A new study finds that Social Security disability insurance recipients who are notified of a work-related overpayment debt report a 4-8% drop in their work within two months of being notified.
Social Security Disability Insurance (SSDI) overpayment debt can cause undue hardship for SSDI recipients, increase administrative costs for the federal government, and shatter public confidence in the government program. Although there have been efforts to reduce overpayments, little is known about the impact of overpayments on labor force participation. The results of a behavioral response to overpayments could benefit SSDI recipients, the program, and perhaps even other government programs.
A new study by Priyanka Anand, an associate professor in the Department of Health Administration and Policy, found that debt notifications related to work-related overpayments discourage work among SSDI recipients.
SSDI is one of the largest federal programs for people with disabilities. It pays cash benefits to eligible recipients who are unable to engage in substantial gainful employment due to disability. The Social Security Administration (SSA), which administers the SSDI, encourages people in the program to work if they are able; however, benefits will decrease if they earn more than a specified amount. If the organization is not aware of these earnings, it may inadvertently pay monthly benefits to these workers, known as a work-related overpayment. Recipients usually have to repay the overpayment.
In the two months following the notification of an overpayment, beneficiaries carrying out major work fell by 8%. In the months leading up to the notification, the average decline in work for SSDI recipients was already falling. Therefore, only about half of the 8% drop two months after the notification can be attributed to the overpayment notification. The study compared the work activity of overpaid recipients before and after their overpayment notification using SSA administrative data from 2007 to 2016. The analysis found that the decline in work associated with both month following overpayment debt notifications was the largest decline seen in the 6 months. preceding the notification and the following 6 months.
“This evidence that notification of overpayment debt discourages work underscores the need for policies to reduce overpayments,” says Anand. The decrease in work can be due to many reasons, including future debt reduction and unease about SSA’s ability to pay them properly while they work. Diminished work motivation undermines the SSA’s mission to support the employment goals of its beneficiaries.
The results indicated that groups that depend more on SSDI benefits are more susceptible to overpayment debts. These groups include people with less than a high school education, age 45 or older, who received benefits of $1,000 or more, and who had back or other musculoskeletal conditions as their primary impairment.
“Very little is known about the impact of overpayments on labor market participation,” says Anand. “Some studies have explored these relationships qualitatively, but our study is the first to use administrative data to quantitatively estimate the extent to which recipients of Social Security disability insurance change their work behavior in response to notification of overpayment.”
People who have worked long enough and paid social security contributions on their earnings can apply for SSDI if they have a medical condition that prevents them from working for at least 12 months or is expected to end in death. More than 10 million people received SSDI benefits in 2017, totaling more than $11 billion per month.
The article “Labour Supply Response to Overpayment Notifications: Evidence of Social Security Disability Insurance” is available online at Contemporary economic policy now and will be published in a future print edition. Denise Hoffman of Mathematica, John T. Jones of SSA, and Siarhei Lukashanets of Mathematica are co-authors. The study was funded by grants from the Disability Research Consortium of the Social Security Administration.