Date: May 20, 1965.

Memorandum from: Robert M. Ball, Commissioner of Social Security. Subject: Concurrent eligibility under workmen's compensation and social security.

This memorandum is concerned with information on the extent and effects of concurrent eligibility under workmen's compensation and social security. In particular, it will comment on two tables, entitled "Duplication of Workmen's Compensation Disability Benefits by Social Security Benefits in H.R. 6675," submitted on May 17 by Mr. J. Dewey Dorsett, representing the American Insurance Association, and on a similar table submitted, at the request of Senator John J. Williams, of Delaware, by the Social Security Administration.

The table submitted by the Social Security Administration was, in accordance with Senator Williams' request, an updated and somewhat modified version of a table that the chamber of commerce had arranged to have prepared; the updated table took into account, among other things, changes that have occurred in workmen's compensation benefit levels and increases in social security benefits that would be provided in H.R. 6675. The tables prepared by Mr. Dorsett appear to be similar to the chamber of commerce table but, like the table prepared by the Social Security Administration at the request of Senator Williams, contain updated information. In all of the tables, the benefits payable under both programs (social security and workmen's compensation) to a worker with a wife and two children are compared with his take-home pay (gross wages less certain assumed income taxes and social security contributions).

The replacement percentages shown in the table updated by the Social Security Administration-that is the extent to which the assumed combination of social security disability benefits and workmen's compensation payments would replace earnings differ from those shown in both of Mr. Dorsett's charts; and the replacement percentages shown on Mr. Dorsett's chart I differ substantially from those shown on his chart II. The differences do not stem primarily from different assumptions as to average earnings,' as was implied by Mr. Dorsett in his testimony before the committee; rather, in the case of both charts I and II they stem from different assumptions as to the benefits that would be payable under workmen's compensation. Moreover, the social security disability benefit amounts used in chart I differ from those used by the Social Security Administration. It would seem appropriate to calculate social security benefits for a worker with average earnings on the basis of an average figured over the period after 1950, excluding 5 years, rather than on an average based on current earnings. The average social security benefit rate for the disabled worker families reflect generally earnings averaged over this period. The table updated by the Social Security Administration and Mr. Dorsett's chart II follow this method; they assume that the social security benefits payable to the family of a disabled worker with average earnings would be equal to the average family social security monthly disability benefit ($195). On the other hand, as far as we can determine, in chart I Mr. Dorsett computes the average social security disability benefit that would be payable to the worker's family on the basis of his most recent earnings. This results in unrealistically high social security benefits since the most recent earnings can be expected to be higher than earnings averaged over a relatively long period. Morever, Mr. Dorsett assumes that the maximum social security disability family benefit would be $72 weekly-the maximum under H.R. 6675 based on average earnings of $5.600. This amount will not become payable until, at the earliest, 1970; even then it could be payable only in cases of workers who are disabled when they are no older than 31 and who have earned $5,600 or more in each year beginning with 1966 and up until the time their disabilities occur. (The maximum social security weekly family benefit payable in 1965 under H.R. 6675 will be $66.20.)

In the table updated by the Social Security Administration the workmen's compensation benefits that were assumed to be payable were those that would be payable for permanent total disability. Both of Mr. Dorsett's charts use as the workmen's compensation benefit the maximum workmen's compensation benefit payable for temporary total disability.

1 Briefly the average earnings used by the Social Security Administration are the 1963 average weekly wages in employment covered by unemployment compensation. Mr. Dorsett used the July 1964 average weekly earnings paid to employees entitled to workmen's compensation. The amounts differ very little.

With respect to Mr. Dorsett's computation of the workmen's compensation benefit amounts, the following observations seem pertinent:

1. Workers who qualify under the present social security definition are much more likely to be receiving workmen's compensation based on permanent and total disability than on temporary total disability; although the picture would change somewhat if H.R. 6675 is enacted, by and large the same would be true after enactment of H.R. 6675. The maximum benefits paid for permanent and total disability are lower in some States than the maximum benefits paid for temporary total disability (for example, under the Alaska law, the maximum permanent and total disability benefit is $52.65 weekly; the maximum for temporary total disability is $100 weekly).

2. Although Mr. Dorsett assumes that the worker would be receiving maximum workmen's compensation benefits, a disabled worker with average earnings at the time of disability would be entitled to workmen's compensation benefits lower than the maximum under many State laws. For example, Mr. Dorsett assumes that a worker with take-home pay of $90 would receive an Arizona workmen's compensation benefit of $152.50-much higher than his take-home pay. Actually, the benefit for permanent and total or temporary total disability under the Arizona law amounts to 65 percent of earnings. The earnings for Arizona used in the social security table is about $101 weekly. We are not sure what earnings would be reflected by the take-home pay shown in Mr. Dorsett's charts; presumably they would also be about $101 weekly. Thus, the worker would be entitled to a workmen's compensation benefit of about $66 as shown in the Social Security Administration table, and not $152.50 as shown in Mr. Dorsett's charts. The workmen's compensation benefit shown for Hawaii in Mr. Dorsett's charts is another example. Under Hawaii law, total disability benefits amount to 66 percent of earnings. The workmen's compensation benefit based on the average earnings (less than $86) should be $58 as shown in the Social Security Administration table. Mr. Dorsett's charts show the benefit to be $75, the maximum payable under the Hawaii law for temporary total disability and for permanent total disability.

There are a number of points that should be made with respect to all of the tables the two submitted by Mr. J. Dewey Dorsett on behalf of the American Insurance Association and the one prepared by the Social Security Administration to update the chamber of commerce table.

The most important point is that the data in the tables apply to only a small fraction of 1 percent of the people who receive either workmen's compensation or social security disability benefits. This is true for the following reasons:

1. There is but a very small overlap between workmen's compensation and social security benefits. The number of disabled worker beneficiaries under the social security program who are also receiving workmen's compensation payments represents only about 2 or, at the most, 3 percent of all workers who are receiving social security disability benefits. The reason this percentage is so small is that the disabled workers receiving benefits under the social security program are, by and large, those whose disabilities are not only total but also chronic and, in addition, not work-related, while, on the other hand, the disabled on the workmen's compensation rolls are made up primarily of people who either have total disabilities that last a relatively short period (about 98 percent less than 6 months and therefore unaffected by H.R. 6675) or have disabilities which, though permanent, are only partial and, in any case, have work-related disabilities. (See app. A and B.) The attached statement, "Estimates of the Proportion of Workers That Are Currently Entitled to Social Security Disability Benefits and Workmen's Compensation," gives additional information on the extent of the social security-workmen's compensation overlap.

2. The data in the tables apply only to disabled workers at average earnings, thus taking no account of the fact that about one-half of the workers have aboveaverage earnings. Combined social security benefits and workmen's compensation payments would, of course, represent a smaller proportion of earnings for workers who have higher than average earnings.

3. The data in the tables are based on the assumption that the disabled worker has three eligible dependents and on the assumption that such dependents gen

erally remain on the benefit rolls throughout the entire period of the worker's disablement. (Apps. C and D show the formulas for computing the benefits shown in the tables.) The fact is, though, that many disabled persons do not have as many as three eligible dependents and that dependents' benefits are generally payable under social security (and under those State workmen's compensation laws which provide for them) only while the worker's children (if not disabled) are under age 18 (age 22 under H.R. 6675) and unmarried.

The data in the tables also do not take into account the fact that:

1. The wages of workers who have become disabled would very likely have increased (had the workers not become disabled) about 3 percent per year on the average, even if no allowance is made for the possibility that the workers would have advanced into better paying jobs as their work careers progressed. The calculations in the table, being based on wages prior to disability, are comparing benefits with earnings the workers had in the past and not with earnings they might be expected to have currently were they not disabled.

2. No social security disability benefit is paid in the first 6 months of disablement, workmen's compensation laws in many States have maximum dollar or duration limits, and some workmen's compensation laws reduce disability benefits after a specified duration. The computations in the table are based on a single month in which both workmen's compensation and social security disability benefits happen to be payable-a month in which the worker's benefits are highest under both programs. Calculations over the period of the disability would, of course, show much different results with respect to the replacement of prior earnings than the results shown on the tables. (See app. E.) 3. Many workers, had they continued to be employed rather than becoming disabled, would have fringe benefits. In suggesting the proportion of earnings that combined social security benefits and workmen's compensation would replace, the tables ignore the value of fringe benefits.

Attachments.

APPENDIXES

Appendix A. A copy of a tabulation of distribution of workmen's compensation awards for 1955-61 by year and type. (Source: National Council on Compensation Insurance.) This material shows that out of about 650,000 workmen's compensation awards each year between 500 and 600 were for permanent total disability (including permanent partial disability of 75 percent or more of total). Major permanent partial awards (25 to 75 percent of total) amounted to between 15,500 and 17,500, with temporary total awards accounting for almost threefourths of the total number of awards.

Appendix B. A copy of a tabulation of the distribution of workmen's compensation temporary total awards by duration of disability. (Source: Fratello, "Workmen's Compensation Injury Table" and "Standard Wage Distribution Table," in Proceedings of the Casualty Actuarial Society, vol. 42, p. 140.) This tabulation shows the distribution of temporary total disability awards under the State workmen's compensation laws in 1951 by duration of disability. Of 68,944 awards, only 842 had disabilities lasting more than 175 days.

Appendix C. A copy of a tabulation showing benefit rates and minimum and maximum benefits for permanent and total disability under the workmen's compensation programs. This material indicates the workmen's compensation dollar maximums in weekly benefits in the various State and the States where there were limits on the duration or total benefit payments or both. (Source: Bull. No. 161, revised September 1964, Department of Labor, Bureau of Labor Standards, table 10.)

Appendix D. A copy of a similar tabulation showing benefit rates and minimum and maximum benefits for temporary total disability under the workmen's compensation programs. (Source: Bull. No. 161, revised September 1964, Department of Labor, Bureau of Labor Standards, table 7.)

Appendix E. A tabulation of estimated illustrations of earnings replacement by workmen's compensation and social security benefits from date of injury to age 65.

47-140-65-pt. 2-25

APPENDIX A

Workmen's compensation awards-41 States and District of Columbia by year

and type1

1 Because in some cases a permanent and total disability may be classified initially as temporary total and because some workers entitled to workmen's compensation may have some impairments that are compensable and some that are not compensable under workmen's compensation, a small proportion of the workers whose disabilities are classified under workmen's compensation as permanent partial or temporary total may qualify for social security disability payments.

2 Policy year 1959-60 omitted because summaries for that year have not been made available. It is believed that the distribution of awards in 1959-60 does not differ significantly from that in the years listed above. 3 Permanent disabilities rated at 75 to 100 percent of total.

"Major permanent" means permanent partial disabilities having severity equivalent to approximately 25 to 75 percent of total.

"Minor permanent" means permanent partial disabilities having severity equivalent to less than approximately 25 percent of total disability.

Source: National Council on Compensation Insurance.