The Impact of Claimant Representation Fee Schedules on the Disability Applicant Process and Recipient Outcomes

Abstract

Many applicants to Social Security Disability Insurance (SSDI) retain representation to help with the approval process.  The Social Security Administration imposes strict rules on representative compensation.  Representatives are paid only if claimants are awarded disability, and are paid the lesser of 25 percent of claimant’s past due benefits or a pre-specified maximum fee dollar amount ($6,000 since 2009).  Because past due benefits are a function of the number of months claimants wait to be awarded, representatives face incentives to delay case resolution until past due benefits push representative fees past the maximum fee threshold.  This paper uses difference-in-differences and bunching strategies to evaluate how these incentives impact SSDI applicant wait times.  To do this, we use information on claimant characteristics and wait times constructed from the Disability Analysis File Public Use File (DAF PUF).  Difference-in-differences estimation show that after changes in the maximum fee threshold, average wait times increase by 0.4-0.7 months among applicants for whom the fee threshold is more binding.  We also observe bunching in the wait time distribution around the fee threshold kink in years after the policy change relative to the preceding years.  Although both policy changes occur in years associated with economic recessions (2002 and 2009), we provide suggestive evidence that the increase in wait times is not driven by secular economic trends.  Key limitations of this paper are data availability issues in the DAF PUF.  In the DAF PUF, we are unable to observe who retains representations, so we can only observe the reduced form impacts of representative fee schedules on claimant outcomes.  With more complete information on the claimant application and appeal process, we could more effectively probe the types of impacts that representation have on case outcomes and the sensitivity of the results to secular economic trends.

The paper found that:

• After the maximum representative fee threshold increases in 2002 and 2009, claimants for whom these fee thresholds were more likely to be binding initially observed increases in the number of months they waited between entitlement and award date on the order of 0.7 and 0.4 months respectively.
• After the maximum representative fee increases, estimated representative benefits also increase for these same claimants.
• There is also bunching or heaping in the number of months claimants wait from entitlement to award around the point where wait times would push 25 percent of past due benefits over the maximum representative fee threshold. This is the point where representative marginal revenue becomes zero.
• The policy changes occur in 2002 and 2009, which also happen to correspond to national economic recessions. We find similar patterns when we control for gender by education, by region-specific employment-to-population ratios, and claimant region and education.  This would suggest the patterns are not driven by secular economic trends.

 
The policy implications of the findings are:

• The representative fee schedule impacts outcomes in the claimant application and appeal process. It may be beneficial to examine the incentives created by this schedule.
• In particular, increasing the maximum representative fee appears to increase wait times for claimants who were more likely to reach the old level of the threshold. This is consistent with representatives being able to increase revenue by allowing cases to draw out over longer periods of time.
• The analysis showing an increase in wait times for particular claimants when the fee cap is increased suggests that, by the same token, lower fee caps or flat fees could reduce wait times for claimants. However, this particular aspect of the policy should be interpreted in the context of the entire fee schedule and is, of course, subject to caveats that we discuss thoroughly in the paper.  As disability representation is only paid when a claimant is awarded benefits, this is likely to impact the types of claimants whom representatives and attorneys choose to represent.  Lower fee caps could change this selection, potentially resulting in equilibrium changes in who is represented and who obtains SSDI awards.  Put differently, this means lower fee caps could lead attorneys to decline more cases and ultimately lead to fewer applications receiving awards.
• Because of data limitations, we are unable to examine decisions about who to represent or when to make representative fee agreements. With administrative SSDI applicant data, this is something we would be able to explore.  We could also explore how representatives’ actions respond to the fee structure in more detail.
• From the bunching analysis, it is clear that representatives do not maintain perfect control over how long claimants wait for a case to be resolved. Rather than changing the fee schedule maximum fee cap, monitoring or regulating attorney action may be a way to ensure they do not draw out claimant wait times longer than necessary.  Our research does not explore this avenue, and more work is needed to know how this could be effectively administered.