Social Security Disability Insurance: Information on Potential Implications of Expanding Private Disability Insurance

SSDI, which is administered by SSA, provides financial and other assistance to qualifying individuals who are unable to work due to their disabilities. SSDI is primarily funded by employee and employer payroll taxes that are placed in the Disability Insurance Trust Fund, which is currently projected to not be able to pay full benefits starting in 2028. While there are a number of ways to address the fiscal condition of the Disability Insurance Trust Fund, some researchers have proposed expanding employer-provided PDI. GAO was asked to review whether expanding PDI could result in potential savings to the Disability Insurance Trust Fund.

This report examines (1) what is known about how coverage and key features of SSDI and PDI compare, and (2) the potential implications of three distinct proposals to expand employer-sponsored PDI on the Disability Insurance Trust Fund and various stakeholders.

GAO analyzed data on SSDI and PDI coverage from SSA and BLS for 2016 and 2017; reviewed relevant federal laws, regulations, and guidance; reviewed three PDI policies that three large insurers we selected described as typical for their companies; reviewed three distinct proposals to expand PDI identified through a literature review; and interviewed SSA and Department of Labor officials, authors, researchers, and representatives of insurance, employer, employee, and disability groups for a range of perspectives.

GAO's analysis found that coverage and key features of Social Security Disability Insurance (SSDI) and long-term employer-sponsored private disability insurance (PDI) differ in a number of ways. Key differences include the number of workers covered; characteristics of covered workers; and eligibility, benefits, and return to work assistance. For example:

According to GAO's analysis of Bureau of Labor Statistics and Social Security Administration (SSA) data, SSDI covers an estimated 96 percent of workers, while 33 percent of workers have PDI coverage through their employers. Also, PDI coverage is more prevalent among workers with higher wages (e.g., management positions) and in certain business sectors (e.g., finance).

GAO's review of SSDI and PDI policies found that some PDI policies may pay benefits for medical conditions that SSDI would not. However, these PDI policies may time limit payments for mental health and musculoskeletal disorders, while SSDI does not. In addition, while both SSDI and PDI policies include features designed to help beneficiaries return to work, PDI policies may provide such supports more quickly than SSDI.

GAO's review of the literature identified three distinct proposals for expanding PDI that the proposals' authors believe would address SSDI's fiscal challenges. Specifically, all three proposals suggest that cost savings for the Disability Insurance Trust Fund could be expected by expanding PDI. According to the proposals, this would happen because expanding PDI would provide workers earlier access to cash and employment supports, which would reduce the number of SSDI claims or the length of time SSDI benefits are paid to claimants. However, GAO's review of the three proposals noted that none of them provide enough information to assess how SSDI enrollment and costs might be affected with an expansion of PDI. Therefore, it is unclear whether cost savings to the Disability Insurance Trust Fund would actually be realized. For example, the proposals do not provide information on the type and timing of return-to-work services that would be provided under expanded PDI, nor do they take into account the differences in the populations served by SSDI and PDI policies. Moreover, stakeholders that GAO interviewed about these proposals raised a number of issues about other implications of PDI expansion that the proposals do not explicitly or fully address. For example:

Insurers told GAO that is was unclear how expanding PDI would affect PDI premiums and the impact this would have on enrollment.

Employers told GAO they were concerned about potential additional requirements or administrative burdens that would be placed on them if PDI were expanded.

Employee and disability advocacy groups told GAO they were concerned about whether PDI expansion would provide standard services or employee protections currently available under SSDI, especially with respect to PDI expansion proposals that would replace SSDI for 2 years.

The Disability Insurance Trust Fund, primarily funded by employers and  workers through payroll taxes and administered by the Social Security  Administration (SSA), is used to provide cash benefits to people no longer  able to work as a result of their disabilities and to their dependents. In  calendar year 2016, SSA paid $142.7 billion in Social Security Disability  Insurance (SSDI) benefits to more than 10.6 million beneficiaries. Over  time, demographic and other factors have reduced the Disability  Insurance Trust Fund’s reserves and the fund’s projected depletion in  2016 was delayed when Congress passed a law that temporarily  reallocated a share of payroll tax revenues from the trust fund for the Old- Age and Survivors Insurance (OASI) to the Disability Insurance Trust  Fund. As of July 2017, the Social Security Board of Trustees projects that  the Disability Insurance Trust Fund will be depleted in 2028, at which time  incoming payroll tax revenues may not be sufficient to support paying full  benefits.

In prior work, we identified various types of proposals made by  researchers and others to address the fiscal condition of the Disability  Insurance Trust Fund and related challenges, including proposals to slow  the flow of people applying for SSDI; target finite resources more  efficiently and effectively; and better align SSDI eligibility criteria with  changes in the labor market, advances in medicine and technology, and  modern concepts of disability. We also previously reported that some  researchers have suggested that one way to help address the fiscal  condition of the Disability Insurance Trust Fund is to expand employer- sponsored private disability insurance (PDI). We reported that to the  extent PDI expansion options encourage workers to forgo applying for  SSDI or limit the amount of time workers receive SSDI, they also have the  potential to reduce the number of SSDI beneficiaries and program costs.  You requested that we review the potential savings to the Disability  Insurance Trust Fund and other implications associated with proposals to  expand PDI coverage.

This report describes: (1) what is known about how coverage and key  features of SSDI and PDI compare, and (2) the potential implications of  three distinct proposals to expand employer-sponsored PDI on the  Disability Insurance Trust Fund and various stakeholders.

To compare access to and features of SSDI and PDI, we reviewed  relevant federal laws, regulations, and guidance; analyzed SSDI data and  Bureau of Labor Statistics data on disability insurance coverage; and  reviewed insurance industry surveys on PDI coverage. Our work mainly  focused on employer-sponsored, long-term PDI—which we refer to as  PDI in this report—because it most closely mirrors the SSDI program.  We requested and reviewed PDI policies from three large insurance  companies, which company representatives told us were typical policies  for their companies, and we interviewed SSA and Department of Labor  (DOL) officials, as well as representatives of an association and a non- profit organization that conduct insurance industry surveys, and insurance  associations and insurance companies.

To understand the potential implications of expanding PDI, we conducted  a literature search to identify any proposals to expand PDI and that  evaluated the potential effect of expansion on the number of SSDI  beneficiaries and the amount of SSDI expenditures. We identified three  proposals that evaluated long-term, employer-provided PDI. We  interviewed the authors of the proposals and assessed the proposals for  the soundness of their methodologies, the reliability of any data used, and  limitations. We also spoke with SSA and DOL officials, as well as other  researchers in the disability field to get their views on the identified  proposals. To understand the potential implications of the three proposals  to expand PDI for stakeholders, we spoke with representatives of groups  that might be affected by such proposals, including insurance  associations and insurance companies, employer associations and  employers, unions and employee/disability advocacy groups, a states’  insurance association and organization, and DOL and SSA officials.

This report does not examine the extent to which the provisions in  pension plan disability benefits or other disability protections may promote  work and help lower SSDI take-up rates or costs. Rather, we focus on the  relationship between SSDI and long-term employer-sponsored PDI, which  were the focus of the proposals we examined and because PDI most  closely mirrors the SSDI program.

We conducted this work from November 2016 to April 2018 in accordance  with generally accepted government auditing standards. Those standards  require that we plan and perform the audit to obtain sufficient, appropriate  evidence to provide a reasonable basis for our findings and conclusions  based on our audit objectives. We believe that the evidence obtained  provides a reasonable basis for our findings and conclusions based on  our audit objectives.

Social Security Disability Insurance (SSDI)

In recent decades, economic and demographic factors have contributed  to an increase in the number of SSDI beneficiaries and increased  program costs, which has reduced the size of the Disability Insurance  Trust Fund reserves from a peak of $215.8 billion in 2008 to $46.3 billion  in 2016. Over the past 26 years, the total number of SSDI beneficiaries  more than doubled, from 4.2 million in calendar year 1990 to nearly 11  million in calendar year 2016. By contrast, during that same time, the  number of workers covered by SSDI increased by less than a third—from  133 million to 171 million. In calendar year 2016, around 8.8 million  workers with disabilities and 1.8 million dependents (spouses and  children) received SSDI payments, totaling $142.7 billion, of which $133.6  billion was paid to the workers and $9.1 billion to their dependents.

In most cases, long-term employer-sponsored private disability insurance  (PDI) is paid for by the employer and provided as part of a package of  benefits for employees, although sometimes employees are required to  pay some of or the entire PDI premium. According to one industry survey  (the most recent available), in 2013, 19 PDI companies covering about 75  percent of the PDI market policies provided PDI benefits to around  653,000 individuals, with annual payments totaling around $9.8 billion.

Another industry survey estimated that the five largest insurers in the PDI  market held about half of the market share of premiums paid. PDI  policies can be offered either on an opt-in basis, in which employees who  choose to pay for PDI receive it, or on an opt-out basis, where employees  are automatically enrolled in PDI, but can decline (opt-out of) the  insurance.

Other Disability Protections for Workers

Beyond the insurance market for PDI, workers may be eligible for other  types of disability protection through their employment. For example, 38  percent of workers have employer-sponsored short-term disability  coverage according to BLS, but unlike SSDI, this coverage typically lasts  6 months. In addition, state workers’ compensation programs generally  provide payments and assistance to individuals who are injured on the  job, while both SSDI and PDI are designed to replace lost income from  the onset of any disability regardless of whether it was work-related.  Also, some workers may be eligible for disability payments through  defined benefit pension plans. These benefits, commonly known as  disability retirement benefits, provide eligible workers with early retirement  payments if they can no longer work because of the onset of a disability.  According to BLS data, many workers covered by defined benefit pension  plans are state and local workers, though these data do not show what  portion of them are not covered by SSDI.

From our literature review, we identified three distinct proposals for  expanding PDI in order to potentially alleviate financial challenges facing  the SSDI program. These proposals were made in studies authored by:  David Babbel and Mark Meyer (Babbel and Meyer) of Charles River  Associates, Rachel Greszler (Greszler) of The Heritage Foundation, and  David Autor and Mark Duggan (Autor and Duggan) for The Center for  American Progress and the Hamilton Project. While the proposals  differed in how PDI expansion might be achieved, each proposal  assumes or requires that PDI coverage would provide vocational  assistance, workplace accommodations, and partial income replacement  to employees with work-limiting disabilities. Each proposal assumed that  PDI expansion would result in the provision of effective return–to-work  assistance earlier than would occur under SSDI. According to the  authors, their proposals would slow the growth of the SSDI program by  increasing work attachment of potential applicants or beneficiaries of  SSDI and reversing the decline in employment rates of work-capable  adults with disabilities, thereby improving the long-term solvency of the  Social Security system. Two of the proposals suggested piloting the  approaches to assess potential savings and implementation issues.

SSDI Covers a Much Larger Portion of the Workforce than PDI, and Features of Coverage Differ

SSDI Covers Almost All Workers, Whereas PDI Covers About One-Third of Workers, Who Are Generally Higher-Paid

According to our analysis of SSA and BLS data, nearly all American  workers pay Social Security taxes and are potentially covered by SSDI,  while only a third of workers have PDI coverage. For SSDI, an estimated  96 percent of American workers, along with their employers, pay Social  Security payroll taxes, a portion of which are used to fund SSDI. Of  individuals aged 20 or older in 2016, 87 percent met the SSA work  requirements to be eligible for benefits in the event of a disability.

By contrast, as of March 2017, the Bureau of Labor Statistics (BLS)  estimates that approximately 33 percent of the workforce is insured by  employer-sponsored PDI where the employer pays at least some of the  premium. Employees may also pay the entire premium of employer- sponsored PDI—and researchers we interviewed from three private  sector organizations that survey the PDI market told us that these plans  are a minority of the PDI market. However, neither BLS nor industry  surveys comprehensively track the extent of PDI coverage where  employees pay 100 percent of the premium cost.

In addition, while SSDI coverage is higher across all industries and  income levels, PDI coverage is much more prevalent at higher wage  levels and in certain occupations and industries than others. In particular,  as of March 2017, 60 percent of those in the highest 10 percent of wage  earners had PDI, whereas 4 percent of those in the lowest 10 percent did  (see fig. 1).

Our analysis of BLS data found that differences in PDI coverage also  exist by occupation and industry. Specifically, 60 percent of workers in  business and financial operations occupations have PDI coverage,  compared to 16 percent of workers in construction, extraction, farming,  fishing, and forestry occupations that have PDI (see fig. 2). Broad  differences in PDI coverage also exist by industry; for example, 83  percent of workers in utilities have PDI, but only 5 percent of workers in  leisure and hospitality have PDI (see fig. 3). According to researchers  from one organization with whom we spoke, the higher rates of PDI  coverage reflect areas where labor markets are more competitive, leading  employers to offer PDI to attract employees.

SSDI and PDI Differ in Many Respects, Including Eligibility, Benefit Level, and Approach to Return to Work

Our review of SSDI program rules and PDI policies indicates that  eligibility for PDI is similar in some ways to eligibility for SSDI. For  example, both allow individuals with many types of disabilities to receive  benefits until retirement, recovery, or death. However, there are also  some significant differences, as SSDI and PDI have different definitions  and employment requirements. According to SSDI program rules, to meet  SSDI’s definition of disability, an individual must have a medically  determinable physical or mental impairment that (1) has lasted or is  expected to last at least 1 year or to result in death and (2) prevents the  individual from engaging in substantial gainful activity. SSA uses a list of  medical conditions—established in regulations—that it considers severe  enough to entirely prevent an individual from working. Benefits can also  be provided for medical conditions that are not on the list if the medical  condition or combination of medical conditions meets or equals the  severity of those on the list. SSA also considers additional factors— such as an individual’s residual functional capacity, relevant past work,  age, education, and work experience. SSA can determine that the  medical conditions combined with the applicable factors preclude the  individual from performing his or her prior work or any other work in the  national economy. Eligibility for granted SSDI benefits continues until  retirement or death, or until SSA deems that the underlying medical  conditions have sufficiently improved or that the individual has become  gainfully employed.

In contrast, typical PDI policies have provisions related to inability to work  that may compensate workers in a wider range of circumstances than  SSDI does, although these provisions become more strict after 2 years.  For the first 2 years of PDI benefits, policies generally define disability as  the inability of an individual to work his or her own occupation. For  disabilities that last for more than 2 years, a typical PDI policy changes  how it defines disability from the inability to work in one’s previous  occupation, to the inability to work in any occupation offering a  reasonable income, which was 60 percent of pre-disability earnings in the  three sample policies we examined. Similar to SSDI, PDI benefit  payments generally continue for the length of the disability or until  retirement; however, unlike SSDI, benefits paid for certain conditions,  such as mental health conditions, are generally limited to 2 years. Also  unlike SSDI, PDI policies typically include a pre-existing condition  provision, whereby benefits are not paid if the applicant received  treatment, services, or consultation or took medication for the condition in  the 3 months prior to being insured.

The requisite time period between the onset of a disability and when  benefits can begin is comparable between SSDI and PDI, according to  our review of SSDI program rules and PDI policies; however, the time it  takes to process and make decisions on claims may run longer for SSDI.  For both SSDI and PDI, benefits do not usually start immediately upon  disability onset. SSDI and PDI applicants must apply for benefits and  usually wait for a period of time—known as a waiting period for SSDI and  as an elimination period for PDI—for payments to begin. The waiting  period for SSDI benefits is 5 months after disability onset. For the PDI  policies we examined, the elimination period ranged from 3 to 6 months  after onset. Another factor affecting the time to receipt of benefits is the  time it takes to award the benefit. For PDI, federal regulations under the  Employee Retirement Income Security Act of 1974 (ERISA) that govern  claims in ERISA-covered plans, including disability claims, generally  require initial claims to be decided within 45 days after receipt of the claim  by the plan, with some ability to extend for two 30 day periods based on  reasons beyond the plan’s control. PDI claimants may also appeal the  initial decision. On the other hand, based on our review of SSDI  program rules, claims for SSDI are not subject to timing requirements  established by law. Further, denied claimants may appeal the initial  decisions. The average decision time for appeals before Administrative  Law Judges in fiscal year 2017 was 605 days, according to SSA’s fiscal  year 2017 performance report.

Our review of SSDI program rules and PDI policies also indicates that  individuals are required to have longer employment periods for SSDI  eligibility than for PDI, but PDI is generally not portable if the individual  leaves the employer offering PDI. According to SSA guidance, individuals  become eligible to receive SSDI payments after they have paid the Social  Security payroll tax long enough—about 10 years for many—and recently  enough to accumulate the required number of credits. In contrast, the  three sample PDI policies we reviewed contained 30-day waiting periods  for coverage to begin. Further, part-time status and job changes affect  PDI more than SSDI eligibility. SSDI’s program rules generally allow for  the work credits that an individual has accumulated to continue to count  toward SSDI eligibility even if the individual is working part-time, changes  jobs, or becomes unemployed or otherwise leaves the workforce. In  comparison, PDI coverage, which is offered at the discretion of  employers, is not generally portable, and may exclude part-time workers  altogether—as was the case for the three “typical” PDI policies we  reviewed. Nationally, PDI coverage is much more prevalent among full- time workers than part-time workers. According to BLS data, 42 percent  of full-time workers and 5 percent of part-time workers have PDI where  the employer pays for all or part of the premiums. See Table 1 for a  comparison of SSDI and PDI eligibility features.

Our review of SSDI program rules and PDI policies indicates that SSDI  benefit levels for individuals are generally lower than PDI but are  designed to provide more income replacement for low-income workers  than higher-income workers. Under federal law, SSA determines benefit  amounts using a progressive formula, whereby low-income beneficiaries  receive relatively higher benefit payments based on their average monthly  earnings over the course of their career. For calendar year 2018, the  formula pays 90 percent of the first $896 of the individual’s average  monthly earnings, plus 32 percent of the earnings between $896 and  $5,399, plus 15 percent of earnings over $5,399. (See fig. 4 for the  amount of benefits SSA paid in 2018 according to prior income levels.)  Using the formula, we calculated that at an average indexed annual  earnings of $44,000, the monthly benefit would be $1,693, which is 46  percent of prior average monthly earnings. Under the formula, workers  earning less would receive a higher proportion of their prior average,  while workers earning the taxable maximum (set at $128,400 for 2018) or  more would be eligible to receive $3,042 per month, which is at most 28  percent of their earnings. Under federal law, disabled workers with  qualifying dependents may receive additional SSDI payments, up to 50  percent of their individual benefit amount. Therefore, according to our  calculations, the maximum family benefit for average annual indexed  earnings of $44,000 would be $2,540, which is 69 percent of prior  average monthly earnings.

By contrast, up to certain income levels, PDI policies typically replace 60  percent of an employee’s current salary if the employee is unable to  continue working his or her prior job. Therefore, a worker earning  $44,000 annually in their prior job would receive $2,200 per month. For  high-income workers, PDI policies typically have a monthly maximum  payment. In one PDI policy we reviewed, this monthly maximum was  $5,000. Employers and employees pay for SSDI through payroll taxes on  employees’ wages and salaries, so the cost to employers and employees  only varies based on employees’ wages and salaries. Federal law also  determines the part of the payroll tax that is allocated for SSDI, half of  which is contributed by the employee and half by the employer. For PDI,  either employers, employees, or a combination of the two make premium  payments, depending on the policy negotiated between the insurer and  the employer. According to industry representatives with whom we spoke,  premiums may vary based on many factors, such as wages and salaries,  the length of the elimination period, rate of income replacement, type of  industry, and a company’s prior claim experience.

Another difference between SSDI and PDI benefit levels is their treatment  of partial benefits or partial disability determinations. SSDI program rules  do not provide partial payments to individuals who have lost some but not  all of their ability to earn income in the national economy. In contrast,  some PDI policies may pay benefits for a partial disability. For example, in  one of three policies we examined, workers could qualify for partial  benefits, at lower levels, if they were partially unable to achieve their  previous earnings because of a disability.

PDI policies generally require beneficiaries to apply for SSDI and, if found  eligible, PDI payments are typically adjusted downward (offset) by the  amount of SSDI payments. There is no similar requirement or payment  adjustment for SSDI beneficiaries. In cases where PDI beneficiaries are  not required to or do not apply for SSDI, PDI policies we reviewed would  still reduce their PDI payment by the SSDI amount that the beneficiaries  may have been entitled to receive. The PDI payments would be reduced  for the full amount of the SSDI payments, including any SSDI payments  for the worker’s spouse and dependents, but will typically maintain a  minimum PDI benefit. The three PDI policies we reviewed provide a  minimum $100 monthly benefit when the SSDI offset would otherwise  totally eliminate the PDI benefit or reduce it below $100 a month.  According to insurers we interviewed and PDI policies we reviewed,  insurers will assist PDI beneficiaries with their SSDI applications, and if  necessary, provide legal assistance for SSDI appeals processes.  According to one industry survey, 72 percent of PDI beneficiaries also  qualified for SSDI. PDI benefits may also be reduced by the amount of  income from other sources such as workers’ compensation payments,  sick leave, or severance pay from an employer.

Additionally, under federal law, SSDI confers Medicare eligibility after 2  years. In contrast, insurance associations and our review of PDI policies  indicate that PDI policies do not typically provide health care benefits.  Table 2 provides a summary of SSDI and PDI benefit features.

Both SSDI and PDI policies include incentives to return to work, such as  allowing beneficiaries to retain some earnings when they return to work,  but PDI policies may provide return-to-work services sooner than SSDI.  As long as they continue to meet SSDI’s eligibility criteria, beneficiaries  can earn up to the substantial gainful activity amount each month, without  any impact on their SSDI benefit, according to SSDI program rules.  SSDI program rules also provide work incentives in the form of a trial  work period, which allows the beneficiary to receive full disability benefits  while potentially earning more than the substantial gainful activity amount,  for up to 9 months. SSDI beneficiaries who earn above the substantial  gainful activity threshold after 9 months of a trial work period will no  longer receive SSDI cash benefits, but will continue to receive Medicare  coverage, if enrolled, for up to 7 years and 9 months. After the trial work  period ends, the 36-month extended period of eligibility begins, during  which SSDI beneficiaries are entitled to receive benefits so long as they  continue to meet the definition of disability and their earnings are below  the substantial gainful activity monthly earnings limit. Moreover,  individuals whose benefits stopped due to work may have their benefits  reinstated under an expedited reinstatement if for medical reasons they  are unable to work again at some point within 5 years. Under this  expedited reinstatement, beneficiaries receive up to 6 months of temporary cash benefits while SSA conducts a medical review. Despite  these SSDI provisions, participants of a 2013 Social Security Advisory  Board Forum have criticized the SSDI program for having poorly  structured work incentives, and we have previously reported that  complex SSDI rules related to these work incentives may result in  overpayments to beneficiaries.

PDI policies we reviewed also provide for continued payments while  beneficiaries participate in the insurer’s return-to-work program or find  other employment. However, in contrast to what is referred to as SSDI’s  “cash cliff,” PDI payments are gradually reduced in some ways to account  for the beneficiaries’ earnings. For example, in one policy we reviewed, if  the beneficiary participates in the insurer’s return-to-work program, the  beneficiary may continue receiving benefit payments in addition to any  employment earnings. However, unlike SSDI, the combination of the  employment earnings plus the PDI payment would be capped at 110  percent of the beneficiary’s pre-disability earnings. Under this same  policy, after the first 12 months that the beneficiary is disabled and  working at a reduced capacity, the partial PDI payment decreases  proportionally as the employment earnings increase until the beneficiary  earns 80 percent of their pre-disability earnings, at which point they are  no longer considered to be disabled. The other two policies we reviewed  provided pro-rated PDI payments as soon as a beneficiary had some  work earnings, until those earnings reach a threshold, such as 80 or 100  percent of their pre-disability earnings.

Both SSDI and PDI policies offer services and supports to beneficiaries to  help them return to work, but PDI policies may focus more on early  provision of services and, depending on the policy, earlier intervention  and case management. SSDI program rules allow beneficiaries access to  return-to-work services and supports through the Ticket to Work (TTW)  program, which helps interested beneficiaries transition to self-sufficiency  through work. When individuals become eligible for SSDI, SSA  guidance calls for sending them information about public or private  employment networks or state vocational rehabilitation agencies.  According to SSA’s guidance, beneficiaries can choose to work with one  of these service providers and develop a plan for work goals that may  involve services such as training, career counseling, vocational  rehabilitation, and job placement. The TTW program then pays for those  services and ensures that participating beneficiaries will not be subject to  a review of their disability while they continue to work with the service  provider. However, the SSA Office of the Inspector General reported that  fewer than 3 percent of beneficiaries were participating in TTW in 2015.  In addition, SSA-funded evaluations have found that TTW has had limited  success in returning SSA beneficiaries to work and reducing their  dependence on SSDI.

In addition to return-to-work services through TTW, SSA officials told us  that beneficiaries may use services provided through or by other federal, state, and local programs or provider networks, such as the Department  of Labor’s Stay-at-Work/Return-to-Work initiative. However, we have  previously reported that the large number of federal agencies and  programs providing employment supports to individuals with disabilities  represents a fragmented system of services, and little is known about  their effectiveness.

In contrast, according to insurance representatives and the three PDI  policies we reviewed, PDI policies may provide early interventions,  funding for workplace accommodations, and case management to help  beneficiaries return to work. For example, one policy we reviewed  explicitly offered an early intervention program to covered employees  even when the PDI insurer was not also the short-term disability insurer,  to identify workers who might benefit from vocational analyses and  rehabilitation services before they are eligible for long-term disability  benefits. Separately, this policy also had a return-to-work program with  case managers who coordinate services and refer beneficiaries to clinical  specialists, such as nurse consultants, psychiatric clinical specialists or  vocational rehabilitation consultants. According to this policy, if the insurer  determined that beneficiaries were capable of participating in the return- to-work program, but did not, their benefits could cease.

Information on how many PDI beneficiaries receive work assistance, such  as worksite modifications, and insurers’ aggregate expenditures for such  assistance is also generally unknown. While participation in and the  impact of SSA’s TTW program has been extensively evaluated, the  insurance representatives and researchers with whom we spoke could  not provide us with data or studies showing the extent or cost of work  assistance provided by PDI insurers, so the impact of these investments  is not publicly known. See Table 3 for a comparison of SSDI and PDI  policies’ work incentives and assistance.

Implications of Proposals to Expand Private Disability Insurance Cannot Be Assessed Due to Incomplete Information

Our literature review identified three distinct proposals to expand PDI— through some type of federal action—as a way to provide savings for  SSDI; however, we were unable to assess the implications of these  proposals on SSDI. Based on our review, there is an array of complex  factors that could influence PDI expansion and SSDI cost savings— factors for which data, methods, and assumptions for projecting SSDI  savings are either unreliable and unsupported, or unavailable. In addition,  insurer, employer, and employee stakeholders we spoke with identified  other implications of expanding PDI—but these implications cannot be  ascertained because the proposals are not sufficiently detailed.

The three distinct PDI expansion proposals we identified include the  following:

David Babbel and Mark Meyer (Babbel and Meyer) of Charles River  Associates proposed that voluntary employer-sponsored PDI  coverage could be extended to more working Americans through  congressional action and the federal government facilitating education  and outreach efforts. Specifically, they recommended the enactment  of legislation to make it clear to employers that automatic enrollment  with “opt-out” arrangements under employer-sponsored group  disability plans is legal. The authors believe this will address  confusion and uncertainty that is holding employers back from  providing PDI.

Rachel Greszler (Greszler) of The Heritage Foundation proposed  encouraging employers to voluntarily provide PDI in exchange for a  payroll tax credit. Under this proposal, participating employers would  qualify for the tax credit by covering the first 2 or 3 years of PDI  benefits at least equivalent to SSDI benefits to employees. Workers  awarded benefits under the employers’ PDI would transfer to the  SSDI program if their disability continued beyond the first 2 or 3 years  and they qualified for SSDI. PDI would then cease to provide benefits,  unless employers chose to extend the PDI policies. According to the  author, if an individual is denied PDI benefits, the individual could  apply for SSDI.

David Autor and Mark Duggan (Autor and Duggan) proposed  extending coverage of PDI to all workers through a statutory  mandate. Employers would be required to provide PDI benefits for 2 years to individuals with disabilities who are unable to work. At the  end of this period, PDI benefits would cease and SSDI would provide  benefits for individuals qualifying for SSDI. Under the proposal,  individuals with extremely disabling conditions with very limited  prospects of returning to work (e.g. stroke, late stages of certain  cancers, etc.) would be eligible to apply for SSDI at the onset of their  disability, in lieu of PDI.

Table 4 summarizes key features of the three proposals to expand PDI  that we identified.

Many Unknowns Make An Assessment of the Potential for SSDI Savings Uncertain Differences in Covered Populations

Existing differences in the SSDI and PDI covered populations may play a  role in determining the potential impacts of expanding PDI. As previously  noted, SSDI covers almost all workers, whereas PDI coverage tended to  be for those with higher wages and was more prevalent in certain  industries. Based on our review of BLS data, in order to expand  significantly, PDI would need to cover more lower-wage workers and  other occupations and industries where it is currently less common, such  as in retail and construction. However, as indicated in the Autor and  Duggan proposal, expanding PDI to workers currently not covered could  affect PDI premiums, based on the type of industry and wage levels.  According to various stakeholder groups we interviewed, changes in PDI  premiums would, in turn, have implications for the attractiveness of PDI to  employers and employees under voluntary proposals.

The overlap in PDI with the SSDI beneficiary population also plays a role  in determining any potential impact of expanding PDI. As previously  noted, one industry survey reported that 72 percent of PDI beneficiaries  of its member companies also received SSDI. One insurer told us that the  longer PDI beneficiaries remain on PDI, the more likely they will also  receive SSDI. In fact, for beneficiaries on PDI for 2 years, 58 percent also  get SSDI benefits; and for beneficiaries on PDI for more than 5 years,  more than 90 percent also receive SSDI. Our review of these data  suggests that for those receiving both SSDI and PDI benefits, it may be  difficult to attribute return to work and other changes in circumstances,  such as changes in health, to either PDI or SSDI. For example, it is  possible that any differences in return-to-work outcomes for SSDI  beneficiaries who receive PDI versus those who do not may have more to  do with the specific characteristics and circumstances of the beneficiaries  than as a result of having PDI coverage.

Types and Timing of Return-to- Work Assistance Offered

To achieve SSDI cost savings, the three proposals assume that insurers  will provide or reimburse employers for providing vocational rehabilitation,  workplace accommodation, and return-to-work services, but the  proposals provide few, if any details about how this would occur. For  example, the two proposals that describe voluntary PDI enrollment do not  explicitly require that such services be provided through PDI. The Autor  and Duggan proposal, which includes a mandate for enrollment, requires  that PDI provide workplace accommodations consistent with the  Americans with Disabilities Act (ADA) and vocational rehabilitation  services. The proposal includes a list of vocational rehabilitation services  that insurers could provide, but the authors acknowledge that in practice it  is not always “clear-cut” when a “reasonable accommodation” under the  ADA is required and what the accommodation should be. As noted  previously, we were unable to find public data on the extent to which PDI  policies currently provide such services and insurance representatives  and researchers we contacted that collect and report PDI data said that  they do not collect such data from insurance companies. According to our  review of PDI policy provisions that allow for rehabilitation and workplace  accommodation services, the decision of what assistance will be provided  through the PDI policy, if any, and the extent of such assistance the  insurer provides or helps the employer provide, is at the discretion of the  insurer. It is also possible that insurers would make less of an  investment in return-to-work services for PDI beneficiaries under the two  time-limited proposals because the insurers are only responsible for 2 to  3 years of disability payments, compared to traditional PDI policies where  the employer may have financial responsibility to make payments to  beneficiaries until they reach retirement age, unless insurers can help  them return to work.

Several stakeholders said that additional uncertainty exists with respect to  effectiveness or attractiveness of PDI expansion proposals for  populations currently not covered by PDI, such as low-wage workers and  those with physically demanding jobs. BLS data show that PDI is  currently less prevalent among these workers, and therefore less is  known about the type and effectiveness of return-to-work services that  would be offered to them under PDI expansion. For example,  researchers report that lower-wage workers may have jobs that offer  limited opportunities to adjust work schedules—a flexibility that one  research group said could assist workers in the case of disability. In  addition, researchers stated that lower paying jobs tend to not offer sick  leave and other key benefits, and the absence of such benefits may  present another potential obstacle for successful rehabilitation and  workplace accommodation efforts. According to various stakeholder  groups we interviewed, employers in low-paying industries or who  otherwise do not offer these benefits would have less of an incentive to  offer PDI or other supports to help retain their workers compared to  employers who compete for skilled employees that are also typically more difficult to replace. These factors—in combination with previously  discussed unknowns related to the cost of PDI in non-traditional sectors— reflect complexity and uncertainty about the extent to which PDI may be  expanded through a voluntary system.

The proposals assert that expanded PDI would provide financial support,  accommodations, and rehabilitation services much sooner than SSDI.  However, based on our review, it is not clear if this would happen for two  of the proposals. As previously noted, the SSDI elimination period is 5  months, after which SSDI beneficiaries become eligible for return-to-work  assistance through the TTW program and financial incentives, but lengthy  SSA decision times may significantly delay when individuals receive  return-to-work supports. The Autor and Duggan mandatory proposal  has PDI benefits commencing within 3 months of disability onset, which is  sooner than SSDI, and therefore, depending on the circumstances, may  allow for the provision of return-to-work services sooner than under SSDI.  The Babbel and Meyer and Greszler voluntary proposals do not specify  the length of elimination periods. While the Babbel and Meyer and  Greszler proposals indicate PDI will provide return-to-work services  sooner than SSDI, it is unclear whether or how the timing of return-to- work services might evolve under the two voluntary proposals. Moreover,  while data exist on SSDI initial and appeal decision times, we were  unable to find current industry-wide data on the average decision period  for PDI, or on the extent of appeals and how long on average these take  to decide.

Other Factors That Could Affect PDI Enrollment and SSDI Cost Savings

Based on our review of the PDI expansion proposals and interviews with  stakeholder groups, we identified several additional factors that could  affect the extent to which the PDI proposals could increase PDI coverage  and result in SSDI cost savings, especially under the two voluntary  proposals (Babbel and Meyer and Greszler). Such factors include the  likelihood that efforts to encourage PDI enrollment might be successful,  the effect of policy premiums and tax credits on employers’ willingness to  offer PDI policies, and whether expanded PDI might lead to more people  also going on to SSDI.

Babbel and Meyer asserted that congressional action and federal  outreach would clarify for employers that automatic enrollment with opt- out arrangements is legally permissible and thereby result in voluntary  PDI expansion. According to the authors, their approach was motivated  by the success of similar automatic enrollment provisions in the Pension  Protection Act of 2006 in raising the participation and savings rates in  401(k) defined contribution savings programs. However, since PDI  automatic enrollment is already available, it is not clear how their proposal  for congressional action and federal outreach would result in more  employers adopting it and employees participating. The Babbel and  Meyer proposal is also based on requiring employees to pay part or all of  the insurance premiums. According to employee advocacy groups,  workers at the lowest end of the wage spectrum in particular may have  little, if any, disposable income to pay for PDI, and also little incentive to participate when SSDI already replaces a relatively high proportion of  their wages. Further, in an employer discussion session we heard that  employees willing to contribute in part or the entire premium may also  have a greater risk of needing PDI benefits, and adverse selection could  result in higher premiums, which in turn, fewer workers may be willing to  pay.

The Greszler proposal anticipates potential significant savings for SSDI  assuming that employers who had not previously offered PDI to their  employees would opt to offer PDI in exchange for a payroll tax credit.  According to an employer association, in making this choice, employers  would need to compare the financial benefit of a payroll tax credit with the  cost of PDI premiums, among other things—which may evolve under the  proposal, according to insurers in a discussion group we held. According  to insurance industry representatives, the direction of possible premium  changes under the Greszler proposal is unclear because the proposal  reduces employers’ financial responsibility to 2 to 3 years of potential  disability benefit costs. This shorter benefit period could reduce premiums  typical for longer term policies. However, since persons would not  generally be able to receive SSDI benefits during this period under the  proposal, there would be no offset of SSDI benefits against PDI benefits  (as discussed earlier). According to an industry association and an  insurer discussion group we held, the absence of the SSDI offset could  increase premiums, possibly substantially.

Another consideration raised by SSA officials is whether PDI expansion  would increase SSDI applications and benefits paid, which would reduce  potential SSDI savings from the proposals and could increase the cost of  the SSDI program. Typical PDI policies may effectively require PDI  beneficiaries to apply for SSDI, and PDI insurers may assist beneficiaries  with SSDI applications. Insurance association representatives told us  that in addition to helping keep PDI premiums attractively low, such  practices benefit those who become eligible for SSDI benefits by  providing health care benefits that they might not otherwise be able to  access. One insurance association further noted that by helping PDI  beneficiaries complete SSDI applications, SSA may receive well- supported applications that are more efficient to process. On the other  hand, researchers and SSA officials indicated that such PDI practices  may result in some individuals applying for and receiving SSDI who would  not have otherwise done so.

Cost Saving Estimates Are Unreliable or Unsupported

Each proposal states that expanding PDI would reduce SSDI costs. The  proposals indicate that this would be achieved mainly through PDI early  intervention after employees’ onset of disabilities and a resulting  reduction in the number of SSDI claimants or duration of SSDI  beneficiaries’ status. Only the Babbel and Meyer proposal developed an  estimate of potential savings. In forecasting SSDI savings,

The Babbel and Meyer proposal estimated cost savings by assuming  that automatic enrollment would result in PDI coverage increasing  from 33 percent to just over 50 percent of private sector employees.  Comparing PDI disability termination rates from the Society of  Actuaries with SSDI termination rates, Babbel and Meyer estimated  that PDI expansion would save the federal government an additional  $500 million to $700 million per year, with a 10-year cumulative  savings of $5 billion to $7 billion. They said that because they were  unable to conduct a rigorous and comprehensive study of disability,  recovery, and reemployment, their proposal “quantifies the benefits of  group disability insurance indirectly, using publicly available data that  are sparse, aggregated, and often difficult to interpret.”

The Greszler proposal relied on the Babbel and Meyer analysis in  concluding that there would be significant SSDI savings. According to  Greszler, early intervention would keep individuals on the job and  reduce the number of potential SSDI beneficiaries. Further, Greszler  assumes that the loss of tax revenue from the proposed payroll tax  credit would be made up by lower SSDI expenditures incurred during  the 2 – 3 years that employees are covered by PDI instead of SSDI.

However, the Greszler proposal did not quantify the magnitude of the  tax credit or the overall savings to SSDI.

The Autor and Dugan proposal noted that SSDI expenditures would  be lower because mandated PDI policies would pay the first 2 years  of benefits, instead of SSDI. The authors also noted that, over the  longer-term, 2-year mandated PDI for employees has the potential to  pay for itself and generate SSDI savings if the proposed mandate  succeeds in allowing 1 in 11 would-be SSDI beneficiaries to remain  gainfully employed. However, Autor and Duggan’s proposal did not  include an explanation of how, or data or evidence supporting that,  the proposed PDI mandate would achieve employment for 1 in 11  would-be SSDI beneficiaries.

Our analysis of the Babbel and Meyer proposal found that the available  data used to develop the SSDI cost savings estimates due to PDI  expansion were not comparable and therefore did not result in a reliable  estimate of the financial impact of current or expanded PDI on SSDI. In  their proposal, Babbel and Meyer estimated cost savings by comparing  SSDI’s and PDI’s recovery rates. For SSDI, Babbel and Meyer used an  SSDI work termination rate that includes the number of SSDI  beneficiaries terminated during the year due to having earnings that  exceeded the substantial gainful activity amount, divided by the total  number of SSDI beneficiaries during the year. For PDI, Babbel and Meyer  used a PDI recovery rate that includes the number of PDI benefit awards  terminated during the year for multiple reasons, divided by the cumulative  number of months all PDI benefits were received by PDI beneficiaries  who received PDI benefits during the year.

However, we found that the numerators and denominators used to  compare SSDI and PDI recovery rates are not comparable. For example,  the PDI numerator reflects a much broader definition of recovery than the  SSDI numerator, which may contribute to overestimating PDI’s relative  recovery rate. Specifically, the SSDI numerator is limited to those  terminated from SSDI for earnings exceeding SGA, whereas the PDI  numerator includes terminations for reasons besides return to work, such  as medical improvement (even if an individual did not return to work),  failure to submit required documents to continue receiving benefits,  changes in coverage from inability to perform own occupation to any  occupation coverage, and other non-specified terminations. The  denominator used in the comparison also differs. For SSDI, it is the  number of people receiving SSDI benefits during the year. For PDI, it is  the cumulative number of months of all PDI benefits that were received by  PDI beneficiaries who received PDI benefits during the year. Because the  denominators are different, we were unable to determine whether they  contributed to an under- or overestimate of PDI’s relative recovery rate.  Regardless, we determined that the non-comparable rates in Babbel and  Meyer’s proposal affect the reliability of its cost savings estimate. SSA’s  Office of the Chief Actuary also reviewed the proposal at our request and  concluded that the SSDI and PDI termination rates shown in the proposal  were comparable neither in concept nor in unit of analysis. Even with  common units of analysis in SSDI and PDI termination rates, estimates of  the impact of PDI on SSDI would also need to consider the other  differences that we described above, such as differences in covered  populations.

Authors Suggested Proposals Be Pilot Tested

The authors of two proposals we spoke to suggested that any proposal to  expand PDI should be pilot tested before being implemented nationwide  due to the number and complexity of factors involved and their potential  effect on SSDI. For example, in their proposal, Autor and Duggan noted  that, given the inevitable challenges and uncertainties associated with  rolling out a major program innovation, it would be desirable to phase in  such a plan and to run pilot programs in a limited number of states.  They also suggested that pilot programs could be targeted, such as to  larger firms. In discussing the Greszler proposal with the author, she told  us that a pilot test of her proposal might help show if the program works better in some industries or occupations than others, as well as determine  how employers respond to the tax incentive and if employees feel they  are treated fairly by private insurers.

Similarly, we have previously reported that changes affecting the SSDI  program may raise particular implementation challenges, given the  program’s inherent complexity; any changes may require pilot testing to  evaluate the potential effects or unintended consequences that the  Congress, the administration, SSA, and the broader public will need to  know to make an informed decision about whether to implement program  changes nationwide. SSA and DOL have funded and overseen pilot  programs to test other proposals to help individuals with disabilities  participate in the workforce.

Missing Details Make Identifying the Implications of the Proposals for Stakeholders Uncertain

Employee advocacy groups, employers, and insurance companies we  spoke with raised various questions and concerns about the potential  impacts of expanding PDI—implications that the proposals did not  explicitly or fully address and therefore remain uncertain. The proposals  also provided few details on any oversight role that would be needed by  federal or state governments.

The proposals assert that employees could potentially benefit in the event  of a disability from PDI cash benefits that may be higher than SSDI  benefits; however this outcome is not certain. Based on our review of  SSDI and PDI policies and interviews with employee and advocacy  groups, whether or not workers would opt for PDI benefits under voluntary  expansion would depend on the attractiveness of PDI relative to SSDI  and other benefits. For example, an employee benefits survey and  several stakeholder groups we spoke with suggested that employees  tend to value other benefits, such as health insurance, more than  disability insurance. According to employee groups, lower-wage workers,  in particular, may opt-out of PDI under the Babbel and Meyer proposal in  favor of paying for other benefits, or forgo benefits entirely, especially if  premiums are high. In addition, based on our review, PDI may not provide  much additional benefit for lower-wage workers, and employee groups  told us that, given a choice, lower-wage workers might choose not to  participate in PDI since SSDI benefits replace a relatively high share of  their wages. Based on our review of SSDI and PDI policies, current PDI  policies typically do not include dependent and spousal benefits offered  by SSDI, and unlike SSDI have exclusions and pre-existing condition  provisions, as well as have time limits on benefit payments for some  conditions, which may result in workers finding SSDI more attractive than  PDI. To the extent that employees see PDI benefits as less attractive than  SSDI and their willingness to participate in PDI declines, cost savings to  SSDI resulting from voluntary PDI proposals would likely be affected.

Two employee advocacy groups also expressed concern that all three  proposals focus on employer-provided PDI, and two of three proposals do  not explicitly address self-employed and part-time workers. As we have  previously noted, an increasing number of people are part of the  contingent workforce, with limited access to employer-sponsored  benefits. Other individuals may have already left the workforce or  otherwise be unemployed and thus have no connection to an employer.  Further, two employee advocacy groups explained that individuals who  will eventually be unable to work due to a disability initially experience  symptoms that may cause them to work part-time or take a different  position or job, which may affect their access to PDI through their current  or new employer. On the other hand, the proposals allow for persons not  covered under the proposals to apply for SSDI.

Two employee advocacy groups also expressed concern that workers  who are auto-enrolled under the Babbel and Meyer proposal may not  make an informed choice about participating due to the complexity of  disability contracts. One employee advocacy group was particularly  concerned for low-wage workers who may be struggling financially and  cannot afford disability insurance, but do not initially opt-out of coverage  because of inertia, language barriers, or not understanding the product,  including the tradeoffs involved in choosing to keep it or opt out.

Employee advocacy groups told us that more needs to be done to get  SSDI beneficiaries back to work, but noted a range of concerns about  using PDI to do this. Their concerns included the following:

Employers are moving away from providing other key employee  benefits, such as health care benefits (which may be more important  to workers than PDI and without which PDI would be less effective).

Employers are moving away from full-time employment (which is  usually a stipulation of PDI policies).

Employers might discriminate in not hiring individuals at higher risk of  disability under proposals that make employers responsible for the  first few years of providing disability assistance.

The transition from receiving PDI to qualifying and getting approved  for SSDI under the proposals might delay receipt of SSDI.

Insurers might not actually provide rehabilitative and accommodation  services.

There would not be standardization of PDI eligibility determination,  coverage, and appeal processes to ensure fair and equitable  treatment of workers.

All employee advocacy groups we spoke to emphasized the need for  consumer protections and strong oversight under the PDI proposals. One  employee advocacy group said that there are too many problems, gaps,  and concerns with the proposals to expand PDI, when SSDI already  provides near universal coverage and is a system that is up and running.  Moreover, the employee advocacy group said that SSA could identify the  key reasons that PDI has had success in getting people back to work and  incorporate those lessons into SSDI, because more effort needs to be  spent improving SSDI and increasing its return-to-work efforts.

Individual employers and employer associations we spoke to said that  more details would be needed to determine how they might be impacted  by the proposals.

Regarding the Babel and Meyer proposal (which as previously  discussed, cites the need for congressional action to address potential  legal uncertainties regarding automatic enrollment) one employer  association representative expressed concern about whether state  garnishment laws would prohibit employers from making automatic  deductions for PDI premiums from employees’ pay without their  permission.

Regarding the Greszler proposal, employers and representatives of  an employer association we spoke to indicated they would need to  know more details, such as the exact amount of the tax credits and  how insurance premiums might be affected.

Regarding the Autor and Duggan proposal, representatives of the two  employer associations stated that their members would oppose a  mandate. One employer association said there are often additional  requirements that come along with any mandates, even for actions  that employers are already taking, such as offering PDI. The employer  association also expressed concern that doing more than is required  under any mandate generally exposes employers to liability, which  could result in employers providing only the minimum benefits and  assistance required by law. One employer said that mandated PDI  could crowd out the amount of other benefits an employer is willing to  provide, such as the amount of medical coverage that it offers to  employees.

In addition, one employer association we spoke with was concerned  about the potential administrative burdens associated with expanding  PDI, particularly for small employers. They noted that administering any  benefit requires financial resources to provide, monitor, and maintain the  benefit, stating that once employers provide a benefit to employees, they  are generally reluctant to take it away. Employers in one discussion group  we held were also concerned that providing disability assistance through  a PDI policy for 2 to 3 years under two of the proposals would require that  they retain employees and provide benefits even when employees are  unable to continue work. Employers in a discussion group and an  employer association we spoke to also wanted to know how the PDI  plans would be overseen at the state and federal levels under the  proposals, and what additional requirements that would entail.

Insurance companies and associations we spoke to generally supported  efforts to expand PDI, but also expressed some concerns about related  unknowns. In particular, insurers in one of our discussion groups and both  insurance associations we spoke with supported the Babbel and Meyer  proposal to encourage employers to automatically enroll employees, with  an opt-out provision, which came out of a study funded by America’s  Health Insurance Plans (AHIP) and the American Council of Life Insurers  (ACLI). One insurance association said that, relative to the other  proposals that provide a tax credit or mandate coverage, the Babbel and  Meyer proposal to expand PDI would not be a problem for insurers’  capacity. Representatives from this insurance association suggested first  taking initial steps proposed by Babbel and Meyer through encouraging  automatic enrollment before considering a more major restructuring of  PDI that would supplant SSDI for 2 to 3 years. On the other hand, two  insurance associations expressed concerns about the potential for  additional requirements that could result from implementing the Babbel  and Meyer proposal, for example in relation to employee consent or the  quality of coverage offered.

Insurance associations and insurers we spoke with also raised concerns  about the other two proposals (Autor and Duggan, and Greszler),  especially related to how they would fundamentally and unpredictably  change the PDI market. On the one hand, one insurance association  pointed out that these proposals would eliminate the SSDI offset from PDI  payments for the 2 to 3 year period, which could lead insurance  companies to significantly increase PDI premiums for such policies. On  the other hand, if the insurance company is only liable for 2-3 years of  benefit payments and services, this could reduce insurers’ costs.

In addition, in one insurer discussion group that we held, insurers said  that if there was not an SSDI offset of PDI benefits during the 2 to 3 year  period, the industry would be more aggressive about return to work  efforts. However, in another insurer discussion group we heard that they  would do less for return to work under such policies, because future  savings to the insurance company are not as great under a 2 to 3 year  policy as if the insurance company is liable for paying benefits until an  individual reaches normal SSA retirement age, as with current policies.  Finally, representatives from one insurance association said that the  Greszler and Autor and Duggan proposed PDI expansions would create  extreme capacity problems for insurers. Under the Autor and Duggan  proposal nearly all employees would need to be covered.

One insurance association also noted its view that SSDI might benefit  under the proposals to expand PDI. Specifically, the insurance  association said that after someone goes through the PDI claim process,  a subsequent claim for SSDI may be of higher quality, potentially  reducing the administrative costs of a subsequent SSDI determination.

Potential Impact on Federal and State Governments Oversight

The three proposals we reviewed did not specify the government’s role in  overseeing the expanded PDI market. Babbel and Meyer proposed a  stronger federal role in encouraging automatic enrollment by passing a  law to clarify its permissibility, but the proposal did not provide details on  implementation and oversight. Greszler proposed that participating  employers provide benefits at least equivalent to SSDI benefits, but  provided no other details on how compliance would be overseen. Neither  the Autor and Duggan nor the Greszler proposals addressed whether  individuals denied PDI could apply for SSDI within the 2 to 3 year period  covered by their proposals.

Stakeholders we spoke to expressed divergent perspectives on whether  federal and state governments would need to provide additional  regulation, supervision, and/or oversight related to expanded PDI  markets. One insurance association said that insurance providers are  already very well regulated by ERISA and by states, and a major insurer  said that there already exists an array of federal and state laws governing  employer-sponsored PDI coverage that establishes a robust regulatory  framework for protecting participants. In contrast, representatives from all  employee advocacy groups we spoke with cited problems identified with  private insurance company practices and stressed the need for additional  consumer protections and government oversight. We found instances of  federal and state enforcement actions regarding disability insurance  improper practices in the past potentially affecting hundreds of thousands  of people over many years, as well as more recent rulemaking by DOL  that said that “disability cases dominate the ERISA litigation landscape.”  These actions suggest that expanding PDI or including new PDI  requirements, in lieu of SSDI, would likely involve some degree of  additional federal and state oversight.

Any costs associated with expanded state and federal roles would reduce  potential cost savings from the proposals, although the extent to which  this might affect the Disability Insurance Trust Fund is unclear. According  to DOL officials, an expansion in the number of private disability benefit  plans and an increase in the complexity in the legal requirements  governing the design and operation of such plans would require DOL to  provide proportionally more interpretive guidance, compliance assistance,  and enforcement and oversight activities. Estimating the potential impact  of the proposals on DOL’s functions and capabilities would require more  specific information on the statutory and regulatory changes envisioned  by the proposals and the likely impact of those changes on the private  disability plan marketplace. SSA officials said that whether or not SSA  would experience an expanded role would depend on any changes in law  regarding the proposals.

We provided a draft of this report for review and comment to SSA and  DOL. Neither SSA nor DOL provided written comments, although both  provided technical comments, which we incorporated as appropriate.

We are sending copies of this report to the appropriate congressional  committees, the Commissioner of Social Security, Secretary of Labor,  and other interested parties. In addition, the report is available at no  charge on the GAO website at http://www.gao.gov.

If you or your staff members have any questions about this report, please  contact me at (202) 512-7215 or curdae@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix I.

Appendix I: GAO Contact and Staff Acknowledgments

In addition to the individual named above, key contributors to this report  included Michele Grgich (Assistant Director), Dan Meyer (Analyst-in- Charge), Lucas Alvarez, and Seyda Wentworth. Other contributors  include: James Bennett, Ramona Burton, Holly Dye, Sarah Gilliland, Emei  Li, Dan Meyer, Carol Petersen, Monica Savoy, Almeta Spencer, and  Adam Wendel.