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New study finds that Social Security Disability Insurance beneficiaries who are notified of work-related overpayment debt report a 4-8% decline in work in the two months following notification.
Social Security Disability Insurance (SSDI) overpayment debt can cause undue hardship for SSDI recipients, result in increased administrative costs for the federal government, and break down the public’s trust of the government program. Though there have been efforts to reduce overpayments, little is known about the impact of overpayments on labor force participation. Findings of a behavioral response to overpayments could benefit SSDI recipients, the program, and possibly even other government programs.
A new study from Priyanka Anand, associate professor in the Department of Health Administration and Policy, found that notifications of debt related to work-related overpayment discourage work among SSDI beneficiaries.
SSDI is one of the largest federal programs for people with disabilities. It provides cash benefits to qualifying beneficiaries who are not able to engage in substantial gainful work due to a disability. The Social Security Administration (SSA), which operates 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 unaware of these earnings, it may inadvertently issue monthly benefits to these workers—known as a work‐related overpayment. Beneficiaries typically must pay back the overpayment.
In the two months after receiving notification of an overpayment, beneficiaries engaging in substantial work declined by 8%. In the months prior to notification, the average work decline in SSDI recipients was already declining, therefore only about half of the 8% decline two months after notification can be attributed to the overpayment notification. The study compared work activity in overpaid beneficiaries before and after their notification of overpayment using SSA administrative data from 2007 to 2016. The analysis revealed that the decline in work associated with the two months following overpayment debt notifications was the largest decline observed in the 6 months preceding the notification and the 6 months after.
“This evidence that overpayment debt notification discourages work highlights the need for policies to curtail overpayments,” says Anand. The decrease in work may be for many reasons, including reducing future debt and unease about SSA’s ability to pay them accurately while they work. The reduced motivation to work detracts from the SSA’s mission to support the employment goals of its beneficiaries.
Findings indicated that groups that are more dependent on SSDI benefits are more sensitive to overpayment debt. These groups include individuals with less than a high school education, age 45 years or older, who received benefits of $1000 or more, and who had back or other musculoskeletal conditions as their primary impairment.
“Very little is known about the impact of overpayment on labor force participation,” says Anand. “There are some studies that have explored these relationships qualitatively, but our study is the first to use administrative data to quantitatively estimate the extent to which Social Security Disability Insurance beneficiaries change their work behavior in response to an overpayment notification.”
People who have worked long enough and paid social security taxes 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 over $11 billion per month.
The article “Labor supply response to overpayment notifications: evidence from Social Security Disability Insurance” is available online in 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 the Social Security Administration Disability Research Consortium Grants.