FEBRUARY 2018 Insight on the Issues Current Issues in Social Security: Financial Capability and Representative Payees James Palmieri AARP Public Policy Institute In 2016, the Social Security Administration (SSA) system. This Insight on the Issues provides a paid nearly $900 billion to 60.5 million Old-Age, thorough background on the representative payee Survivors, and Disability Insurance (OASDI—that program, discusses current system challenges, is, Social Security) beneficiaries. SSA paid out explains future demographic shifts that will impact another $57 billion to 8.3 million beneficiaries the program, and highlights ideas for reform. of Supplemental Security Income (SSI), a federal program that provides cash assistance to meet the BACKGROUND basic needs of people with little or no income who Among all Social Security beneficiaries, are ages 65 and older, are blind, or have a disability.1 approximately 41.2 million are retired worker Generally, adult beneficiaries are capable of managing beneficiaries, and another 9 million are disabled or directing the management of their benefits; some, (table 1). Relatively few of these beneficiaries, however, need help due to mental or physical impairments. To TABLE 1 help ensure benefits are used as Number and Percentage of Old-Age, Survivors, and Disability intended, Congress amended the Insurance Beneficiaries, with Representative Payees by Social Security Act in 1939 to allow Category, December 2016 SSA to appoint “representative Beneficiaries w/ payees.” Representative payees Representative Payees manage benefits for those needing All Type of Beneficiary Beneficiaries Number Percentage assistance, and they are required Retired 41,233,126 537,923 1.3 to spend benefits to meet a Spouses 2,505,754 21,696 0.9 beneficiary’s day-to-day needs for Nondisabled Widow(ers) 3,878,927 104,744 2.7 food, clothing, shelter, and medical Adults Disabled Workers 8,808,736 904,143 10.3 care. Disabled Widow(ers) 259,207 13,855 5.3 Total Adults 56,685,750 1,582,361 2.8 Recent concerns about how the Under Age 18 3,006,839 3,004,567 99.9 program operates, as well as Disabled Adult Children 1,085,262 796,160 73.4 predicted increases in the use Children Students, Ages 18–19 129,456 4,867 3.8 of representative payees over Total Children 4,221,557 3,805,594 90.1 the coming decades, indicate Total Adults & Children 60,907,307 5,387,955 8.8 the need to reassess the current Source: Social Security Administration, “Annual Statistical Supplement to the Social Security Bulletin,” Social Security Administration, Washington, DC, 2017, Table 5.L1. FEBRUARY 2018 however, have representative payees. Children Social Security (8.8 percent). Given the scarce income under age 18 and adult children with disabilities2 resources of SSI participants, ensuring benefits are rely on representative payees at far higher rates. spent wisely takes on added importance (table 2). In fact, 70 percent of all representative payees assist children under 18 and adult children with DETERMINING FINANCIAL CAPABILITY disabilities. When physical or mental challenges interfere with the financial capability of a beneficiary, SSA has Although child beneficiary representative payees the authority to make benefit payments directly dominate the system, SSA predicts significant to an individual or organization to take care growth in older beneficiary representative payees of the beneficiary’s basic needs. Clearly, such a over the coming decades for two reasons. First, change means a loss of independence and can be significantly more people will age into the “retired emotionally difficult for the beneficiary. worker” category (retired worker benefits are first available at age 62). Second, older baby boomers will SSA assumes a beneficiary is financially capable to start to age into the “85 or older” category, a period manage benefits unless it receives information from of greater mental and physical challenges.3 an informant (often a relative) alerting the agency to a potential problem. SSA works through its field offices Considerably more payees serving retired worker to determine if a beneficiary needs a representative beneficiaries are not family members (43 percent) payee. SSA field office staff use three different kinds compared to workers with disabilities (29 percent) of information to make their determination, which or children (1 percent). Aware of projected growth beneficiaries have the right to appeal within 60 days: in the need for representative payees through 2035 (figure 1), SSA is using several approaches to attract • Legal evidence. SSA automatically assigns a more representative payees. For example, SSA field representative payee to any beneficiary declared offices work with local agencies on aging to identify legally incompetent through a court order. Even suitable representative payees. In addition, SSA is without a court order, however, SSA may assign currently running a pilot program in Maryland a representative payee if a court recognizes to determine the feasibility of recruiting licensed a beneficiary’s difficulty in managing funds. attorneys, regardless of specialty, to serve as FIGURE 1 representative payees on a Number of Adult OASDI Beneficiaries and SSI Recipients with pro bono basis. Representative Payees, by Selected Beneficiary Type: 2013 and Projected 2025 and 2035 The overall patterns of representative payee use 1,500 in the SSI program are SSI similar. Children under 18 1,200 OASDI disabled worker generally have a parent or (in thousands) Beneficiaries OASDI retired worker adult relative acting as their 900 representative payee. SSI beneficiaries who are blind 600 or disabled also have high rates of representative payee 300 use. In fact, representative OASDI nondisabled widow(er) 0 payees are generally used 2013 2025 2035 at a much higher rate in the Source: Chris E. Anguelov, Gabriella Ravida, and Robert R. Weathers II, “Adult OASDI SSI program due to more Beneficiaries and SSI Recipients Who Need Representative Payees: Projections for beneficiaries with disabilities 2025 and 2035,” Social Security Bulletin 75, no. 2 (2015): 5. in SSI (37.1 percent) than in 2 FEBRUARY 2018 For these individuals, SSA uses TABLE 2 additional medical and lay Number and Percentage of SSI Recipients with evidence to make its capability Representative Payees by Category and Age, December 2016 determination. Beneficiaries w/ • Medical evidence. SSA considers All Representative Payees medical records and opinions Type of Beneficiary Beneficiaries Number Percentage that address a beneficiary’s Aged 1,164,589 53,480 4.6 mental or physical abilities. Such Blind 68,344 20,225 29.6 information must come from a Category Disabled 7,018,228 2,986,475 42.6 physician, psychologist, or other Total by Category 8,251,161 3,060,180 37.1 qualified medical practitioner Under 18 1,213,079 1,212,089 99.9 able to assess the individual’s 18–64 4,845,735 1,643,265 33.9 ability to manage benefits. 65 or Older Age (includes blind and • Lay evidence. Lay evidence is disabled persons 2,192,347 204,826 9.3 all documentation other than 65 and over) legal or medical evidence that Total by Age 8,251,161 3,060,180 37.1 provides further support for how Source: Social Security Administration, “Annual Statistical Supplement to well a beneficiary can manage the Social Security Bulletin,” Social Security Administration, Washington, funds. Lay evidence may include DC, 2017, Table 7.E4. interviews with beneficiaries, their relatives, friends, neighbors, or landlords about the ability of life. Further, they help keep beneficiaries out of to manage funds and meet basic needs. It is institutional environments, where the costs for daily important to note that for lay evidence, questions living needs are much higher. are asked about the beneficiary’s ability to On the other hand, representative payees present manage funds; however, the beneficiary does not challenges. For an adult beneficiary, using a take any formal test of financial capability. representative payee after managing one’s finances SSA prefers selecting a representative payee for a lifetime indicates a loss of independence who sees the beneficiary often and knows the and can promote feelings of insecurity. Many beneficiary’s needs. Often the representative payee representative payees are family members, which is a family member or close friend. When no can create conflicts with other family members individual is available to act as a representative who are not managing the beneficiary’s finances. payee, nursing homes or social service agencies In addition, because SSA pays the beneficiary’s can represent a beneficiary, and are known as monthly benefit directly to the representative payee, organizational representative payees. Once SSA funds may be spent inappropriately. designates a representative payee, benefits are paid directly to the payee, who manages these funds to Issues with the Current System meet the beneficiary’s most important needs—food, While representative payees play an important clothing, and shelter. role in helping beneficiaries manage their money wisely, concerns continue to reduce confidence in ISSUES AND OPPORTUNITIES the program and spur calls for reform.4 Generally, Representative payees play an important role problem areas noted by researchers focus on the for individuals unable to manage or direct the following: management of their benefits. By maintaining a more secure environment, they help beneficiaries 1. Missed beneficiaries needing representative stay in their homes, reduce isolation, improve payee assistance. A 2010 Office of the Inspector health outcomes, and add to their overall quality General (OIG) report for SSA noted that 61 out 3 FEBRUARY 2018 of 275 randomly chosen beneficiaries over age outright fraud. While SSA believes parental 85 were not capable of managing or directing and spousal payees pose little risk for misuse of the management of their benefits, yet these funds, it has happened in some well-documented individuals were receiving their benefits directly cases.7 from SSA. Extrapolating to the entire population, OIG estimated about $1 billion in monthly Ideas for Reform benefits were paid to an estimated 1 million Given the vital role representative payees play and beneficiaries over 85 incapable of managing their their projected growth in the decades to come, it’s benefits. It is likely these individuals face greater important to look for ways to improve the system. risk of mismanaging their money and financial The following options would improve the program fraud.5 and its commitment to at-risk beneficiaries: 2. Lack of a dynamic system to track ability to 1. Better screening. To identify quickly beneficiaries manage benefits. Cognitive and physical status needing representative payees, SSA should can decline or improve numerous times over a implement new screening procedures using SSA person’s life, meaning a representative payee data to identify financial incapability predictors. may be necessary intermittently. SSA tends to The findings should be shared with field offices view individuals as capable of managing their to improve their ability to identify beneficiaries own finances until they are not. Once they are needing representative payees. not capable, there are no systematic reviews to 2. Status consistency among programs. It makes no reverse a finding of incapability. sense for one program to view a beneficiary as 3. Simplistic categorization as either financially financially capable while another one does not, capable or incapable. Classifying beneficiaries but communication challenges across federal into two possible categories (financially capable agencies sometimes cause this to occur. SSA or financially incapable) misses people who recently started requiring its employees to check have some ability to manage or direct the beneficiaries receiving payments from more than management of their finances, but could benefit one program and to follow up on instances when from less-intrusive third-party supervision. a beneficiary’s status differs between programs. 4. Inconsistent classifications across different 3. Closer examination of nursing homes acting as programs. Some beneficiaries receive payments representative payees. Nursing homes provide from multiple programs. A 2012 OIG report important services to individuals under their found more than 6,000 people receiving benefits care; however, organizations on aging are from both SSI and Social Security Disability concerned with nursing homes acting as Insurance had a representative payee in one representative payees for such individuals. An program, but not the other. Moreover, SSA, the important conflict of interest arises when a Department of Veterans Affairs, and the US resident pays a nursing home for the services Office of Personnel Management use their own it provides, and at the same time manages the separate guidelines for determining financial resident’s finances. In such a situation, the capability, which opens up possible conflicts for financial interests of a nursing home might individuals receiving benefits from more than differ from an individual in its care. Tighter one agency.6 requirements and oversight seem especially 5. Representative payees misusing funds. warranted. In particular, nursing homes Representative payees manage the benefits should counsel residents and their families of vulnerable individuals at higher risk of about what it means for a nursing home to exploitation. A recurring concern centers on become a creditor representative payee, follow payees misusing funds, either due to inadequate necessary SSA application procedures to become accounting for expenditures or, in extreme cases, representative payees, acknowledge their duties 4 FEBRUARY 2018 and responsibilities as representative payees, with financial institutions to determine how best and maintain accurate records of beneficiary to monitor payments and expenditures. These expenditures. suggestions would complement the misuse 4. Policy that acknowledges a spectrum of need. The prediction models and Criminal Bar Policy that change from financial capability to incapability SSA currently uses to reduce fraud.8 may be very sudden for some beneficiaries, 6. Extra monitoring for lump-sum or special payments. but very slow for others. SSA should consider When an individual becomes newly eligible adopting early detection warning signs and best for a program benefit, it is not uncommon for practices. For those facing a slow change, benefits a delay of a month or two in payments to the could still be paid directly to the beneficiary, with beneficiary, followed by a lump-sum “catch-up” appropriate supervision by a suitable individual. payment. Depositing several thousand dollars This approach, known generally as supported at one time in a representative payee’s account decision making, is preferred by mental health increases the risk for misuse. SSA should professionals because it is far less paternalistic consider subjecting these larger payments to than the traditional method of turning all control special monitoring, if possible. over to a representative payee. See Appendix 1 CONCLUSION for further discussion of supported decision Millions of the most vulnerable Social Security and making. SSI beneficiaries are well-served by representative 5. Mechanisms to monitor spending. Under the payees managing their benefits. The representative current system, when financial incapability payee program has its challenges, but relatively exists, SSA pays benefits directly to the simple enhancements would make an already representative payee. While this makes it easier strong program even better. Given likely aging for the payee, the potential for fund misuse is trends, the need for representative payees will likely much higher. While tracking all spending increase substantially, especially for beneficiaries may place an extreme burden on payees (and at advanced ages. Greater use of technological dissuade people from becoming payees), SSA safeguards will certainly help, as will reasonable should consider monitoring spending, when oversight and program flexibility. Such reforms needed, through low-cost technology such as become all the more important given the projected debit cards that flag suspicious expenditures for increase in the use of representative payees in the further evaluation. In addition, SSA should work future. 5 FEBRUARY 2018 APPENDIX 1 Supported Decision Making and Representative Payees Many Social Security beneficiaries with representative payees feel a loss of autonomy because the representative payee receives the benefit directly from SSA and controls how the benefit is spent. While this surrogate decision-making model makes financial management easier for the representative payee, it can alienate the beneficiary. Under certain conditions, a different model of financial capability known as supported decision making might be more appropriate in helping Social Security beneficiaries manage their money wisely. This approach balances the right of individuals to control their lives with the recognition that assistance is necessary when physical or mental challenges exist. The U.S. Department of Veterans Affairs (VA) already has such a model in place with its Supervised Direct Pay option. Under this policy, VA beneficiaries deemed incompetent might still manage their benefits if they are capable of handling their financial affairs with appropriate supervision. Might a supported decision-making framework operate in the context of Social Security? A review of financial capability in Social Security suggests it could.9 Such a framework might include the following characteristics: 1. The beneficiary (not the representative payee) would receive benefit payments directly from SSA, and maintain control over all or a portion of these benefits. 2. The beneficiary would use trusted individuals, including family members, friends or even professionals, to understand better relevant financial issues when they arise and make good decisions. 3. The exact form of support could vary, but would likely include: a. explaining the issue and possible courses of action in simplified terms, b. using audio or visual aids, c. assisting in creating pros/cons for different options under consideration, d. working with the beneficiary to prioritize what decisions are necessary and when they need to be made, and e. assisting the beneficiary at important meetings to help ensure a thorough understanding of what is being discussed. It is uncertain whether a supported decision-making model would be effective for Social Security beneficiaries; however, a panel of financial capability experts recommends SSA perform research in this area to find out.10 6 FEBRUARY 2018 1 Social Security Administration, “Monthly Statistical Snapshot, January to December,” 2016, https://www.ssa.gov/policy/docs/ quickfacts/stat_snapshot. 2 A disabled adult child is defined as an unmarried individual, age 18 or over, who becomes disabled before age 22 and has a parent who is deceased or starts receiving retirement or disability benefits. It is called a “child’s” benefit because it is paid based on a parent’s Social Security earnings record. 3 Chris E. Anguelov, Gabriella Ravida, and Robert R. Weathers II, “Adult OASDI Beneficiaries and SSI Recipients Who Need Representative Payees: Projections for 2025 and 2035,” Social Security Bulletin 75, no. 2 (2015): 5. 4 Social Security Advisory Board, “Representative Payees: A Call to Action,” Issue Brief, 2016, http://www.ssab.gov/Details- Page/ArticleID/899/Representative-Payees-A-Call-to-Action-March-2016. 5 Social Security Administration, Office of the Inspector General, “Aged Beneficiaries in Need of Representative Payees,” Audit Report, 2010, https://oig.ssa.gov/aged-beneficiaries-need-representative-payees. 6 Social Security Administration, Office of the Inspector General, “Disabled Individuals with Mental Impairments in Need of a Representative Payee,” Audit Report, 2012, https://oig.ssa.gov/audits-and-investigations/audit-reports/A-07-11-11110. 7 Social Security Advisory Board, “Representative Payees.” 8 SSA’s Criminal Bar Policy prevents individuals convicted of committing, attempting to commit or conspiring to commit certain crimes from serving as a representative payee. For a more detailed list of these crimes, as well as exemptions, see: https://secure.ssa.gov/poms.nsf/lnx/0200502133. 9 National Academies of Sciences, Engineering, and Medicine, “Informing Social Security’s Process for Financial Capability Determination,” 2016, The National Academies Press, http://www.nap.edu/21922. 10National Academies of Sciences, Engineering, and Medicine, “Informing Social Security’s Process for Financial Capability Determination,” 2016, The National Academies Press, http://www.nap.edu/21922. Insight on the Issues XXX, February 2018 © AARP PUBLIC POLICY INSTITUTE 601 E Street, NW Washington DC 20049 Follow us on Twitter @AARPpolicy on facebook.com/AARPpolicy www.aarp.org/ppi For more reports from the Public Policy Institute, visit http://www.aarp.org/ppi/. 7