AR 88-4(1): Dion v. Secretary of Health and Human Services, 823 F.2d. 669 (1st Cir. 1987) Applicability of the Windfall Offset Provision, Section 1127 of the Social Security Act

ISSUE:

Whether Section 1127 of the Social Security Act (Act) applies to initial claims filed under both titles II and XVI of the Act, in which claimants are found entitled to title II benefits for months prior to July 1, 1981 (the effective date of the statute), even if the claims are not finally adjudicated until after that date.^[1]

STATUTE/REGULATION/RULING CITATION:

Section 1127 of the Social Security Act (42 U.S.C. 1320a-6); 20 C.F.R. 404.408b

CIRCUIT:

FIRST (MAINE, NEW HAMPSHIRE, MASSACHUSETTS, RHODE ISLAND, PUERTO RICO^[2])

Dion v. Secretary of Health and Human Services, 823 F.2d 669 (1st Cir. 1987)

APPLICABILITY OF RULING:

This Ruling applies to determinations or decisions at all administrative levels (i.e., initial, reconsideration, administrative law judge hearing and Appeals Council).

DESCRIPTION OF CASE:

In June 1977, the plaintiff, Ms. Dion, applied for disability insurance (DI) benefits under title II of the Act and supplemental security income (SSI) benefits based on disability under title XVI of the Act. Her applications were denied both initially and on reconsideration. She did not request further administrative review of these denials. In November 1979, she reapplied under both programs, and after these applications were also denied both initially in October 1980, and on reconsideration in January 1981 by a notice dated June 1981, Ms. Dion requested a hearing before an administrative law judge (ALJ). The ALJ reopened plaintiff's prior claims of 1977, and in a decision dated February 1982, determined that she had been disabled since May 5, 1977 and was entitled to benefits based on the 1977 applications.

Ms. Dion's monthly DI benefits were paid beginning March 1982. Subsequently, retroactive SSI payments were made for the months November 1979 through February 1982. No SSI payments were made from June 1977 through October 1979 pending action by the Appeals Council.^[3]

On July 27, 1982, Ms. Dion received retroactive DI benefits for the months November 1977 through February 1982. In August 1982, she received a notice which advised that pursuant to Section 1127 of the Act, a total of $6903.90 in excess SSI benefits for the period November 1979 through February 1982 had been withheld from her DI benefits. Section 1127 then provided that a beneficiary's retroactive payment of DI benefits was to be offset by the amount of SSI payments that would not have been made if the DI benefits had been paid when they were regularly due rather than retroactively.

Ms. Dion then sought administrative review of the decision to offset her DI benefits from November 1979 through February 1982 by her SSI benefits for the same period. Upon review, the Appeals Council determined that, because Ms. Dion's claim was not finally adjudicated until after July 1, 1981, the offset provision was applicable and the offset was properly applied. Ms. Dion appealed to the United States District Court for the District of New Hampshire. On November 27, 1986, the district court reversed the Secretary's decision and ruled that, because Ms. Dion was found to be entitled to benefits under title II of the Act for a period prior to July 1, 1981, the offset provision was inapplicable and the offset had been improperly applied. The Secretary appealed the decision of the district court to the United States Court of Appeals for the First Circuit.

HOLDING:

The court of appeals affirmed the district court's decision that the Secretary had improperly applied the offset. It held that the offset provision should not be applied to claims in which a claimant is awarded title II benefits for months prior to July 1981.

STATEMENT AS TO HOW DION DIFFERS FROM SOCIAL SECURITY POLICY:

In accordance with Pub. L. No. 96-265, section 501(d), the original offset provision did not go into effect immediately upon its passage in June 1980, but was declared to be applicable to cases in which entitlement to title II benefits was determined on or after July 1, 1981.

As interpreted by the Social Security Administration (SSA), the word "determined" as used in section 501(d) means finally adjudicated, i.e., the date the claims authorizer signs an award determination. Accordingly, SSA applies the original offset provisions to title II initial claims which are finally adjudicated on or after July 1, 1981, provided that the retroactive benefits are actually payable prior to February 1985.

The court of appeals disagreed that the law controlling these cases is the law in effect on the "final adjudication" date. It held that the word "determined" in section 501(d) refers to the date on which a beneficiary has met the statutory criteria which determine entitlement to benefits, even if the claim is not finally adjudicated until a later date.

EXPLANATION OF HOW SSA WILL APPLY THE DECISION WITHIN THE CIRCUIT:

The Ruling applies to concurrent initial claims for benefits under both titles II and XVI of the Act, involving both an award of benefits under title II for months prior to July 1981, and a resulting payment prior to February 1985 of retroactive title II benefits, to a beneficiary who resides in Maine, New Hampshire, Massachusetts, Rhode Island, or Puerto Rico at the time of the determination or decision at any administrative level, i.e., initial, reconsideration, administrative law judge hearing, or Appeals Council.

If such a claimant is found to be entitled to retroactive title II benefits for one or more months prior to July 1981, section 1127 of the Act will not apply to any months covered by the determination of entitlement and no reduction of retroactive title II benefits for months in which SSI payments were received will be required.

EFFECTIVE DATE:

Date of Publication (07/18/88)

^[1] Section 1127 of the Act was amended in its entirety by section 2615 of Pub.L. No. 98-369 effective with respect to retroactive benefits payable after January 1985. For claims in which retroactive benefits are actually paid after January 1985, the application of the section 1127 offset must be determined based on the new section 1127, rather than on the prior statutory provision construed by the count in Dion.

^[2] Although Puerto Rico does not have an SSI program, individuals who reside in Puerto Rico at the time of final adjudication of a title II claim, or at the time of a determination or decision at any administrative level, may also be affected by this Ruling. If such residents filed for or received SSI payments during the retroactive title II benefit period while a resident of a State or other area which does have an SSI program, the Ruling will apply to those individuals despite their lack of SSI eligibility for months of residence in Puerto Rico.

^[3] The Appeals Council reviewed the ALJ decision of February 1982 and determined that the provisions of 20 C.F.R. 416.1488, which limit reopening of SSI claims by an ALJ to 2 years after the date of the initial determination, applied to that decision. Accordingly, in May 1983, the Appeals Council reopened the ALJ decision and determined that plaintiff was not entitled to SSI benefits for the period June 1977 through October 1979. Ms. Dion appealed this decision to the United States District Court for the District of New Hampshire which, in April 1984, reversed the Secretary's decision and ordered payment of SSI benefits to plaintiff for that period.

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