Social Security backs off tough stance on recouping overpayments

Every now and then, the Social Security Administration gets it wrong, calculating benefits for some that are overpayments, leading the government to claw back those funds.

That, the new commissioner Martin O’Malley acknowledged this week, can be a devastating consequence for lower-income households that never realized they were paid erroneously. Testifying to Congress on Wednesday, O’Malley announced that the administration is changing how it recoups overpayments. Starting next week, it won’t ask for an immediate return of overpayments that it detects or henceforth stop all new payments to those recipients, O’Malley said.

Instead, “moving forward, we will now use a much more reasonable default withholding rate of 10 percent of monthly benefits – similar to the current rate in the [Supplemental Security Income] program,” he said. The agency will also shift the burden of proof from the claimant to the agency to show that a recipient is somehow at fault for overpayments, he said.

Further, the agency will extend repayment plans from the current time frame of 36 months to 60 months, and it will allow people to apply for waivers if they believe they were not at fault or are unable to pay, he said.

While the error rate for Social Security payments is less than 1 percent, the financial fallout for overpayments that are detected years later can be devastating, according to reporting last year by KFF Health News and Cox Media Group. Those organizations found that the administration was in the process of recouping $21.6 billion in overpayments.

Clawing overpayments back is required by Congress, but the administration’s past practices as it did so have caused harm, O’Malley said.

“Congress requires that we make every effort to recover those overpaid benefits. But doing so without regard to the larger purpose of the program can result in grave injustices to individuals, as we see from the stories of people losing their homes or being put in dire financial straits when they suddenly see their benefits cut off to recover a decades-old overpayment, or disability beneficiaries attempting to work and finding their efforts rewarded with large overpayments,” he said. “Innocent people can be badly hurt. And these injustices shock our shared sense of equity and good conscience as Americans.”

THE CAUSE OF ERRORS

Two of the biggest contributors to erroneous payments are issues with the administration’s Windfall Elimination Provision and Government Pension Offset, said Emerson Sprick, associate director for the Bipartisan Policy Center’s Economic Policy Program.

Those provisions are used to calculate payments for recipients and their spouses who paid into Social Security for some, but not all, of their working years, as they have pension assets that are designed to replace the need for Social Security.

“Those provisions were implemented for a reason,” Sprick said. But payments calculated as a result of them “are frequently unfair” and “are so poorly understood and so poorly communicated to people [that] they really tend to undermine trust in Social Security.”

The provisions, which started in the early ’80s, were developed before the government had good sources of data about pension assets that would help calculations be more accurate.

Congress has paid attention to those provisions over the past few years, with proposals to either eliminate them or update them. Eliminating them would lead to unfair outcomes for some recipients and cost an estimated $18 billion in perpetuity, Sprick said.

Another option would be doing away with the need for data on non-covered earnings and calculating Social Security benefits proportionally with the number of years people had covered earnings. That fix would still have some elements of unfairness and impreciseness but would be better than the current situation, Sprick said.

“Addressing overpayments does really seem to be a bipartisan issue right now,” he said. “That’s a great thing. That’s how good policy gets made.”

RESOURCES ARE THIN

O’Malley, a Democrat and former governor of Maryland, was sworn in as head of the agency in December. Securing additional funding for Social Security’s operations is a priority, as it currently operates on less than 1 percent of its annual benefits payments, down from 1.26 percent in 2015, he said.

The administration has roughly 55,000 employees for fiscal year 2024, down from nearly 67,000 in 2010, during which time the number of recipients went from about 60 million to 75 million.

As the number of recipients has increased, the administration’s staffing has fallen, leading to wait times of over 30 minutes on its 800 number and a general lack of resources, O'Malley said. By contrast, insurers operate on closer to 20 percent of their annual benefit payments, he noted.

The agency struggles with an attrition rate at its telephone center of over 20 percent, and although it is working to “deflect” callers to internet resources, it has “struggled with a new, underperforming telephone system that went into during the pandemic,” he said.

A $15.4 billion funding increase under President Biden’s recent budget proposal would reduce phone wait times to closer to 10 minutes, O'Malley said.

However, that budget proposal includes no provisions for helping avoid the system’s projected depletion by 2034, Sen. Rick Scott, R-Florida, said during the Senate Committee on Aging Hearing.

Asked if that surprised, him, O’Malley said, “If you don’t act, it is true that Social Security would only have 77 percent of the dollars that it needs to meet full benefits.”