Workers' Compensation: Collecting Both Social Security Disability Insurance And Workers’ Compensation Benefits Generates Inequality of Benefits

A recent study by the federal government reports that some disabled workers who receive workers' compensation or public disability benefits may receive less money than their counterparts. The reason why this phenomenon occurs is that the Social Security benefit computation is designed to replace more of the lower earner’s pre-retirement or pre-disability earnings than a higher earner’s.

“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 workers who sustained long-term disabilities and were insured. On the other hand, state workers' compensation systems have been in place since 1911 and may be combined with other public disability benefits, including 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, and local government 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 the study used to collect 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 had 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 be offset against the federal Social Security disability insurance benefit. In 1985, the offset was eliminated, and Congress reinstated it in 1989. 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. Currently, 16 states and Puerto Rico are reverse offset states.

The recent study, covering an 18-month period from January 2003 through June 2004, identifies that approximately 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, in 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 monthly disability insurance benefits to average indexed monthly earnings, indicates that disabled workers without workers’ compensation or public disability benefits had higher replacement rates. Therefore, collecting multiple benefits may create an economic disparity.