Report to Congress on Options for Enhancing the Social Security Card

 BACKGROUND

The idea of charging fees for replacement Social Security cards is not new to SSA. It has been considered informally on many occasions and formally in 1982 and 1989 based on suggestions by field employees, SSA budget staff and the HHS Inspector General.

Proponents of fee charging generally cited three reasons to adopt such a policy: (1) to deter unnecessary repetitive replacement of lost, mutilated, or damaged cards; (2) to deter fraudulent use of replacement cards; and (3) perhaps most importantly, to reduce (offset) SSA's card replacement costs. In the latter context, fees were viewed as within the purview of the Federal government's "user fee" policy as expressed in OMB Circular No. A-25.⁽²³⁾ It was also likened to fees charged for drivers licenses, passports, and other "privilege" services or documents. However, proponents either acknowledged or suggested exemptions from replacement card fees for certain meritorious reasons; e.g., name change due to marriage or divorce, inability to pay, and loss due to natural disasters.

Historically, SSA rejected such fee proposals--not because it was impossible to do--but primarily for overriding policy reasons. From a policy perspective, SSA disagreed that Social Security card replacement represented a service or benefit within the meaning of OMB Circular A-25 and is clearly distinguishable from privilege documents such as drivers licenses, passports, pilot's licenses, credit cards, etc.

Public participation in the Social Security program is not a matter of individual choice--it is mandatory. Moreover, at least since IRCA, the government has determined that a Social Security card is essential proof of participation in the Social Security program. Thus the combination of mandatory participation and compulsory adherence to the methodology devised by the government to show that participation (the possession of a valid Social Security card) as well as the taxes already imposed on the public for participation in the program create a special relationship between the government (SSA) and the public that is very different from the relationships that exist between motor vehicle agencies, licensing bureaus and credit card companies. This relationship casts serious doubt on the policy wisdom of charging fees for Social Security cards.

Moreover, SSA did not believe charging fees for replacement cards would have any measurable effect on fraudulent use of duplicate cards. Any fee that would be acceptable to law-abiding citizens would not be high enough to deter those intent on committing fraud.

For these reasons, current SSA policy requires replacement of Social Security cards without charging any fees.


CURRENT ANALYSIS

In mandating this report, the Congress asked SSA to "evaluate the feasibility and cost implications of imposing a user fee for replacement cards and cards issued to individuals who apply for such a card prior to the scheduled 3-, 5-, and 10-year phase-in options." We interpret this to mean all individuals who would receive an enhanced Social Security card would be charged a fee regardless of when they apply. Thus this analysis differs from the previous ones which considered a much smaller universe of people to be charged; i.e., only those who ask for replacement cards for certain reasons. While nothing in the current analysis changes our view of the fundamental policy concern about charging fees for the required token of participation in a mandatory special tax-supported program, charging fees for the issuance of Social Security cards in an enhanced version is nevertheless feasible. The following information describes the underlying assumptions we used to estimate the cost and workyear implications of charging user fees, and provides the estimated user fees themselves, on a unit and total cost basis.

We currently handle approximately 200,000 remittances, primarily repayments of overpaid benefits, in our FOs each year. In order to handle a substantially higher volume, a new remittance process would be necessary and this estimate presumes a new streamlined process would be developed. In the new process, the fee would be collected as a part of the card issuance process and the new card would be issued only after the fee is collected. The estimate presumes a fee will be charged for all 277 million cards, however, Congress will likely provide some exceptions to the fee. For example, the very old, the very young or the very poor (e.g., entitled to Supplemental Security Income) could be exempted from paying a fee. If such categories of exceptions were identified, an automated method would be used where possible to determine who is exempt from the fee.

The estimated cost for collecting fees in conjunction with issuing enhanced Social Security cards to all 277 million numberholders is $1.3 billion. The unit cost would be about $4.60 for each card issued. This estimate excludes any initial start-up costs (e.g., equipment) and is conservative, since it does not include some items for which we cannot project costs until the process is more fully developed. The total individual fee would range from $19-$38; i.e., $14 to $33 cost of reissuing the card plus $4.60 for collecting the fee. Note that these costs are expressed in constant dollars (i.e., FY 1996 costs) and therefore do not include future increases in salary costs, equipment costs, inflation, etc. This estimate assumes that any staff support efforts related to user fees would have to be absorbed within current SSA staff support streamlining plans. The following table provides the total cost by card option, including the cost to administer a user fee process and the average fee per card.

Table 33. Total Cost of Issuing Social Security Cards to all Number Holders, Including the Cost of a User Fee Process
Social Security Card Options	Card Reissue Cost ($ million)	User Fee Process Costs ($ million)	Total ($ million)	User Fee Per Card
1/1A. Plastic card with security features	$3,898	$1,271	$5,169	$18.70
2. Plastic card with picture	4,254	1,271	5,525	20.00
3. Plastic card with secure barcode storage	4,250	1,271	5,521	20.00
4. Plastic card with optical storage	9,231	1,271	10,502	37.90
5. Magnetic stripe card (banking style)	3,985	1,271	5,256	19.00
6. Magnetic stripe (ID style with picture)	4,333	1,271	5,604	20.20
7. Microchip card with magnetic stripe and picture	7,288	1,271	8,559	30.90

Collecting user fees for all 277 million Social Security cards would require as many as 22,000 workyears that are currently unbudgeted. These workyears would also be in addition to the workyears needed to produce the enhanced cards.


OTHER CONSIDERATIONS

The mandate for this study is not clear on whether fees would be charged only for the initial reissuance of all SSN cards or would be continued for future replacements. Some card options in this report would not require mandatory periodic reissuance while others would; e.g., to update photographs. The choice of features on a new card will determine the need for an ongoing high volume periodic replacement process. With any choice, there would be replacements for ordinary reasons related to marriage, divorce, lost card, etc. Fees for future replacements under any scenario would be calculated in the same manner as for the initial reissuance process; i.e., the sum of card issuance costs and fee collection costs.

If Congress authorized exemptions from the fee, collection costs would increase due to the time necessary to: (1) explain the exemption requirements, and (2) evaluate and document individual eligibility for the exemption. The extent of the added costs would depend on the complexity of the exemption. Further, Congress would need to consider how these increased costs would be funded; i.e., as part of the fee charged to the non-exempt or from other appropriated funds.

Currently, about half of the 10 million replacement cards issued annually are for name changes related to marriage, divorce, adoption, etc. A fee, especially a very high one, is a potential disincentive to voluntary reporting of such changes to SSA. This is especially true for people for whom SSA historically has had greater difficulty maintaining accurate and up-to-date records; e.g., transient and migrant workers, low-wage workers, and domestics. These groups are expected to be least able or willing to report changes if a fee is required. However, some degree of non-reporting is expected among the general population as well.

Failure to report name changes timely to SSA increases SSA costs to reconcile discrepancies in wage reporting and other processes. It also means more discrepancies between SSA records and those of other Federal agencies that use the SSN. For example, SSA and IRS records are matched for name and SSN in processing tax returns. Mismatches delay processing including payment of tax refunds. The extent of these problems and their associated costs to the government could not be projected for purposes of this report since, to a large degree, non-reporting is likely to be directly related to the amount of the fee and to the absence or presence of any perceived disadvantage, loss or harm to the number holder for failure to report.

The Social Security Act neither authorizes nor prohibits imposing a fee for a Social Security card. Legislation would need to be enacted and a regulation promulgated to announce and govern imposing and collecting the fee.


FEE CHARGING IN CANADA

Recently, OIG studied the fee charged in connection with Canada's Social Insurance Number (SIN) card. A user fee of CAN$10 is charged for each replacement card. The SIN card is made of plastic without any technological enhancements.

No fee is charged for a name change or when the card is lost in a natural disaster and the welfare system provides funds to pay the fee for its clients who are unable to pay. If a person needs proof of a SIN, he or she may request a certification from the Canadian government; it is not necessary for him/her to pay for a replacement card.

Canada issues about 1 million replacement cards annually (compared to over 10 million replacement Social Security cards annually). The fee charged in Canada is designed to generate revenue and has remained unchanged since 1985, due to enhancements in automation of their systems and political pressure to avoid increases.

Every year Canada audits the user fee costs to set the fee for the following year. The costs of processing the fee are included. The Canadian government does not bear additional costs as a result of charging a user fee.

OIG found that the workload impact of the user fee activity on local offices is minimal. This is because the work force is already in place and the fee collection is a relatively small and integrated portion of the SIN card application process. Canada's replacement cards comprise about 20% of the volume of cards it issues annually; SSA's replacement cards constitute about 65% of the cards issued. One explanation for the significant difference in replacement rates is Canada's more limited uses for the card. The government strongly discourages private organizations from using the SIN and Canadian government employees have identification numbers that are different from their SINs.

OIG recommended that SSA charge a $13 fee for replacement cards based on the Canadian experience. The FY 1996 cost of issuing a Social Security card was $12.51. However, OIG's suggested $13 fee does not take into account the enhancements to the current Social Security card, or the cost of establishing a system for collecting and processing user fees. Any exemption from the fee is likewise not accounted for in the OIG-recommended fee. Finally, OIG did not discuss potential, negative consequences for individuals and for SSA if people chose not to replace their cards rather than pay the fee.

23. "Where a service (or privilege) provides special benefits to an identifiable recipient a charge should be imposed to recover the full cost to the government of rendering the service.....[if the service] is performed at the request of the recipient and is above and beyond the services regularly received by other members...of the general public."