The U.S. Social Security Administration (SSA) administers the Old-Age, Survivors, and Disability Insurance (OASDI) and Supplemental Security Income (SSI) programs, providing benefits to approximately 64 million Americans (SSA, 2015d). Within OASDI, Old-Age and Survivors Insurance (OASI) pays benefits to retired workers who have paid into the program and their dependents and survivors, while Social Security Disability Insurance (SSDI) provides benefits to adults with disabilities who have worked and paid into the Disability Insurance trust fund and to their spouses and adult children who are unable to work because of disability.1 SSI, a means-tested program based on income and financial assets, provides income assistance from U.S. Treasury general funds to adults aged 65 or older, individuals who are blind, and disabled adults and children (SSA, 2015a). As of December 2014, approximately 48 million individuals received OASI benefits, about 11 million received SSDI benefits, and about 8 million received assistance through the SSI program. Of the roughly 64 million beneficiaries, approximately 3 million received benefits through both OASDI and SSI (SSA, 2015d).
The Social Security Act Amendments of 1939 gave the Commissioner of Social Security the authority to make benefit payments to an individual
1 Disabled beneficiaries who are now adults but became disabled prior to age 22, which SSA refers to as disabled adult child beneficiaries, receive benefits based on their parents’ Social Security earnings record. To be eligible for disabled widow(er) benefits, the widow(er) must be between the ages of 50 and 59, prove his or her relationship to the disabled worker, and demonstrate his or her disability.
or organization other than the beneficiary when doing so would serve the beneficiary’s interests. This so-called representative payee must use the benefits in the beneficiary’s interest, although he or she may directly distribute small portions of the payment to the beneficiary.2 To determine the need for a representative payee, SSA must make a capability determination, that is, a determination as to whether the beneficiary is capable of managing or directing the management of his or her benefits. When there is some indication that a beneficiary may not be able to manage or direct the management of his or her benefits, evidence of capability/incapability must be developed (i.e., gathered and evaluated). SSA designates three categories of evidence in the capability determination process: legal, medical, and lay.3
Legal evidence comprises findings regarding competence by the courts. SSA beneficiaries who have been declared legally incompetent through a court order are required to receive their funds through a representative payee. When no such court order exists, medical and lay evidence are developed. Medical evidence comprises information about a person’s physical or mental condition (e.g., medical signs and laboratory findings, medical history and treatment records, opinions from medical sources) that sheds light on a beneficiary’s ability to manage or direct the management of funds, based on an examination of the beneficiary by a physician, psychologist, or other qualified medical practitioner. Lay evidence comprises anything other than legal or medical evidence that provides material and relevant facts as to the beneficiary’s ability to manage or direct the management of funds to meet his or her basic needs. Such evidence can be provided by anyone with direct knowledge of facts or circumstances regarding the beneficiary in his or her daily life; this may include nonprofessionals (e.g., relatives, friends, neighbors) and health care and social service professionals (e.g., social workers, occupational therapists, rehabilitation specialists, adult protective services workers). All relevant evidence is evaluated, and a determination is made as to whether the beneficiary is capable. Upon determination that a beneficiary is incapable, SSA informs the beneficiary that it has determined he or she needs a representative payee, provides the name of the proposed representative payee, and apprises the beneficiary of his or her appeal rights (SSA’s process for capability determinations is discussed in greater detail in Chapter 2).
SSA asked the Institute of Medicine of the National Academies of Sciences, Engineering, and Medicine (the Academies) to convene a committee of experts with relevant expertise to evaluate SSA’s capability determination
2 This sentence has been modified from the prepublication version of the report.
3 To ensure consistency with SSA’s language and allow for comparisons between SSA’s capability determination process and that of other agencies and organizations, the committee discusses evidence of capability in accordance with this terminology.
process for adult beneficiaries and provide recommendations for improving the accuracy and efficiency of the agency’s policy and procedures for making these determinations (see Box 1-1 for the committee’s full statement of task). In carrying out this task, the committee was asked to address several specific topics, including capability determination processes used in similar benefit programs, requisite abilities for managing or directing the management of benefits, methods and measures for assessing capability, the use of capacity assessment tools, appropriate roles for SSA and state Disability Determination Services employees, and effects on the beneficiary of appointing a representative payee. The 12-member committee included experts in the areas of psychology, neuropsychology, psychiatry, social work, occupational therapy and rehabilitation, behavioral economics, bioethics, and law (see Appendix D for biographical sketches of the committee members). This report presents the results of the committee’s efforts, including its findings, conclusions, and recommendations.
Prior to 1956, SSA was responsible primarily for providing benefits to eligible retirees and their families. Among retired adult beneficiaries, 1.4 percent (527,635 of 39 million) had a representative payee as of December 2014 (SSA, 2015a). However, subsequent expansions of the Social Security program to include disability benefits (1956) and SSI payments (1974) not only increased the number of beneficiaries but also significantly altered the demographics of those receiving benefits. The inclusion of persons with disabilities, those who are blind, and adults aged 65 or older with limited income and resources among those receiving benefits increased the number of beneficiaries in need of a representative payee. In December 2014, more than 3.5 million adults received SSDI benefits (1.7 million4) or SSI payments (1.8 million) through a representative payee, nearly seven times the number of retired adult beneficiaries with representative payees. (See Tables 1-1 and 1-2 for the number of beneficiaries with a representative payee by type of beneficiary.) Approximately 160,000 new representative payees are appointed each year (Stanton, 2015).
Recent audits by SSA’s Office of the Inspector General (OIG-SSA) found beneficiaries with mental impairments (SSA OIG, 2012) and beneficiaries of advanced age (over age 85) (SSA OIG, 2010) who were in need of a representative payee but were not identified as such. Comments presented to the committee in open session suggest that SSA’s capability determinations are more likely to miss beneficiaries who need a representative payee than to require a representative payee unnecessarily (Beard, 2015; Payne, 2015; Stanton, 2015). Based on demographic changes in the population of SSA beneficiaries, especially growth in the retired-worker population and the increasing percentage of beneficiaries aged 85 and older, Anguelov and colleagues (2015) project that the number of adult OASDI beneficiaries and SSI recipients in need of a representative payee will increase by 620,000 (21.1 percent) by 2035.5
The primary goal of representative payment is to ensure that benefits are expended in the best interests of the beneficiary.6 Recognizing the
4 This number includes disabled adult beneficiaries, disabled widow(er) beneficiaries, and disabled adult child beneficiaries.
5 Based on the 2013 population of beneficiaries aged 18 or older who were not receiving benefits as disabled adult children or as students aged 18-19.
6 The committee recognizes the subjective nature of determining whether individuals’ choices serve their “best interests” with regard to financial decisions. Given the focus of this report (i.e., determination of capability to manage SSA benefits), the committee adopted the standard for serving one’s best interests of satisfying the basic needs of food, shelter, and clothing. This standard is consistent with SSA’s guidance to employees and representative payees (SSA, 2012, 2015e, n.d.-a,b), and is intended to be minimally restrictive of the liberty of beneficiaries to manage their own affairs.
|Type of Beneficiary||All Beneficiaries||Beneficiaries with Representative Payees|
Disabled adult children
Students, aged 18-19
SOURCE: SSA, 2015a, Table 5.L1.
TABLE 1-2 Number and Percentage Distribution of Supplemental Security Income (SSI) Recipients with Representative Payees Receiving Federally Administered Payments, by Eligibility Category and Age, December 2014
|Category and Age||All Beneficiaries||Beneficiaries with Representative Payees|
65 or older*
* Includes blind persons and disabled persons aged 65 or older.
SOURCE: SSA, 2015a, Table 7.E4.
importance of the representative payee program to the well-being of beneficiaries in need, SSA often has sought to improve various aspects of the program, conducting internal reviews and seeking expert advice from external sources. In 1995, SSA chartered the Representative Payment Advisory Committee (1996) to review the full spectrum of SSA’s representative payment program and “provide input into designing a better program” (p. vii). In 2004, SSA charged the Academies with examining issues related to potential misuse of payments to representative payees, with the final report of that study issued in 2007 (NRC, 2007). OIG-SSA has conducted multiple audits of the representative payee program with respect to potential misuse of benefits (SSA OIG, 2008) and SSA’s process for determining whether a beneficiary is capable of managing his or her benefits (SSA OIG, 2004, 2010, 2012).
The committee was tasked with evaluating SSA’s capability determination process for adult beneficiaries. As evidenced in Tables 1-1 and 1-2, SSA serves a diverse population, including adults with disabilities; disabled adult children; and nondisabled adults, including aged SSI recipients and retirement beneficiaries. Table 1-3 presents the number and percentage of adult beneficiaries in these three groups with representative payees.
At the committee’s first meeting, SSA representatives clarified that the committee should focus on adults with disabilities (Stanton, 2015).7 This group may include disabled adult children; however, an examination of the dynamics unique to the transitional process from child to adult beneficiary is beyond the scope of this study (Stanton, 2015). SSA acknowledged that adults receiving retirement benefits may be determined incapable and have a representative payee appointed. Where applicable, therefore, results of the present study also may provide guidance on capability determinations for these individuals. However, issues unique to retirement beneficiaries were not considered to be within the scope of this study (Stanton, 2015). For example, identifying retirement beneficiaries who may need a representative payee presents a significant challenge because in contrast with disability applicants, SSA rarely has contact with these individuals, and therefore may be unlikely to become aware of those who may require a representative payee. Indeed, OIG-SSA estimated that approximately 1 million beneficiaries over the age of 85 were receiving direct payment but were incapable of managing their benefits (SSA OIG, 2010).
7 The parameters stated herein were confirmed by Joanna Firman, SSA’s contracting officer’s technical representative, at the committee’s first meeting.
|Type of Beneficiary||All Beneficiaries||Beneficiaries with Representative Payees|
|Adults with disabilities||15,096,392||2,762,456||18.3|
|SSI (blindness or disability)||5,884,003||1,801,667||30.6|
|Disabled adult children||1,048,879||774,621||73.9|
SOURCE: SSA, 2015a (calculated from Tables 5.L1 and 7.E4).
The terms ability, capability, capacity, and competency often are used interchangeably, and their interpretation may vary across disciplines, with nuances that may be difficult to distinguish for the lay reader. At its second meeting, for example, the committee heard from a number of experts who referred to similar concepts using each of these terms. Financial capacity (Marson, 2015), decision-making capacity (Karlawish, 2015), and the capability to manage SSI and SSDI benefits (Rosen, 2015) were discussed, as was the U.S. Department of Veterans Affairs (VA) process for incompetency determinations (Flohr and Lewis, 2015).
Early in the study process, the committee identified the need to distinguish among these and other commonly used terms and to define each in the context of this study to ensure clarity and consistency in its deliberations and throughout this report. Terminology that is fundamental to the committee’s report is described herein. Appendix B contains a glossary of definitions for a number of terms that are particularly relevant to the committee’s work. In its guidelines, SSA (2015b) defines capability as
a beneficiary’s ability to manage or direct the management of his [or] her Social Security funds. . . . A beneficiary who exercises direct involvement, control and choice in identifying, accessing and managing services to meet his/her personal and other needs is capable and must be paid directly.
Managing one’s own funds means one is fully and independently responsible for disbursing the funds in a way that routinely8 meets one’s basic needs. Even if someone is not capable of fully and independently managing his or her own funds, however, that person may still be capable of directing the management of the funds by someone else. SSA also refers to this as self-direction, “a service delivery system whereby families, elderly beneficiaries, or beneficiaries with disabilities have high levels of direct involvement, control and choice in identifying, accessing and managing the services they obtain to meet their personal assistance and other health related needs” (SSA, 2015c). For example, individuals with mental impairments may be able to direct others to manage their funds based on their goals, such as paying rent on time so as not to lose their apartment, even though they are not able to perform the day-to-day tasks necessary to achieve those goals. Similarly, individuals who are mentally capable of managing their own funds but have a physical impairment, such as quadriplegia or an inability to speak, that makes them physically unable to accomplish the tasks required to do so may still be able to direct someone else to perform those tasks.
In the context of SSA capability determinations, the question is really one of financial capability—managing or directing the management of one’s funds in a way that routinely meets one’s best interests. For SSA, the determination of capability is a dichotomous decision, akin to the legal definition of incompetence9: one either is or is not capable. Thus, incapability is a determination that an individual beneficiary is unable to manage or direct the management of his or her benefits as a result of mental impairment or, sometimes, physical disability. Throughout this report, discussions of financial capability refer specifically to the dichotomous decision regarding whether a beneficiary is able to manage or direct the management of his or her benefits. The process for making this determination relies on evaluation of the beneficiary’s financial performance and/or financial competence (see Figure 1-1).
Financial Competence and Financial Performance
A fundamental distinction articulated first in linguistic theory but with broader application differentiates between “competence (the speaker-hearer’s knowledge of his language) and performance (the actual use of
8 The committee recognizes that circumstances and personal preferences at times may require or lead someone to forgo a basic need, such as food. Nevertheless, the individual’s overall behavior may still meet his or her basic needs.
9 In legal terms, incompetency refers to a determination by the courts that an individual is unable to manage his or her affairs as a result of mental impairment or sometimes physical disability. SSA uses the term legally incompetent to refer to one subset of beneficiaries who will automatically receive a representative payee.
language in concrete situations)” (Chomsky, 1965, p. 4). Similarly, the committee defines financial performance as an individual’s degree of success in handling financial demands in the context of the stresses, supports, contextual cues, and resources in his or her actual environment. Financial competence refers to financial skills one possesses, as demonstrated through financial knowledge and financial judgment, typically assessed in a controlled (e.g., office or other clinical) setting.
Financial knowledge is possession of the declarative knowledge (i.e., information that a person knows) and procedural knowledge (i.e., knowing how to perform a task) required to manage one’s finances. Examples of such declarative and procedural knowledge include the concept of money, values of currency, making change, check writing, use of ATMs (automated teller machines), and online banking procedures. Financial judgment is possession of the abilities (understanding, reasoning, and appreciation) needed to make financial decisions and choices that serve the individual’s best interests.
A high degree of financial performance requires not only sufficient levels of financial competence, but also possession of the abilities required
to implement financial decisions in everyday life (e.g., impulse control, anxiety management, and resistance to external pressures) and the opportunity to exercise those abilities in the real world.
Effects of Context on Competence and Performance
The World Health Organization’s (WHO’s) International Classification of Functioning, Disability and Health conceives of functioning and disability “as a dynamic interaction between health conditions (diseases, disorders, injuries, traumas, etc.) and contextual factors” (WHO, 2001, p. 8). Underlying financial competence and financial performance, as depicted in the committee’s conceptual model of financial capability (see Figure 1-1), is the individual’s context, the personal and environmental factors that may facilitate or hinder functioning, either independently or in their interaction. Personal factors are features of an individual that may affect his or her functioning, such as gender, age, social background, education, past and current experience, and the like (WHO, 2001, p. 17). Environmental factors are “features of the physical, social, and attitudinal environment in which people live and conduct their lives” (WHO, 2001, p. 16), such as acute or chronic stressors, social supports, financial and emotional resources, opportunities, and barriers.
The influence of such factors on a beneficiary may result in performance that is better or worse than expected based on the person’s level of financial competence. Therefore, financial competence can be viewed as the potential for, but not necessarily determinative of, adequate (i.e., satisfactory and sufficient to fulfill a specified requirement or purpose) financial performance. An individual may be financially competent (i.e., possess and demonstrate financial knowledge and judgment) in an office or clinical setting but be unable to exercise his or her financial knowledge, skills, and judgment in a real-world setting. Conversely, a person may fail to demonstrate financial knowledge or judgment in a controlled setting but be able to perform capably with the assistance of support systems in his or her environment. The effects of context on financial competence and performance are discussed in greater detail in Chapter 3.
Box 1-2 provides the working definitions for key terms used by the committee in its deliberations and throughout this report.
A Note on Financial Literacy
It is worth briefly noting an evolving distinction in the literature between financial capability and financial literacy, although the terms also are often used synonymously (Sherraden, 2013). Generally, financial capability is a broader notion that encompasses financial literacy. Whereas
financial literacy “typically refers to the knowledge and skills needed to make sound financial decisions,” financial capability also includes “access to financial services, behavioral factors, social influences, and emotions” (Collins, 2013, p. 1). Moving from financial literacy to financial capability entails moving from an individual’s possession of financial knowledge and skills (capacity) to his or her financial functioning in the real world (performance). The inclusion of financial judgment and financial performance (in addition to financial knowledge) in the committee’s concept of financial capability is consistent with this distinction between financial literacy and financial capability. In the committee’s model, financial literacy would be most akin to financial knowledge, the term the committee uses in discussing the underlying declarative and procedural knowledge required to manage one’s finances.
The committee conducted an extensive review of the literature pertaining to financial capability. This review began with an English-, German-, Spanish-, and Hebrew-language10 search of online databases, including PubMed, Embase, Medline, Health and Psychological Instruments, Scopus, Web of Science, and ProQuest. Committee members and project staff identified additional literature and other resources using traditional academic research methods and online searches throughout the course of the study.
The committee used a variety of sources to supplement its review of the literature. It met in person five times, and held two public workshops and two public teleconferences to hear from invited experts in areas pertinent to the study. Speakers at the workshops included experts on financial capability assessment; the SSA representative payee system, its process, and its impacts on the beneficiary; abilities required to manage or direct the management of benefits; and the effects of everyday surroundings on financial performance. The committee also heard from representatives of SSA, state Disability Determination Services, and the National Association of Disability Examiners about the SSA capability determination process and procedures for adult beneficiaries with disabilities, as well as representatives from the VA, the U.S. Office of Personnel Management (OPM), and the Canada Pension Plan (CPP) and the Old Age Security program regarding similar processes of each of these organizations. Finally, with America’s Health Insurance Plans (AHIP)11 acting as an intermediary, the committee received information compiled from five disability income protection insurers regarding their approaches to determining capability.
In the following chapters, the committee provides a description of SSA’s current policy and processes for capability determinations, along with the policies and processes of similar programs in other government agencies and nongovernmental organizations, including the VA, OPM, CPP and the Old Age Security program, and the private insurance industry (Chapter 2); effects of the appointment of representative payees on beneficiaries (Chapter 3); a conceptual overview of the components of financial capability and the underlying cognitive and behavioral processes (Chapter 4); and an examination of methods and measures for assessing financial capability, including formal assessment instruments designed for this purpose and the individuals best suited to performing the assessment
10 Languages in which committee members were fluent.
11 AHIP is the national trade association representing the health insurance industry.
(Chapter 5). Within each chapter, the committee provides findings and conclusions relevant to the respective topics. In Chapter 6, the committee presents its overall conclusions and recommendations, which it hopes will assist SSA in its ongoing endeavor to improve its benefit programs and better serve those who rely on them.
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