Why the U.S. Government Still Sends Millions of Dollars to the Dead

(Bloomberg Law) -- Long before the Treasury Department sent $1.4 billion in stimulus checks to dead people last year, the U.S. government struggled to keep track of the deceased.

Dead farmers received about $22 million in crop subsidies over five years. The Federal Emergency Management Agency sent Hurricane Sandy disaster benefits to 45 people who died before the agency received their assistance applications. The Agriculture Department incorrectly paid $35 million in rural housing rental assistance because it didn’t know whether tenants passed away.

The misfires often aren’t human error. They result from a decades-long battle between state, local, and federal officials about who should have access to a portion of the Social Security Administration’s records on deceased Americans.

Their competing interests blocked a handful of attempts by Congress over the last decade to alter that access—until a watchdog report pointing out that more than 1 million stimulus checks went to dead people put a spotlight on the problem.

“The average person would think, have they lost their minds?” said Sen. Tom Carper (D-Del.). He has introduced three bills in his career about payments to deceased people.

To be sure, the U.S. Government Accountability Office found that the Internal Revenue Service and Treasury’s Bureau of the Fiscal Service sent stimulus money to deceased people because it thought it had to quickly send checks to all Americans who filed a tax return in certain years, not because tax collectors couldn’t check who is dead or alive. (The IRS has access to Social Security’s full death records but the Bureau of the Fiscal Service doesn’t, even though both are part of Treasury.)

But the situation lit a fire under members of Congress to fulfill a recommendation that same watchdog put at the top of its list for improving the federal coronavirus response—to direct the Bureau of the Fiscal Service to check the Social Security Administration’s state death records before payments from across agencies go out the door. Officials said they couldn’t do that without a law change.

States have lobbied against the idea for years, partly because they fund their record-keeping by selling death information to the Social Security Administration, and they want other federal agencies to fork over the dollars to use them, too. Nearly a quarter of the Social Security Administration’s death records come from states, an agency spokesperson said.

Under a law (Public Law 116-260) signed by former President Donald Trump in December, the Social Security Administration will have to rethink how much it pays states for death data, and other agencies who use it will have to swallow some of the costs. Still, it will take until 2023 for the Bureau of the Fiscal Service to start checking the death records before sending checks to Americans—and stimulus dollars are still being doled out.

The IRS, as of April 30, had managed to recover roughly 57% of the $1.2 billion in checks sent to deceased people during the first round of stimulus payments, according to the GAO. But it decided it wasn’t worth the time and expense to go after the rest.

‘Outmoded Model’

The Social Security Administration knows more about America’s seniors, and when they pass away, than a broad swath of federal agencies. Yet it doesn’t share all of the 2.9 million death records it collects each year with certain colleagues across government because of how it interprets a law passed decades ago.

The law allows Social Security to collect death records from states as a way to more quickly figure out if someone had died. There are monetary incentives to encourage states to submit death information within days. Death record-keeping helps save the Social Security Administration $50 million per month in erroneous dead-people checks, according to testimony from an agency official.

“If you’re paying benefits out to the accounts of people who have died, you don’t want it to go six months before you realize that,” said Janet Weiss, a public administration researcher at the University of Michigan.

But it can only share the state records with agencies that pay benefits to Americans, such as the Centers for Medicare and Medicaid Services and the Department of Agriculture, which used the data to help stop the payments to dead farmers. Other agencies are blocked from the state files and must use more incomplete death records that the Social Security Administration collects from other sources, such as family members and funeral homes.

The Social Security Administration has been asking Congress since at least 2016 to change these rules. But such a shift could threaten the future of state record-keepers whose revenue model often still relies on selling information about who is dead.

The Social Security Administration pays states about $9 million per year to use those death records, an agency spokesman said.

States earn at most $3.84 per record, even though the cost of one of those records for the public can be up to $34, said Shawna Webster, executive director of the National Association for Public Health Statistics and Information Systems.

“It’s an outmoded model, and one that should change given the essential role of vital records,” Webster said. “But that’s not likely.”

Years Away

The Bureau of the Fiscal Service screens payments across the government to check if any of the recipient’s characteristics make him or her ineligible, such as being part of a sanctioned group or owing too much money to an agency.

Beginning in 2023, it will be able to check state death files—but only until 2026, when Congress will have to decide whether to continue it. Public administration scholars will study the problem in the meantime as part of a compromise reached by state, local, and federal officials in December.

The death records they argued over are also far from perfect, according to the Social Security Administration’s inspector general. In Indiana, which mandates electronic death reports, officials registered an average of 92% of deaths properly between fiscal years 2012 and 2014. But in Michigan, where it isn’t mandatory, officials recorded an average of 31% of deaths in the same time span.

The law change also reimagines the role of Social Security in the federal government. The agency’s primary mission is to provide a safety net for seniors and Americans with disabilities, among others. It isn’t necessarily used to being a data bank for the entire federal government.

“To say, you should be the source within government of all of the death data, it’s like, ‘Well, that’s not really exactly what we were set up to do,’” Weiss said.

To contact the reporter on this story: Courtney Rozen in Washington at crozen@bgov.com

To contact the editors responsible for this story: Bernie Kohn at bkohn@bloomberglaw.com; Colleen Murphy at cmurphy@bloombergtax.com

©2021 Bloomberg L.P.