“The Social Security benefit computation is designed to replace more of a lower earner's preretirement or predisability earnings (average indexed monthly earnings) than a higher earner's. This is done by "bend points" in the primary insurance amount formula, which create three earnings brackets. Earnings up to the first bend point are replaced at 90 percent; earnings between the first and second bend point, at 32 percent; and earnings above the second bend point, at 15 percent, up to the taxable maximum. The three brackets are a convenient way to group workers by income (represented here by AIME). This grouping also helps distinguish differences in replacement rates, which are largely determined by the earnings bracket in which the worker belongs.”
The Social Security disability system was established in 1956 to pay cash benefits to those workers who sustained long-term disabilities and were insured for coverage. On the other hand, state workers compensation systems had been in place since 1911 and may be combined with other public disability benefits in addition to Social Security benefits.
The Social Security system, unlike state workers compensation programs, provides a nationally distributed benefit to over 8 million disabled-worker beneficiaries. State public disability benefits are paid under numerous laws including federal, state or local government were plans that provide compensation for medical conditions that are not work related. Some of them may be short-term such as state temporary disability benefits.
As of December 2005, the date that the study utilized for collection of data, there were 8,305,702 disabled-worker beneficiaries in the Social Security program. Of those beneficiaries, 1,440,772 had some past or present connection to workers compensation or public disability benefits and 798,476 at a current connection to workers' compensation or public disability benefits.
In 1984 Congress amended The Social Security Amendments of 1956 and required that workers’ compensation benefits were to be offset against the federal Social Security disability insurance benefit. In 1985 the offset was eliminated and it was again reinstituted in 1989 by Congress. Further amendments in 1996 to The Omnibus Budget Reconciliation Act Of 1981 extended the offset provision to public disability benefit programs. However, Congress excluded the offsets of workers’ compensation and public disability beneficiaries who are receiving Social Security disability benefits in those states where the State took the offset. These have been named reverse offset states. The state law needed to be in effect as of February 18, 1981. Presently there are 16 states and Puerto Rico that are reverse offset states.
The recent study involving 18 month period from January 2003 through June 2004, identifies that a proximately 11% of all Social Security disability beneficiaries were also entitled to receive state workers compensation for public disability payments. It reported that those who receive combined benefits were most likely to be male, high earners, older it retirement and from the Western states.
The report concludes that the earnings replacement rate for disability insurance beneficiaries under the Social Security system, as measured by the ratio of the monthly disability insurance benefits to the average indexed monthly earnings, demonstrates that disabled workers without workers’ compensation or public disability benefits had higher replacement rates. Therefore, collecting multiple benefits may create an economic disparity.