ANALYSIS OF ADMINISTRATIVE COSTS BY PROGRAM

Table 1 shows administrative costs, benefit costs, and the average number of recipient filing units for various major entitlement programs in fiscal year 1980.1 In addition, administrative costs as a proportion of benefits are shown as well as average administrative costs per filing unit.

Average administrative costs per benefit dollar vary from 12.3 percent for aid to families with dependent children (AFDC) to 1.2 percent for old-age survivors insurance (OASI). The average annual administrative costs per filing unit also vary substantially, from a high of $388 and $384 for unemployment insurance (UI) and AFDC respectively, to $38 for OASI.

There are four major reasons for differences in administrative costs per benefit dollar and per filing unit. These are:

-The complexity of the initial eligibility and benefit determination process.

-The extent to which the agency maintains contact with the recipients and carries out redeterminations.

-The turnover in the caseload.

-Special program-related administrative activities.

In general, a complicated eligibility process, continuing agency contact with recipients, frequent redeterminations and/or high caseload turnover lead to a costly administrative process. A high turnover rate in a program means that, over the course of a year, more initial determinations are made, which are often more comprehensive and therefore more expensive than follow-up case reviews or redeterminations. Even in programs with little on-going recipient contact, a high turnover rate will cause higher average administrative costs per case over the course of a year. Requirements for frequent recipient reporting of financial or household circumstances and for redeterminations of eligibility and benefits also imply continued administrative expenses, as do extensive quality control systems.

Following is a discussion of each program shown in Table 1 and an assessment of why it is more or less costly to administer than the other programs.

UNEMPLOYMENT INSURANCE (UI)

Unemployment insurance has the highest administrative costs per recipient unit of the programs shown, although the cost is not much above that of AFDC. However, the cost of administration per benefit dollar under UI is about 30 percent below that cost for AFDC. The primary reason for the high administrative costs for UI

1 The average number of recipient filing units represent the size of the caseload on average at any point in time during the year.

is that the UI system must collect employer taxes and maintain extensive records. While initial UI determinations do not require extensive data collection on income and household characteristics, the costs of the employer tax collection process are a considerable added expense. Turnover is also a major cost factor in UI. Due to statutory limitations on the length of time an individual may receive UI, as well as the general use of the program as a short-term, stop-gap source of income, the UI caseload has substantially more turnover than do means-tested income maintenance programs such as AFDC. For example, in 1980 the average number of weeks for which benefits were received was 15.4.

Although average administrative costs per case are high under UI, the ratio of administrative costs to benefit dollars spent is moderate in comparison with other programs. This is true largely because UI is a partial wage-replacement program, and the average benefits (the denominator in the ratio) are large in comparison with income-tested welfare programs.

AID TO FAMILIES WITH DEPENDENT CHILDREN

Aid to families with dependent children is a means-tested income maintenance program providing benefits to family units. The average cost for program administration 2 was $384 per family in 1980, making it one of the more expensive programs by this yardstick. There are several features of AFDC and the administrative processes for that program that determine these costs. First, the means test that is administered at the initial eligibility interview and in subsequent redeterminations (which are supposed to take place every 6 months) is extensive, requiring documentation of every source of income received by every family member. In the case of many types of income, eligibility workers must collect verification from second sources or from collateral contacts with people or institutions (such as local banks) likely to know the applicant. Further, because the income and resources of all members of the family filing unit must be counted and verified, the extended nature of this filing unit, compared with, for example UI, is more costly. AFDC families with multiple members are likely to have multiple sources of income. At least some of these sources are likely to fluctuate and therefore are difficult to determine precisely. In addition, at a given point in time, up to 14 percent of AFDC mothers are employed (over time, this proportion is probably considerably larger). The accurate determination and verification of earnings and the work-related expenses that must be accounted for in the AFDC eligibility process is also a complicating and time-consuming factor.

In addition to income, the AFDC eligibility process requires documentation and verification of family composition and household relationships as well as financial assets such as bank accounts, life insurance policies, and certain motor vehicles. Again, the documentation that is required for these items is extensive, requiring considerable time on the part of eligibility workers per case.

2 Administrative costs reported here include neither the child support enforcement activities nor social services provided to AFDC families. However, quality control activities are included.

Not only is AFDC costly on a per case basis, but also the ratio of administrative costs to benefit dollars is high. In fiscal year 1980 it was 12.3 percent, nearly 40 percent higher than UI. This difference is primarily attributable to the lower benefits under AFDC. For example, for the 1980 data shown in Table 1, the average annual benefit per filing unit was $3,126. Under UI the average was 50 percent higher at $4,769.

SUPPLEMENTAL SECURITY INCOME (SSI)

Supplemental security income ranks third in administrative costs per filing unit among the programs shown in Table 1, and for several reasons is substantially less costly than either AFDC or UI. These reasons are related to the characteristics of the caseload. SSI recipients are, by definition, aged, blind, or disabled individualsconditions that do not change in time-who are also poor. Therefore, turnover is low. While SSI is a means-tested program, the household and income circumstances of these people generally are less complex and less subject to change than those of the generally young families constituting the AFDC caseload. In general, SSI recipients do not have earned income and most SSI filing units are single individuals. As a result of their personal circumstances, eligibility determinations can be completed with less effort than an AFDC case, and because of the low turnover in the caseload there are fewer new determinations as a proportion of the caseload in a year.

It is interesting to compare SSI costs to costs under OASI and disability insurance (DI). SSI is substantially higher. However, while the characteristics of these caseloads are similar, the presence of the means test in SSI, and the requirement that there be yearly redetermination of means eligibility, has a substantial impact on the on-going administrative costs of SSI. In addition, the cost of securing medical evidence for applicants for SSI disability is frequenty paid by the Federal Government. As discussed under OASI and DI, there are few on-going costs associated with those programs once eligibility has been determined. Thus, the high cost of a means test, as discussed under AFDC, is reflected in the administrative costs of SSI also.

OASI AND DI

Social security retirement and survivor benefits and disability benefits have extremely low administrative costs per filing unit. These costs, as shown in Table 1, are $38 and $70 respectively.

Under OASI, once the initial financial determination is made, the only action taken to maintain the beneficiary caseload from that point on is simply the processing of checks. There is virtually no further routine personal contact with beneficiaries, although changes in such things as age of children and any earnings must be reported.

The DI program has costs that are nearly twice as high as OASI; yet, on average the cost per case is low, averaging almost 60 percent below that of SSI, for example. While DI involves an extensive medical review at initial determination and, for certain cases, a subsequent medical redetermination, those medical costs are usual

ly paid by the applicant (although there are exceptions). Nevertheless, on-going recipient contact involves primarily check-processing, an automated, routine, and inexpensive process.

MEDICARE A AND B

Table 1 shows medical costs per filing unit for both those enrolled in the programs and those who actually used a medical service during the year. Average administrative costs per actual recipient of services in these programs appear comparatively low. Most of the eligibility determination is a paper process, with no personal interview required, and it is up to the beneficiary and/or the physician or medical facility to prepare most of the required documentation. As expected, medicare part B, the supplemental medical insurance program, has higher costs than the basic hospital insurance program under part A because inpatient hospital services are simply more expensive. Also, a large proportion of those receiving protection under the part B program actually use the services in a given year.

LOW INCOME ENERGY ASSISTANCE PROGRAM (LIEAP)

The figures in Table 1 for the LIEAP are imprecise and preliminary, and should therefore be used with caution. Because of the nature of the data and the nature of this program in 1980, little meaning can be drawn from the administrative costs on a per case basis. The filing units reported include an unknown number of households that received more than one energy assistance check during the winter of 1980. Thus, this is not a totally unduplicated count of filing units under this program.

Costs for this program on a per case basis were reported to vary substantially because different methods were used to distribute the funds. In some cases, funds automatically were sent to recipients of other means-tested entitlement programs at little administrative cost, while in other cases funds were given only to those who supplied extensive applications and documentation of circumstances. Overall, it is estimated that administrative costs were roughly 5.1 percent of all program costs.

3 The Omnibus Reconciliation Act of 1981 requires more frequent redeterminations of disability than previously. Administrative costs, therefore, are likely to increase. This requirement took effect in January 1982.