Guest post: Why Means Testing Social Security Benefits Is More Trouble Than It’s Worth

Guest post by Nancy Ortiz

(Rdan here…Nancy is a long time reader of Angry Bear and has worked within the Social Security system professionally)

One of the many fixes now being considered as a remedy for Social Security and Medicare’s projected shortfalls is means testing benefits. The rationale is that rich people shouldn’t get SS because “they don’t need it.” Many people who ought to know better believe this would save a great deal of money and help fix the 2037 benefit gap. Sorry, people. This idea isn’t worth the paper it’s rotten on (as Dorothy Parker once said about someone else’s screen play). The short and long of it is that it costs more to means test benefits than to pay SS benefits without regard to the beneficiary’s income and assets.
How do I know this is true? The Social Security Administration (SSA) administers two programs: the basic SS program and Supplemental Security Income (SSI), a means-tested federal public assistance program for poor aged, blind and disabled people. You have to have worked 40 quarters to receive SS, but no work is required for SSI. It is a “welfare” program, not a social insurance program. SSI began on Jan. 1, 1974. In the intervening years, SSA has had plenty of experience trying to run this complex and challenging program. It has learned that SSI costs at least 7 times more dollar for dollar to administer than its regular SS program. 
There are many reasons. The federal government establishes overall SSI eligibility and payment levels, but each state can pay optional amounts over and above those required by federal law. In effect, there are 50 different SSI programs across the country. Earlier this week, CBS ran an article online with an account of a House Ways and Means Committee hearing about SSA’s improper benefit payments. Here’s the link.
SSA was third in the list of federal agencies making improper payments to its beneficiaries and recipients. The first two in order were DHHS (Medicare, Medicaid, and TANF with $71.4 billion ) and DOL (Unemployment benefits $17.5 billion). DOD is not mentioned in this article presumably because the amount of DOD’s improper payments cannot be determined. SSA’s total was $8 billion, including $4 billion in improper SSI  payments, out of a total of $650 billion in benefits paid for all programs.
Congress has underfunded SSA since the 1980’s, sometimes more– sometimes less, but consistently for at least 30 years. The agency is  understaffed as a result. This has produced a 10% error rate in SSI payments as compared to a .05% error rate in SS benefits. This is because SSI is very labor intensive. The recipients are poor, often functionally or completely illiterate, and don’t speak English well or at all. Interviews are longer, the topics covered more complex, the documentation requirements much more extensive than in the SS program. Furthermore, you have to reinterview recipients frequently to be sure they’re still eligible. So, not only is it harder to process the claims to begin with but also you have to do the work all over again every year. If you don’t have the staff, you can’t do the work fast enough or accurately enough to produce a low error rate.
SSA’s Inspector General summed up the state of SSA’s efforts to improve payment accuracy in his statement for the record at Ways and Means’ hearing. See  SSA plans to spend $796M on quality control in 2011 and at least as much in 2012, budget permitting. This includes local office and end-of-line quality reviews, studies to determine causes of error, costs for computer matches in-house and out-of-house, Continuing Disability Reviews, redeterminations of eligibility, and the like. There are many more ways to reduce payment errors. But they cost more money than the ones listed above.
In SSI or any other means-tested program today, all income and any assets, no matter how small in dollar or market value, have to be reported. Any change in stated income and assets must be reported, recorded and verified. If the parents of a disabled child work, for example, they have to report all changes in their income whenever they occur. People who enter or leave the household cause a change in the payment level. Gifts of money or determinable value can reduce payments. Ownership of real estate other than a principle residence also count against the asset limit of $2000.00 for an individual ($3000.00 for a couple). So, if the recipient is a tenant in common in real estate having a value over the limit, s/he is ineligible. This is common in intestate estates in which numerous relatives may have a share in unmarketable rural property. I could go on, but your eyes are already glazing over.  
The obvious response is to say that means testing SS could be designed in such a way as to get around these problems.  But, the fact is that the limits set on income and assets are absolute dollar limits not subject to waiver or tolerances. So, means testing means one thing and one thing only. You have to check and recheck everything that affects eligibility every year for every eligible person. And, that takes staff which costs money. About 50 million people receive SS and SSI benefits. I cannot even guess what it would cost to handle that many new eligibility determinations. We must look elsewhere to find a fix for the coming SS benefit gap.