, claims that there are few errors in the original adjudication of these decisions. If the second reviewer denies benefits, the applicant may appeal to an ALJ.³ If the ALJ then awards disability benefits, the decision is final because the government cannot appeal it. But if the ALJ denies benefits, the individual may appeal to the SSA Appeals Council and, in a civil case, to the several levels of the federal courts. In total, there are at least five levels of review for a disability benefits applicant. Any error by a state adjudicator or an ALJ against an applicant is fixable, whereas an error by either against a taxpayer is not. 

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