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cases annually simply would not be productive. Reviewing nonpermanent cases every three years as in H.R. 3236 would have the same long range program savings as an annual review of all 3 million cases, but would have a substantially lower administrative cost. The savings for the H.R. 3236 provision are as follows:
The long-range saving would be 0.03 percent of taxable payroll.
I would mention that our current continuing disability process works toward removing from the rolls beneficiaries who are not entitled. Briefly, this process works as follows:
All cases involving impairments which are expected to improve are reviewed, usually 1 year after entitlement. Such nonpermanent disability cases are either terminated on review or reviewed further, where appropriate, at a later time. In addition to the regular process, we are looking at about 1,650 cases a month which are considered to be permanently impaired. Also, we are about to begin a pilot study of a process under which a sample of disability cases will be reviewed monthly to ensure the integrity of the disability rolls. Of course, anyone returning to work is also investigated for possible termination.
Thus, we are focusing our attention on the cases with the most potential for removal from the rolls, a more productive use of limited resources, in our judgment, than a routine reexamination of every case.
STATE ADMINISTRATION OF DISABILITY DETERMINATION PROCESS
Question. Is there lack of uniformity in the way the States apply the rules of the disability insurance program? Why does this lack of uniformity exist?
Answer. People who apply for disability benefits are entitled to have their claims decided in a uniform manner regardless of which State agency processes those claims. Improving our track record in achieving a uniform determination system is of prime concern to the Secretary and me, and it is a goal which we are aggressively addressing. Some evidence has indicated wide variation among the States on rates of allowances, in rates of error and deficient documentation in initial decisions.
To remedy these problems, we have proposed legislation (which is included in H.R. 3236 as approved by the House Ways and Means Committee) which will grant clear authority to establish procedures and performance standards for the State disability decisionmaking process. States would be given the options of continuing to administer the program or of turning administration over to the Federal Government. When a State elected to continue administering the program but later failed to comply with the regulatory standards, SSA would be authorized to take over direct administration.
In addition, we propose to substantially increase preadjudicative review of State agency decisions, which is also included in H.R. 3236. We have increased the use of consultative examinations in making disability decisions, and are studying the question of whether further increases would be useful. We are putting into place a comprehensive quality assurance system for the disability program which will tell us where and how to make improvements.
UNREPORTED EARNINGS OF DISABILITY BENEFICIARIES
Question. Now that social security no longer gets wage information on a quarterly basis, it will take you somewhat longer to determine unreported earnings of disability beneficiaries. Quarterly wage reports are still made to many States for unemployment compensation purposes. Are you entering into arrangements for obtaining that data for purposes of monitoring the disability rolls?
Answer. It is true that under annual reporting there can be a longer period of time between the point that a disabled beneficiary begins work and the point that SSA processes and cross-checks the earnings information for unreported work activity. To compensate for this lag, we are experimenting with a number of
alternatives. These include: a mass mailing in August 1978 to all beneficiaries on the rolls except those with a trial work period in progress; and revisions to notices and other public information to emphasize the importance of voluntary beneficiary reporting. Because of these initiatives, we have not entered into arrangements for obtaining State unemployment compensation data.
LOW YIELD BONDS HELD BY THE OASDI TRUST FUNDS
Question. Are any of the social security trust funds holding certain low yield bonds known as "flower" bonds (i.e., bonds issued prior to March 4, 1971, which, if held at death, may be redeemed at par value in order to pay estate taxes. If yes, what is the current fair market value of those bonds? What are the dates of maturity? Would it be beneficial for the trustees of the trust funds to sell those bonds to the public rather than continue to hold them?
Answer. Prior to March 4, 1971, the U.S. Treasury issued to the public several series of bonds which, if held by an individual at death, may be redeemed at par value to pay estate taxes. Some of these bonds are held by the old-age and survivors insurance (OASDI) and disability insurance (DI) trust funds. None is held by the hospital insurance or the supplementary medical insurance trust funds.
The maturity dates of these bonds range from February 15, 1980, to November 15, 1998. Due to daily fluctuations, the market value of public-issue bonds will vary over a short period of time. As of April 9, 1979, the total market value of the "flower" bonds held by the trust funds was $1.9 billion, of which $1.7 billion was held by the OASI trust fund and $0.2 billion was held by the DI trust fund. The total market value of $1.9 billion represented only about 6 percent of the $30.4 billion in total invested assets of the OASDI and DI trust funds combined, as of the end of January 1979. The amount of each series held by the trust funds is shown in the attached table.
The Treasury Department does on-going analyses on the advisability of selling these bonds at the current market value and reinvesting the proceeds at current interest rates. To date, the studies have been inconclusive.
1 From the Apr. 9, 1979, issue of the Wall Street Journal. Figures represent the bid price.
Senator NELSON. Our next witness is Mr. Gregory Ahart, Director of the Human Resources Division of the GAO. Your statement will be printed in full in the record. You may present it however you desire, and if, for the record, you would identify your associates.
Mr. AHART. Thank you, Mr. Chairman.
On my right is Michael Zimmerman, the Assistant Director of the Resources Division, who is responsible for all of our work at the Social Security Administration; and on my left, in order, are Mr. Gus Johanson and Mr. Dan Glades, who are on Mr. Zimmerman's staff.
I do have a rather lengthy statement I would like to submit it for the record. What I would like to do is take about 15 minutes and try to highlight the more salient points in it and then respond to any questions that you might have.
Senator NELSON. Go ahead.
STATEMENT OF GREGORY J. AHART, DIRECTOR, ACCOMPANIED BY MICHAEL ZIMMERMAN, ASSISTANT DIRECTOR; GUSTAVE JOHANSON, SUPERVISORY AUDITOR; AND DANIEL BLADES, SUPERVISORY AUDITOR-ALL OF HUMAN RESOURCES DIVISION, GENERAL ACCOUNTING OFFICE
Mr. AHART. We appreciate your interest, Mr. Chairman, in our activities in evaluating the programs managed by the Social Security Administration and also your concern over the media reports that billions of dollars are misspent in these programs.
We, as you know, have had a long interest in the efficient use of public funds and, over the past few years, have undertaken major efforts to identify weaknesses and point out improvements needed in the social security programs.
Because of our understanding of the subcommittee's interest, we are limiting our testimony largely to matters relating to the old age, survivors, and disability insurance programs, and the management functions supporting these programs.
Considering the magnitude of these programs, as brought out in prior testimony and your opening statement, and the management tasks that they involve, it is reasonable to expect some problems, and, as was pointed out by the Commissioner, even small problems can translate into large dollar amounts. So I would stress that the thrust of our work is not to condemn the management of the programs, but to constructively criticize and foster needed improvements, both legislatively and administratively.
Despite the media reports that over $2 billion annually is wasted or lost through administrative errors and poor management, overall accurate figures of the total amount are not available. The HEW Inspector General's last annual report states that it would be speculative to use any figures relating to the social security social insurance programs until the measurement systems which we will discuss briefly, and the Commissioner discussed, are developed.
We agree with this position.
Social Security recently established an Office of Payment Eligibility Quality, independent of its program operating components, whose principal function is to develop and maintain an agencywide quality assurance system which, if properly implemented, could provide an estimate of misspent funds. Of the five largest programs, the Office has ongoing comprehensive quality assurance systems, covering only two---SSI and AFDC—and these account for less than 10 percent of the total funds spent. The Office is carrying out a pilot test for a quality assurance system of the old age and survivors' insurance program and it plans to begin pilot testing the system for the disability insurance program next month.
We have reviewed the SSI quality assurance system and reported our findings in May 1978. One of the principal weaknesses noted was
the fact that the medical aspects of disability and blindness are not reviewed or reported on by the system.
I might point out that about half of the recipients of this program are either blind or disabled. Based on this and the results of other work that we performed in this area, we do not consider the SSI quality assurance system a reliable source for estimating the magnitude of waste in this program.
No efforts are presently underway at Social Security to review the medical eligibility of disabled and blind SSI recipients and to measure the related payment error.
Turning now to what improvements are needed, we have recommended a number of legislative and administrative actions to improve the management and reduce the cost of social insurance programs. These actions cover a wide range of issues which could lead to improvements in the accuracy, timeliness, and uniformity of eligibility decisions and payments to beneficiaries, more effective and efficient use of resources for carrying out program operations, and the strengthening of controls and other mechanisms securing and protecting beneficiary records. While a number of these recommended actions are in the process of being implemented, more needs to be done.
I have grouped these actions under four headings: First, the old age and survivors insurance program. We intensified our review of this program in July 1977. Two of the more significant legislative issues which we have pursued, or are currently pursuing, are first the rounding problem, which was discussed in the Commissioner's testimony, or with the Commissioner, where if you paid to the nearest penny instead of to the next higher dime, it would save about $386 million between 1980 and 1986.
Senator NELSON. May I interrupt you? On that point, Mr. Ross made the point that the cost of the $64 million that it cost the fund is not a management inefficiency question at all in social security, but is due to the fact that the Congress mandated that benefit computations be rounded off at the highest dime. So the criticism of the agency for this factor, Mr. Ross says, is ill founded. Do you agree with that? Mr. AHART. Yes; I would agree with that. It is a matter of legislative mandate and can be changed only through a legislative action.
Senator NELSON. Now, you heard the testimony of Mr. Ross suggesting that benefits be rounded to the nearest dollar, and when I raised the question, he made the observation that it also has implications of extra work and paperwork at the banking level and the individual level and that he thought it would be better to do it to the nearest dollar rather than the nearest penny.
What is your observation with respect to this question?
Mr. AHART. I think the important thing is here to have the rounding go in both directions, Mr. Chairman, so that it is not always in the upward direction. Whether you round it to the nearest dollar or the nearest penny, over a period of time, the individual should get at least some sort of equity.
I think going to a dollar instead of a penny has to do with administrative problems. I think it is probably tied into some other things that social security would like to do also to simplify the benefit changes when changes do take place. But so long as you are rounding up as well as down I think you overcome the problem which is now in the present law.
Senator NELSON. Would you guess it would be correct, considering that nobody is ever stuck at 51 cents or 49 cents permanently since every adjustment in the indexing of the retirement benefit changes the dollar amount, that beneficiaries ought to be coming down about half the time to the nearest bottom dollar or the nearest higher dollar. Would that be correct?
Mr. AHART. I would guess over time it would work out with your annual cost-of-living adjustments and the other things that do cause changes in the benefit amount, it should balance out for the most part with the individual beneficiary. There is no guarantee of that. It would be to some degree like rolling dice. Sometimes you can roll seven passes in a row, and they might get the benefit of the rounding up several times. But in the overall and from the standpoint of the impact on the trust funds, it should balance out.
Senator NELSON. The Commissioner was saying by 1984 he would be saving over $120 million or $140 million a year. Would you agree with
Mr. AHART. I think their figures are pretty close to the figures that we independently came up with, Mr. Chairman.
Senator NELSON. Go ahead.
Mr. AHART. The next legislative item, in February 1979, we testified on problems of using the social security system for targeting money to student beneficiaries for school attendance. We pointed out that about 7 out of every 10 social security students could receive money from the Office of Education's basic educational opportunity grant program. The basic grant program was not in existence when the social security student benefit program began in 1965.
We found that more than 100,000 students expected to receive more in social security and basic grant benefits than the total cost of going to school. About 40 percent of these received more in social security benefits alone than the total educational cost for the year, with some students having excess benefits of more than $2,200.
Senator NELSON. $2,200.
Mr. AHART. $2,200.
Senator NELSON. In 1 year?
Mr. AHART. Their benefits in 1 year were in excess of the costs of going to school, total cost of going to school, including room and board, tuition fees, books, and transportation.
Senator NELSON. What is the maximum a student can receive? Mr. AHART. I think they can get as high as $4,000 in a year's time. The ranges we found are the benefits-some of them got as little as $100 up to a total of about $4,000.
Senator NELSON. What factor determines the amount of the benefit?
Mr. AHART. That is one of the problems we have with the student benefit program. It is tied in, as all social security benefits are, to the wage earnings experience of the primary beneficiary, so that if the student happens to be the son or daughter of the low-wage person who has minimum years of coverage, the amount they get to go to school is tied into that benefit amount, the primary insurance amount, as opposed to any educational cost that a student might incur.
So the amount is totally independent of the cost for the student to actually go to school.