How Social Security can fix its overpayment problem

Today, a House Ways and Means subcommittee will hold a hearing on how the Social Security Administration handles overpayments — benefits that the agency pays to people that it later decides they were not eligible to receive. The hearing will come just weeks after the agency announced that it plans to review the way it handles overpayments.

These overpayments are a small percentage of the Social Security Administration’s expenditures, but they can make up large percentages of individual beneficiary’s incomes. By the time the Social Security Administration attempts to reclaim these payments, they may total thousands of dollars stretching back several years. The request for repayment can plunge recipients into a financial crisis, especially when beneficiaries are unaware of the error and have already spent their benefits.

Americans should not be suffering because of a poor administrative process and outdated rules — especially when an alternative already exists to prevent the errors in the first place.

Overpayments tend to impact the people who are least able to afford them. Many stem from the Supplemental Security Income program, which supports disabled people and seniors with little to no income and assets. 

One SSI beneficiary was told she was ineligible for several years of her SSI benefits and owed the program $27,000 because she had taken over a life insurance policy from her mother. Another SSI beneficiary with autism owed $11,000 for work in a mailroom. 

Overpayments are also prominent in the Social Security Disability Insurance program, which supports disabled people and their families. Denise Hoffman, an economist who has extensively studied the program, and colleagues estimated that 71 percent of SSDI beneficiaries who continue to work after exhausting temporary work incentives experienced an overpayment and the median overpayment was $9,282.

These issues are due, at least in part, to the way that the Social Security Administration reviews eligibility. Right now, the agency calculates an overpayment using a retrospective process that can include examining changes in a beneficiary’s circumstances stretching back months or years in the past. Behaviors that would be applauded in most contexts, such as an increase in savings for an SSI beneficiary or an increase in hours worked for an SSDI or SSI beneficiary, can lead to a determination that years of benefit payments were improper and need to be repaid. 

In a recent paper raising the alarm on this issue, we proposed that the Social Security Administration adopt a prospective eligibility and certification process. Under this approach, the agency would review a beneficiary’s eligibility and benefit level periodically and certify the beneficiary’s benefit level for a fixed period of time. If a beneficiary’s income changed, their benefits would be revised when they were due for recertification — but the agency would not be able to claw back past payments.

This process could still be flexible to allow for a wide variety of situations because the length of the certification would vary depending on the beneficiary’s circumstances. For example, beneficiaries with a recent work history would have a shorter certification period to adjust for changes in earnings. If a beneficiary’s earnings, assets or other eligibility factors change in a substantial way during the certification period, it would trigger an accelerated review and a new certification.

This is not a radical proposal: It is how other safety net programs, such as SNAP, already work. This approach also aligns with the Social Security Administration’s own practice for redetermining benefits for disability beneficiaries when they experience a medical improvement that might decrease their need for benefits.

This shift may seem like it is deep in the weeds, but it has the potential to change the relationship many Americans have with the government. Instead of viewing the Social Security Administration with fear, beneficiaries could view it as an ally. The Biden administration has made a priority of improving how the federal government interacts with people who use government programs. The Office of Management and Budget is taking steps to further this administration priority. 

Changing the processes SSA uses to ensure compliance with program rules from a retrospective to a prospective process would increase predictability and be an important contribution to that agenda. 

Jack Smalligan is a senior policy fellow in the Income and Benefits Policy Center at the Urban Institute, where he analyzes disability, retirement, and paid leave policy. Previously, he was deputy associate director at the Office of Management and Budget.

Chantel Boyens is a principal policy associate in the Income and Benefits Policy Center at the Urban Institute. Her work focuses on Social Security, retirement, disability, and paid leave policy. Before joining Urban, Boyens was acting branch chief and senior program examiner in the Income Maintenance Branch of the Office of Management and Budget.