Behavioral economists will tell you that incentives are effective at spurring action. Small businesses have loyalty programs offering you a free item after you’ve first purchased ten others because they know you will pay for ten to earn a free eleventh.
The U.S. legal system is no stranger to the impact of incentives. The federal tax code, with its incentives to donate to charities or purchase certain items, is a case study in how governments use economic incentives to motivate people to take certain actions deemed beneficial to society. Fee-shifting statutes and contingency fee agreements incentivize attorneys to help clients vindicate their rights and secure the most favorable outcomes for them without concern for whether those clients will be able to afford to pay their attorneys’ fees.
But what happens when an incentive built into the legal system begins to do more harm than good? What happens when that incentive reduces the number of attorneys ready, willing, and able to assist clients in need of legal representation?
I believe we are at that point in the world of Social Security Disability law, specifically the statutory fee cap last adjusted in 2009 that limits attorneys’ fees to the lower of 25% of a client’s recovery or $6,000. The cap is causing disabled clients to bear the brunt of a shortage of attorneys willing to practice in this area of law.
The history of the Social Security Act’s cap on attorneys’ fees
As I explained in a recent article, in 1965, Congress, through amendments to the Social Security Act of 1935, established monthly Social Security disability insurance (“SSDI”) benefits for the first time. The SSDI program is not a public assistance program. It is a disability insurance program that pays benefits to those suffering from disabling medical conditions that prevent them from working. The SSDI benefits an individual receives are funded by the withholdings taken from each paycheck that individual has ever earned. The maximum annual SSDI benefit an individual can receive is $36,000.
SSDI attorneys work on a contingency basis. Fees are paid out of the back benefits an individual receives when they are approved for SSDI benefits. Thus, SSDI attorneys are only entitled to fees when their clients are awarded past-due benefits. SSDI attorneys do not send clients bills for their fees. Instead, they submit fee requests to the Social Security Administration.
Unlike most plaintiffs’ attorneys’ contingency fees, and as I alluded to above, the fees SSDI attorneys are entitled to are capped by statute: section 206 of the Social Security Act (42 U.S.C. § 406). Today, that cap stands at the lower of 25% of a client’s recovery or $6,000—if a client and their attorney have a fee agreement. If they do not, the Social Security Administration may award a “reasonable” fee.
(Under section 206, the 25%/$6,000 cap applies to fees for successful representations before the Social Security Administration. For successful appeals/representations before a federal court, attorneys’ fees are capped at 25% of the benefits obtained. Relatively recently, the U.S. Supreme Court held in Culbertson v. Berryhill, 586 U.S. 304 (2019), that the cap of the latter set of fees does not include the former set of fees. However, because the majority of SSDI claims are resolved before the Social Security Administration, I am focusing on the 25%/$6,000 cap.)
Interestingly, the Social Security Act did not include limits on attorneys’ fees when it became law. It wasn’t until 1939, four years after it was passed, that Congress amended the statute to allow the Social Security Administration to set maximum fees attorneys could charge for representation of claimants before the agency. In 1965, Congress added a new subsection (b) to section 206 that explicitly provided fees for representation before a court and “allow[ed] withholding of past-due benefits to pay” these fees directly to the attorney. In 1968, Congress amended subsection (a) to give the agency similar withholding authority to pay attorneys’ fees incurred in administrative proceedings.
The capped dollar limit on attorneys’ fees began with the Omnibus Budget Reconciliation Act (OBRA) of 1990. OBRA of 1990 set the initial fee cap amount at $4,000 and gave the Commissioner of the Social Security Administration the authority to increase the cap periodically, provided that the cumulative rate of increase did not at any time exceed the rate of increase in primary insurance amounts since January 1, 1991.
On January 17, 2002, the Social Security Administration announced it was raising the maximum attorney’s fee to $5,300. On February 4, 2009, it announced it was raising the maximum attorney’s fee to $6,000. When publishing the 2009 increase in the Federal Register, the Social Security Administration stated that it believed the increase would “adequately compensate representatives for their services while ensuring that claimants are protected from excessive fees.”
Since then—15 days after Barack Obama was inaugurated as President of the United States for the first time—the maximum amount of fees an attorney can obtain for securing a client’s SSDI benefits after prevailing in a proceeding before the Social Security Administration has not exceeded $6,000.
The current cap on attorneys’ fees is inadequate and contrary to clients’ interests
Like all good-faith caps on attorneys’ fees, the Social Security Act’s attorneys’ fee cap is an attempt to align the interests of individuals looking for assistance securing SSDI benefits with those of the attorneys who can provide that assistance. I’m sure some SSDI attorneys view the fee cap as an artificial limit on their ability to generate fees. However, I believe it is more properly viewed as an incentive. It incentivizes would-be SSDI claimants to seek legal counsel to help them secure SSDI benefits because it eliminates their need to pay their attorneys’ fees out of pocket. The cap also incentivizes attorneys to practice in this area of law by providing certainty about the fees they can earn from client representations and certainty about payment of those fees since the Social Security Administration is the entity paying.
The problem with the Social Security Act’s attorneys’ fee cap is that it has remained at $6,000 for thirteen years. As a result, it has failed to keep up with inflation. This failure is contrary to clients’ interests and undermines the client-focused justification for having an attorney fee cap in the first place.
Adjusting for inflation, the $4,000 fee cap established in 1991 is approximately $8,163 in today’s dollars. The $5,300 fee cap established in 2002 is approximately $8,188 in today’s dollars. And the $6,000 fee cap established in 2009 is approximately $7,773 in today’s dollars. Those are the equivalent of between a 30% and a 36% increase in today’s $6,000 fee cap. Said another way, if today’s fee cap was adjusted for inflation, an SSDI attorney could earn roughly the same amount of fees helping three clients secure SSDI benefits as they do today helping four clients do so.
As a founding partner of the largest workers’ compensation and disability law firm in Pennsylvania, I have seen firsthand how the failure of the attorneys’ fee cap to keep up with inflation has dissuaded attorneys in Pennsylvania and across the U.S. from taking more SSDI cases. I have no doubt attorneys will continue to be dissuaded for the foreseeable future.
SSDI is a time-intensive, volume practice. The law firms securing the best results for the largest number of clients, and doing so profitably, are the ones who have built efficient systems and processes for serving their clients that rely on paralegal and other staff assistance to complete tasks that attorneys need not do themselves. At the same time, these firms invest in providing the kind of stellar client service that leads to referrals and positive online reviews which in turn bring new client matters in the door.
With the Social Security Act’s current attorneys’ fee cap, solo SSDI attorneys or SSDI firms with an attorney or two and some staff members tend to have trouble doing SSDI work at a scale that allows them to be profitable while fulfilling their ethical duties of competence and diligence. It’s not unusual for an SSDI case to require between 20 and 40 hours of a law firm’s time before it is resolved. Many SSDI attorneys simply cannot devote the time and effort to their clients’ cases necessary to secure the best possible results because of the large number of cases on their personal dockets necessary to keep the lights on at their firms. My colleagues and I have seen a fair share of these SSDI attorneys pursue other practices.
As fewer attorneys continue taking SSDI cases across Pennsylvania and the U.S., there will be fewer options for clients who need the help only an experienced SSDI attorney can provide. That may lead to an increased number of would-be claimants unable to secure SSDI benefits. Given the fact that, according to the Social Security Administration, as of November 2021, 7.9 million Americans were receiving SSDI benefits (which is roughly 2.4% of the U.S. population), the failure to increase the attorneys’ fee cap could force millions of Americans to make a cruel decision: navigate the federal bureaucracy themselves or risk losing the roofs over their heads and the ability to pay for their families’ everyday expenses.
The time is now to adjust the current cap on SSDI attorneys’ fees
I recognize that it is easy for my complaints about the current state of the Social Security Act’s attorneys’ fee cap, as an SSDI attorney, to seem self-centered and profit-driven. Obviously, the higher the cap, the more revenue SSDI attorneys, including me, bring into our firms.
But the current state of the cap is problematic for reasons beyond any one attorney’s or law firm’s profit and loss statement. What started in part as an incentive for attorneys to take SSDI cases is now giving them pause and encouraging them to pursue more profitable legal practices. This is causing problems today for would-be SSDI claimants that will exponentially increase in the future as fewer SSDI attorneys continue their practices.
It’s time for the Social Security Administration to end the exodus of hardworking, justice-seeking SSDI attorneys who feel they must stop practicing SSDI law if they want to bring in enough revenue to keep their firms in business and put food on the table for their families.
The Social Security Administration must increase its attorneys’ fee cap to an inflation-adjusted amount consistent with the inflation-adjusted amounts of previous fee caps. Only then can the SSDI bar stem the tide of SSDI attorneys leaving the practice for more profitable ones—which is forcing would-be clients to have to search harder for competent SSDI attorneys.
Until then, those would-be clients will continue paying the price for the Social Security Administration’s inadequate attorneys’ fee cap.
Reprinted with permission from the January 18, 2022 edition of The Legal Intelligencer/Pennsylvania Law Weekly © 2022 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or firstname.lastname@example.org.