DON M. NEWMAN, ACTING SECRETARY OF HEALTH AND HUMAN SERVICES, ET
AL.  V. SANDRA EVERHART, ET AL.

   No. 88-1323

   In the Supreme Court of the United States

   October Term, 1988

   The Acting Solicitor General, on behalf of the Acting Secretary of
Health and Human Services, petitions for a writ of certiorari to
review the judgment of the United States Court of Appeals for the
Tenth Circuit in this case.

   Petition For A Writ Of Certiorari To The United States Court Of
Appeals For The Tenth Circuit

                      PARTIES TO THE PROCEEDINGS

   The petitioners are the Acting Secretary of Health and Human
Services and the Commissioner of the Social Security Administration.
The respondents are plaintiffs Sandra and Thomas Everhart and Myron
Zenick and intervenors Emil Zweizen and Berline Wise, representing a
Tenth Circuit-wide class of Title II and Title XVI beneficiaries,
certified by the district court, whose erroneous payments "were
recovered pursuant to the Secretary's netting regulations on or after
December 8, 1986" and who "have made or will make a claim to the
Secretary not to have the netting policy applied in their cases"
(App., infra, 27a).

            TABLE OF CONTENTS
   Question Presented
   Parties to the Proceedings
   Opinions below
   Jurisdiction
   Statutory and regulatory provisions involved
   Statement
   Reasons for granting the petition
   Conclusion
   Appendix A
   Appendix B
   Appendix C
   Appendix D

                            OPINIONS BELOW

   The opinion of the court of appeals (App., infra, 1a) is reported
at 853 F.2d 1532.  The district court opinion (App., infra, 17a), and
the district court order of class certification on remand (App.,
infra, 26a) are unpublished.

                             JURISDICTION

   The judgment of the court of appeals was entered on August 12,
1988.  A petition for rehearing with suggestion for rehearing en banc
was denied on October 24, 1988.  On January 13, 1989, Justice White
extended the time for filing a petition for a writ of certiorari to
February 7, 1989.  The jurisdiction of this Court is invoked under 28
U.S.C. 1254(1).

             STATUTORY AND REGULATORY PROVISIONS INVOLVED

   Section 204(a)(1), 204(b), 42 U.S.C. 404(a)(1), 404(b) and Section
1631(b)(1), 42 U.S.C. 1383(b)(1) of the Social Security Act are set
forth in the Appendix at 28a-312.  Social Security regulations 20 C.F.
 R. 404.504 and 416.538 are set forth in the Appendix at 31a-35a.

                          QUESTION PRESENTED

   Whether Social Security regulations that require netting of all
errors in a recipient's past benefit payments to determine whether
there has been an overpayment subject to recovery or waiver of
recovery are within the agency's statutory authority.

                               STATEMENT

   This case concerns the validity of Social Security regulations that
require the "netting" of past overpayments and underpayments of
benefits before determining whether any recoupment of overpayments
should be waived.

   1. Each month, the Social Security Administration (SSA), a unit of
the Department of Health and Human Services (HHS), mails more than 40
million checks to beneficiaries under Title II of the Social Security
Act, 42 U.S.C. 401 et seq. (Act) -- the Old Age, Survivors, and
Disability Program -- and Title XVI of the Act -- the Supplemental
Security Income (SSI) Program.  Most of these checks correctly reflect
the amount of benefits that the recipient is entitled to receive.  In
any program of this magnitude, however, mistakes are inevitable.
Overpayments may occur due to inaccurate reports of actual or
estimated income by beneficiaries (see 42 U.S.C. 403(a), 415),
erroneous computation of statutory offsets (see 42 U.S.C. 402(j),
402(k)(3)), unreported workers' compensation benefits (42 U.S.C.
424a), administrative errors, or delays in the termination of benefits
after entitlement has ended.  Underpayments may come about because of
beneficiaries' inaccurate reports of actual or estimated income,
delays in establishing entitlement to receive benefits, erroneous
terminations, and administrative errors.

   Section 204 of Title II and Section 1631(b)(1) of Title XVI, 42
U.S.  C. 404 and 1383(b)(1), require the Secretary of Health and Human
Services to correct errors in past payments whenever the beneficiary
has received "more or less" than the amount to which he is entitled.
The Title II provision, Section 204(a)(1), states that "(w)henever the
Secretary finds that more or less than the correct amount of payment
has been made to any person under (Title II), proper adjustment or
recovery shall be made, under regulations prescribed by the
Secretary." If the Secretary determines that "less than the correct
amount" has been paid, the recipient is entitled to reimbursement of
that amount.  42 U.S.C. 404(a)(1)(B).  If a recipient has received
"more than the correct amount," Section 204(a)(1)(A) permits the
Secretary to "decrease any payment" under Title II to the recipient or
to "require such overpaid person * * * to refund the amount." However,
Section 204( b) directs that "there shall be no adjustment of payments
to, or recovery by the United States" if the recipient was "without
fault" and if "such adjustment or recovery would defeat the purpose of
(Title II) or be against equity and good conscience." 42 U.S.C.
404(b).  In Califano v. Yamasaki, 442 U.S. 682 (1979), this Court held
that recipients who request a waiver under this section are entitled
to an oral hearing prior to any recovery or adjustment of benefits.

   The parallel SSI provision is worded somewhat differently, but is
similar in purpose and effect.  Section 1631(b)(1) of Title XVI states
that when the Secretary finds "that more or less than the correct
amount of benefits has been paid" to a recipient, the Secretary shall
make "proper adjustment or recovery." In the event that a beneficiary
has been overpaid, Section 1631(b)(1)(B), 42 U.S.C. 1383(b)(1)(B),
requires the Secretary to "make such provision as he finds appropriate
* * * with a view to avoiding penalizing such individual * * * who was
without fault," if an "adjustment or recovery * * * would defeat the
purpose of this subchapter, or be against equity and good conscience,
or (because of the small amount involved) impede efficient or
effective administration * * *."

   The Secretary has been given express authority to promulgate
regulations implementing these provisions, /1/ and has exercised that
authority by adopting what are known as "netting" regulations.  These
regulations require that all overpayments and underpayments in past
months be added or "netted" to yield a single payment error amount --
either a net underpayment or a net overpayment.  See 20 C.F.R. 404.504
and 416.538.  The Title XVI payment error regulation, 20 C.F.R.
416.538, defines "(t)he amount of an underpayment or overpayment" as
"the difference between the amount paid to a recipient and the amount
of payment actually due such recipient for a given period." The Title
II regulation, 20 C.F.R. 404.504, contains a similar definition of
"(t) he amount of an overpayment or underpayment." The Title XVI
regulation also defines the "period" over which any errors in monthly
payments are to be taken into account to "begin() with the first month
for which there is a difference between the amount paid and the amount
actually due for that month.  The period ends with the month the
initial determination of overpayment or underpayment is made." 20
C.F.R.  416.538.  Thus, if the Secretary finds that a beneficiary has
received an incorrect payment in the past, he is entitled to take into
account all other payment errors beginning with the month the first
error occurred and ending in the month the Secretary first discovers
the mistake.  Social Security Ruling (SSR) 81-19a (1981), provides
that the "netting" period prescribed under the Title XVI regulation
also applies to the calculation of a payment error amount under the
Title II regulation, 20 C.F.R. 404.504.  /2/

   2. a. The named respondents -- the three original plaintiffs and
two intervenors in the proceedings below -- are each entitled to
receive benefits under either Title II or Title XVI.  The Secretary
found that each of the respondents had received too much money during
some past months and too little money in other months, and applied the
netting regulations to calculate a net past payment error for each.
The three original plaintiffs were found, after netting, to have
incurred net underpayments.  The Secretary accordingly paid them the
net amount due.  In accordance with the regulations, however, they
were not afforded an opportunity to request a waiver of repayment with
respect to the overpayments they had previously received.

   Respondents filed a class action in the United States District
Court for the District of Colorado seeking declaratory and injunctive
relief against the Secretary and the Commissioner of the SSA.  They
claimed that the Secretary's netting procedure violated the terms of
the Social Security Act, and denied them due process of law under the
Fifth Amendment of the United States Constitution.  /3/ In their view,
the statute required the Secretary to segregate past overpayments and
past underpayments into separate accounts, to pay over the total
amount of all past underpayments, and then to apply the waiver of
recoupment procedures to the total of all past overpayments.

   Ruling from the bench, the district court (App., infra, 20a-25a)
granted respondents' motion for summary judgment.  Expressly
disagreeing with the decision of the Third Circuit in Lugo v.
Schweiker, 776 F.2d 1143 (1985), which had upheld the netting
regulations against a similar challenge, the court concluded that the
Secretary had accomplished an "end run * * * around both the waiver
statutes and the Supreme Court's decision in Califano v. Yamasaki"
(App., infra, 22a, quoting Lugo v. Schweiker, 776 F.2d at 1156
(Gibbons, J., dissenting)).  The court remanded the respondents'
claims to the Secretary for recalculation of their payment errors
without using the netting method.  The court further enjoined the
Secretary from applying that method to any Title II and Title XVI
beneficiaries in the State of Colorado.

   b. The court of appeals affirmed the judgment as to the named
respondents.  /4/ Although it acknowledged that "the Act does not
specify over what past time period there must be a determination of
payment errors" (App., infra, 11a), the court observed that "the
statute is not silent regarding the differential treatment of
overpayments and underpayments and the mandatory waiver of recovery in
appropriate instances" (ibid.).  Quoting from Judge Gibbons'
dissenting opinion in Lugo v. Schweiker, supra, the court found that
the practice of "offsetting past overpayments against underpayments"
allowed the Secretary to "effectively recover() overpayments without
complying with the statutorily mandated waiver of recoupment
procedures" (id. at 10a).  The court concluded that there were
"inherent conflicts between the regulations and the recoupment and
waiver of recoupments provisions," and held the regulations invalid
for failing to require a separate calculation of total overpayments
and total underpayments (id. at 13a).

   The court of appeals rejected the Secretary's argument that
elimination of the netting methodology would "result in a much more
complex system for dealing with payment errors" (App., infra, 11a
n.5).  Instead, the court found "reasonable" respondents' position
that one notice containing a separate list of all overpayments and
underpayments would comport with the statute, and concluded that such
a requirement would impose on the Secretary "no greater burden to
provide notices and hearings than that already imposed under the
statute and the Supreme Court's interpretation of the waiver
provisions." Id. at 12a n.5.

                   REASONS FOR GRANTING THE PETITION

   The court of appeals' decision in this case will impose significant
burdens on the Social Security Administration, both in terms of
multiplying the number of waiver requests and hearings that must be
considered, and in terms of the additional benefits that must be paid
out but may never be recouped.  Although the court perceived "inherent
conflicts" between the netting regulations and the Social Security
Act, those regulations are in fact entirely consistent with the
language of both Section 204 and Section 1631(b).  And even if there
were any ambiguity in the statute, the court of appeals should have
deferred to the Secretary's regulations, which promote administrative
efficiency at the same time that they insure that no beneficiary will
ever be subject to recoupment -- either by withholding of future
benefits or by demand for repayment -- without first being afforded an
opportunity to seek a waiver.  As the court of appeals acknowledged,
its decision is in direct conflict with decisions of the Third Circuit
and the Eighth Circuit, both of which have scrutinized the netting
regulations and found them lawful.  Lugo v. Schweiker, 776 F.2d 1143
(3d Cir. 1985);  Webb v. Bowen, 851 F.2d 190 (8th Cir. 1988).  Review
by this Court is therefore plainly warranted.

   1. The court of appeals acknowledged that its role in reviewing the
Secretary's netting regulations was a narrow one (App., infra, 5a):
"Because the Social Security Act expressly entrusts the Secretary with
the responsibility of implementing the Act by regulation, our review
of the disputed regulations is limited to determining whether the
regulations are arbitrary and capricious or are inconsistent with the
statute." Although the court articulated the correct standard of
review, see Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837, 842-844
(1984);  Heckler v. Campbell, 461 U.S. 458, 466 (1983), it went
seriously astray in suggesting that the netting regulations are
"inconsistent with the statute." The regulations are fully consistent
with both the language of the Social Security Act and Congress's
equitable goals in establishing a waiver of recoupment scheme.

   a. The statutory scheme makes clear that the correction of past
payment errors proceeds in two steps.  As set forth in the Title II
provisions, the Secretary must first determine, under Section 204(a)(
1), whether "more or less" than the correct amount has been disbursed.
 If this inquiry reveals an underpayment, then the Secretary must
automatically reimburse that amount to the beneficiary.  If on the
other hand the threshold inquiry reveals an overpayment, then it is
necessary to move to the second stage, set forth in Section 204(b).
That section provides that before the Secretary may seek any
"adjustment in payments to, or recovery by the United States" from a
beneficiary who is without fault, he must determine whether "such
adjustment or recovery would defeat the purpose of this subchapter or
would be against equity and good conscience." Section 204(b).  /5/

   The statute thus makes plain that the provision for a waiver, set
forth in Section 204(b), is triggered only by an attempt by the
Secretary to seek an "adjustment or recovery." It is the attempt to
recoup that gives rise to the opportunity to seek a waiver, not the
threshold determination that there has been one or more overpayments.
The netting regulations, which require the Secretary to afford an
opportunity for a waiver in every case where he seeks to recover an
overpayment, are therefore fully consistent with the statute.

   The court of appeals appears to have collapsed the two statutory
inquiries into a single stage, reading the statutes as if they
required an opportunity for a waiver whenever there is, for one or
more months in the past, an overpayment.  This would account for the
court's statement (App., infra, 11a) that "the statute is not silent
regarding the differential treatment of overpayments and underpayments
and the mandatory waiver of recovery in appropriate instances." There
is nothing in either statute, however, to suggest that the
identification of one or more monthly overpayments by itself triggers
the opportunity for a waiver.  /6/ The statutes make clear that a
waiver must be considered only when the Secretary seeks to make "an
adjustment or recovery." In effect, the court moved the provision for
waiver of recovery from Section 204(b) to Section 204(a).

   The court's holding that the netting regulations violate the
statute would follow only if the terms that trigger an opportunity for
a waiver -- "adjustment or recovery" -- necessarily included the
process of reducing past excess payments by netting them against past
deficient payments.  There is language in the court of appeals'
opinion that suggests this view.  See App., infra, 10a ("by offsetting
overpayments against underpayments, the SSA has effectively recovered
overpayments without complying with the statutorily mandated waiver of
recoupment procedures").  And that was clearly the premise of Judge
Gibbons' dissenting opinion in Lugo v. Schweiker, on which the court
below heavily relied.  See 776 F.2d at 1154 (footnote omitted) ("No
recovery means no recovery by setoff, and no recovery by suit;  no
recovery at all.").  The language and history of the waiver provisions
make plain, however, that the words "adjustment or recovery" were
intended to refer only to (i) the withholding of future benefits
("adjustment") or (ii) a legal demand for payment from the recipient
or his estate ("recovery").  /7/ There is no suggestion in these
materials that either of these terms was intended to encompass
reductions of overpayments by offsets against past underpayments.

   b. Even if there were some ambiguity about the meaning of
"adjustment or recovery," the court of appeals should not have
resolved that ambiguity simply by adopting its own preferred answer to
the interpretative question.  When a court "determines Congress has
not directly addressed the precise question at issue, the court does
not simply impose its own construction of the statute, as would be
necessary in the absence of an administrative interpretation.  Rather,
if the statute is silent or ambiguous with respect to the specific
issue, the question for the court is whether the agency's answer is
based on a permissible construction of the statute." Chevron, 467 U.S.
 at 843 (footnote omitted).

   Here, there can be no doubt that the Secretary's netting
regulations are at the very least a "permissible" construction of the
statute.  Not only does the phrase "adjustment or recovery" permit of
a construction consistent with the netting procedure, but the
operative terms that define when there has been an overpayment or
underpayment also permit the Secretary to adopt the methodology
reflected in the regulations.  Section 204(a) states that "(w)henever
the Secretary finds that more or less than the correct amount of
payment has been made" to a recipient, the Secretary shall make
"proper adjustment or recovery" as prescribed.  The term "more or
less" is not defined in Section 204(a) or any other section, nor does
the Act say over what past period of time the payment error
determination may be made.  Unlike the benefit provisions of the
Social Security Act, which expressly require payments "for each
month," see 42 U.S.C. 402(a), 423(a), 1382(c)(1), Section 204(a) does
not contain any such limitation.  Thus, it was entirely proper for the
Secretary to define the appropriate period for determining whether a
recipient has been paid "more or less" as the entire period between
the month when an error first occurs and the month when that error (as
well as other subsequent errors) is detected.  20 C.F.R. 416.538.  /8/

   Nor can there be any claim that the Secretary's construction is
unreasonable.  The primary purpose of the waiver provision is to
protect subsistence-level beneficiaries against the hardship of having
to repay a debt to the government out of their limited assets or
through reduction in future benefits.  This objective is consistent
with Congress's general purpose in creating Titles II and XVI:  to
ensure that beneficiaries maintain a minimally adequate standard of
living.  See Lugo, 776 F.2d at 1152-1153;  Beatty v. Schweiker, 678 F.
 2d 359, 363 (3d Cir. 1982).  The netting regulations respect this
concern no less effectively than the court of appeals' system of
separate accounting.  Under the netting procedure, the Secretary may
never reduce future benefits or bring an action to collect a refund
without first affording the beneficiary the opportunity to seek a
waiver.

   On the other hand, whereas the netting regulations insure that
"netted" beneficiaries receive no less than the full amount to which
the statute entitles them, the Tenth Circuit's rule requires that the
Secretary deliberately make payments in excess of entitlements.  Under
netting, beneficiaries are automatically reimbursed for any difference
between the total amount due and the amount actually paid -- that is,
the net underpayment.  Separate accounting, in contrast, requires the
Secretary automatically to reimburse all underpayments, whether or not
the beneficiary has already been repaid in the form of mistaken
overpayments.  Thus, the court of appeals' approach will in many
instances require the Secretary to make additional payments to
beneficiaries who already have been effectively "paid up."

   2. The court of appeals, following the dissenting judge in Lugo v.
Schweiker, supra, also suggested that the Secretary's netting
regulations are contrary to this Court's decision in Califano v.
Yamasaki, 442 U.S. 682 (1979).  But as the majority pointed out in
Lugo, Yamasaki in fact confirms the reasonableness of the Secretary's
reading of the statute.  In Yamasaki, the Court held that disputes
concerning determinations of error under Section 204(a) require less
stringent procedures than waiver determinations under Section 204(b).
While the Court "required a hearing for determination of imprecise
(Section 204(b)) standards such as 'fault,' it noted that disputes may
arise over the (Section 204(a)) calculation of overpayment but there
need be no hearing to resolve them." Lugo, 776 F.2d at 1149.  The
Yamasaki Court thus made clear that an oral hearing is not a necessary
prerequisite to a determination whether "more or less" than the
correct amount has been paid.  In holding that the Secretary's method
for ascertaining error deprives recipients of a hearing to which they
are entitled, the Tenth Circuit's ruling interposes a procedural
requirement that this Court has held does not apply.

   3. As the court of appeals expressly acknowledged (App., infra,
9a-10a), its decision "creat(es) a split between circuits." /9/ In
Lugo v. Schweiker, 776 F.2d 1143 (1985), a class action brought by an
SSI beneficiary on behalf of a class of Title II and Title XVI
beneficiaries, a divided panel of the Third Circuit upheld the
Secretary's netting regulations.  The Lugo court analyzed the
regulations under the Chevron framework, and held that they reflected
a reasonable exercise of the authority delegated to the Secretary by
Congress.  In so ruling, the court recognized that the statute
prescribes a two-stage procedure.  As the court stated, "Section (204(
a)) compels the Secretary to make a finding concerning the erroneous
payments at issue;  only afterwards does (Section 204(b)) provide a
hearing and an opportunity for waiver should SSA find that an
overpayment occurred." 776 F.2d at 1149 (citation and footnote
omitted).  The court accordingly concluded that the waiver of
recoupment provision applied only to the amount of overpayment as
determined under Section 204(a), and the netting practice in no way
compromised the recipient's right to a hearing prior to recoupment of
overpayments.  /10/

   Similarly, in Webb v. Bowen, 851 F.2d 190 (1988), the Eighth
Circuit considered and rejected an individual social security
recipient's claim that the practice of netting violated Title II.
/11/ The court in Webb agreed with the majority in Lugo that "Congress
did not address the method to be used in determining the existence of
an under or overpayment," 851 F.2d at 192, and concluded that "there
is no statutory authority mandating that the Secretary use separate
figures for each month, rather than the aggregate approach he has
adopted." Ibid.  As did the Lugo majority, the Webb panel construed
Section 204( b) as conferring no more than the opportunity to waive
"the amount found to be overpaid under section (204(a))," and reasoned
that the Secretary's method therefore deprived recipients of no
procedural rights conferred by the provision for equitable waiver.

   Both the Eighth and the Third Circuits recognized that neither the
statute nor the legislative history definitively establishes the
meaning of the phrase "more or less," which appears in Sections 204(a)
and 1631(b)(1).  Both acknowledged that by electing not to restrict
the period over which the Secretary could determine whether "more or
less" than the correct amount has been paid, Congress left to the
Secretary's discretion the choice of such period.  By applying the
appropriate "arbitrary and capricious" standard of scrutiny under
Chevron, 467 U.S.  at 844, the Lugo and Webb panels concluded that a
reasonable construction of the statute did not foreclose the
Secretary's choice of method.  In rejecting this line of reasoning,
the Tenth Circuit's decision is squarely at odds with Lugo and Webb.

   4. The issue in this case is of considerable practical importance,
affecting hundreds of thousands of individual claims for adjustment of
benefits under two of the largest federal entitlement programs.
Between 1981 to 1986, an average of 4.7 million persons annually were
affected by some form of payment error in the Title II retirement and
survivor's insurance program alone.  /12/ HHS estimates that it
applies the netting procedure to about 300,000 retirement and
survivors insurance program beneficiaries each year, and to thousands
of others in the remaining programs (such as disability) under both
Titles.  The elimination of a method that allows a single
determination of error for each beneficiary will result in an
unwarranted multiplication of labor-intensive procedures, and in the
disbursement of benefits in excess of substantive entitlements to
thousands of beneficiaries every year.  This in turn will dramatically
increase the cost and difficulty of administering the programs and
drain funds that would otherwise go to needy individuals.

   The Tenth Circuit rule, which requires calculation of at least two
error amounts in all cases where netting produces one, has several
practical consequences.  First, because the government would receive
no credit for past overpayments in computing past underpayments which
must be automatically reimbursed, the total amount of money the
Secretary must pay out will substantially increase.  Those who would
otherwise be overpaid after netting will be entitled to reimbursement;
 those who would be underpaid after netting will be entitled to larger
amounts.  /13/ The additional outlay for 300,000 recipients will be
quite substantial, as the average error involved in each case of
underpayment has been estimated at almost $600.  GAO Report at 27.
Regardless of whether these payments are eventually recovered, SSA
will be obliged to set aside large reserves for reimbursement and new
administrative costs.

   In addition, if netting is foreclosed, the more than 150,000
individuals per year /14/ who are currently found to be underpaid
(because their total underpayments exceed their total overpayments)
will be converted into beneficiaries with outstanding overpayments
(because their underpayments will be automatically paid, leaving only
overpayments).  The multi-step task of processing this new pool of
overpaid beneficiaries will demand considerable administrative effort.
 Even if waiver is not requested, the SSA must notify recipients of
their right to request a waiver, answer inquiries and requests for
explanations, review and resolve requests for reconsideration as to
the fact or amount of overpayment, complete overpayment recovery
questionaires, establish payback or future benefit adjustment
schedules, monitor or suspend repayment on the basis of pending
appeals, and institute collection actions.  If a waiver is requested,
then in addition the agency must engage in a comprehensive,
case-by-case inquiry into the beneficiary's personal circumstances and
the reasons for the mistaken payment in order to make decisions as to
"fault," "defeat the purpose" and "equity and good conscience." /15/
The beneficiary must then be accorded a face-to-face hearing before
waiver can be denied and recovery commenced.  See Califano v.
Yamasaki, supra.

   These procedures, however burdensome, serve an important and
appropriate function in protecting subsistence-level beneficiaries
against the loss of future benefits due to past mistakes that are no
fault of their own.  Surely it is perverse, however, to adopt a rule
that in effect requires that beneficiaries be deliberately overpaid,
and then subjected to these elaborate procedures before the Secretary
may attempt recoupment.  Congress never contemplated such a result,
and the Secretary's considered regulations do not require it.  The
decision of the court of appeals in this case, which compels the
Secretary to adopt such a procedure, is wrong and warrants further
review by this Court.

                              CONCLUSION

   The petition for a writ of certiorari should be granted.

   Respectfully submitted.

   WILLIAM C. BRYSON

      Acting Solicitor General

   JOHN R. BOLTON

      Assistant Attorney General

   THOMAS W. MERRILL

      Deputy Solicitor General

   AMY L. WAX

      Assistant to the Solicitor General

   WILLIAM KANTER

   MARY DOYLE

      Attorneys

   FEBRUARY 1989

   /1/ Section 204(a)(1) of Title II, 42 U.S.C. 404(a)(1), itself
directs that proper adjustment or recovery be made "under regulations
prescribed by the Secretary." Both Title II and Title XVI also contain
general provisions expressly delegating to the Secretary "full power
and authority to make rules and regulations and to establish
procedures, not inconsistent with the provisions of this subchapter,
which are necessary or appropriate to carry out such provisions * *
*." 42 U.S.C. 405(a), 1383(d)(1).  See Heckler v. Campbell, 461 U.S.
458, 466-467 (1982).

   /2/ The Title II regulation was originally promulgated in 1955, see
20 Fed. Reg. 2,662, and was amended in 1969, see 34 Fed. Reg. 14,888.
The Title XVI regulation, see 40 Fed. Reg. 47,763, was first adopted
in 1975 to implement Section 1631, 42 U.S.C. 1383, which was enacted
as part of the Social Security Amendments of 1972, Pub. L. No. 82-603,
Section 109,86 Stat. 1475.  The Title XVI regulation was revised in
1985 to eliniate a provision that required netting on a quarterly
basis and to adopt the current method, which requires netting over the
entire period in which past errors are uncovered.  See 50 Fed. Reg.
48,573.

   /3/ Because both courts below held that the regulations violated
the statute, neither considered the constitutional challenge.

   /4/ The court reversed the district court's grant of statewide
injunctive relief on the ground that no class had been certified, and
remanded for further proceedings (App., infra, 16a & n.7).  On remand,
the district court certified a circuit-wide class of Title II and
Title XVI beneficiaries whose erroneous payments "were recovered
pursuant to the Secretary's netting regulations on or after December
8, 1986" (App., infra, 27a) and who "have made or will make a claim to
the Secretary not to have the netting policy applied in their cases"
(ibid.).  The Secretary was ordered to identify all class members by
February 20, 1989 (ibid.).

   /5/ Although Section 1631(b) of Title XVI, unlike Section 204 of
Title II, is not divided into two subsections, the many similarities
in language and function between the two provisions indicate that they
should be read in para materia.  As in Title II, the Secretary must
complete the determination whether "more or less" has been paid under
Title XVI before taking the appropriate remedial measure.

   /6/ Neither Section 204(a)(1) nor Section 1631(b)(1) uses the terms
"overpayment" and "underpayment" in the text of the statute (although
those terms do appear in the headings).  Instead, both provisions
refer to the Secretary's finding that "more or less than the correct
amount of benefits has been paid" to "any person" (Section 404(a)) or
"with respect to any individual" (Section 1383(b)(1)(A)).  This
language does not suggest that different types of past mistakes should
be rigorously segregated, or that the Secretary is expected to compute
more than a single error amount.  In fact, it suggests the contrary.
The disjunctive "or" implies that the Secretary is expected to find
one or the other type of error in each case.

   /7/ Section 1631(b)(1) in fact describes "adjustments" more fully
as "appropriate adjustments in future payments to such individual * *
*" (emphasis supplied).  Thus, an "adjustment" cannot be an offset
against past underpayments.  And Section 204(a) describes a "recovery"
more fully as "requir(ing) such overpaid person or his estate to
refund the amount in excess of the correct amount * * *." This is
language strongly suggestive of a legal demand for payment out of a
beneficiary's separate assets.

   The history of the payment error provisions confirms these
inferences drawn from the text.  As originally enacted, the Social
Security Act of 1935 permitted the government to recover overpayments
of old-age benefits only by demanding repayment from the estate of
recipients upon their death.  See Pub. L. No. 74-271, Section 206, 49
Stat. 624.  This section was modified in 1939, see Pub. L. No. 76-379,
53 Stat. 1368, and renumbered as Section 204, to permit recoupment of
excess payments during the beneficiary's lifetime.  The 1939 version
of Section 204(a) expressly authorized only one method of recoupment
-- "proper adjustment" by means of "increasing or decreasing
subsequent payments to which such individual is entitled." By defining
"adjustment" in terms of modification of subsequent benefits, Congress
plainly indicated that an "adjustment" referred only to withholding
from future benefits.

   At the same time, Congress was concerned about the possible
hardship that withholding of future benefits might create, and
therefore added Section 204(b) to allow a waiver in appropriate
circumstances when the Secretary sought to make an "adjustment or
recovery." Since the only two methods of recoupment that then existed
were withholding of future benefits and a demand for payment from the
recipient's estate, "adjustment" clearly referred to the former and
"recovery" to the latter.  This was confirmed by the Senate Report,
which explained that Section 204(b) was intended to "waive() any right
of the United States to recover by legal action or otherwise in any
case of incorrect payments" to individuals without fault.  S. Rep. No.
734, 76th Cong., 1st Sess. 51 (1939).

   In 1967, Congress amended Section 204 to enact the present version.
 Noting that the prior version of Section 204(a), by authorizing only
withholding of future benefits and recovery from an estate, had
created a loophole in cases where the recipient was still alive but
benefits were no longer being paid, Congress added an additional
method of recovery:  a "refund." See S. Rep. No. 744, 90th Cong., 1st
Sess. 94 (1967) ("Under the bill, the Secretary would have authority
in any case where there has been an overpayment of cash benefits, to
recover the overpayment by requiring a refund or by withholding the
cash social security benefits (to anyone) getting benefits on the same
earnings record, whether or not the overpaid person is alive.").  See
also id.  at 257.  The Report thus makes clear what is apparent from
the statute itself:  the terms "adjustment" and "recovery" refer
respectively to the prospective remedial measures of (i) withholding
of future benefits or (ii) legal action to recover a refund, either
from a living recipient or from an estate.

   /8/ The court of appeals acknowledged that neither Section
204(a)(1) nor any other provision expressly specifies "over what past
time period there must be a determination of payment errors." App.,
infra, 11a. It follows that "Congress (did) not directly address() the
precise question at issue," Chevron, 467 U.S. at 843, and the court
should have deferred to the Secretary's construction.

   /9/ In Griffin v. Califano, 448 F. Supp. 430 (N.D. Ga. 1977), the
district court rejected a constitutional challenge to the netting
regulations, but did not address the question of whether they violated
the Social Security Act.  The Fifth Circuit summarily affirmed the
district court's decision.  See Griffin v. Harris, 608 F.2d 1371
(1979).

   /10/ The court also rejected the claim that the netting regulations
violated beneficiaries' rights to due process and equal protection
under the Fifth Amendment.  Lugo, 776 F.2d at 1151-1152.

   /11/ The court in Webb did not expressly rule on the legality of
netting under the Title XVI provisions.

   /12/ See Social Security:  Payment Accuracy Rates Are Overstated,
United States General Accounting Office Report to the Chairmen, U.S.
Senate Subcomm. on Labor, Health and Human Services, and Education,
Comm. on Appropriations 19 (Oct. 1987) ("GAO Report").

   /13/ For example, a beneficiary with $1000 in total underpayments
and $500 in total overpayments during a past period would be entitled
to reimbursement of $500 after netting.  Under a separate accounting
system, he would be entitled to reimbursement of $1000 -- $500 more
than he would have received under the netting regulations.  This extra
$500 -- which previously would have been netted against his
underpayment -- would now be considered an overpayment that must be
recovered separately.

   Conversely, a beneficiary found to have a net past overpayment of
$500 based on $500 in total past underpayments and $1000 in past
overpayments would be entitled to no reimbursement under netting, but
would owe the SSA $500.  Under the system of separate accounting, the
recipient would be entitled to $500 in reimbursement, and the SSA
would be forced to attempt to recover a larger amount -- $1000 --
representing overpayments considered separately.  In sum, the
disallowance of netting will affect the distribution of funds in three
ways:  (1) the Secretary must disburse a larger amount of money to all
beneficiaries with past mixed errors;  (2) the Secretary must attempt
to collect overpayments from a new class of beneficiaries not
previously considered overpaid;  and (3) the amount that the Secretary
must attempt to collect from those previously considered overpaid will
rise.

   /14/ HHS estimates that over 60% of all payment errors subject to
correction (both "net" and "pure") are underpayments, see GAO Report
at 27, and, by extension, that the group found underpaid after netting
represents a majority of "netted" beneficiaries.

   /15/ The multiple criteria for a finding that a beneficiary is
without fault are set forth at 20 C.F.R. 404.507, 510, 510a, 511
(Title II) and 416.552 (Title XVI).  The determination involves a
sophisticated exercise of administrative judgment based on a host of
individualized factors.  See, e.g., 20 C.F.R. 404.507 (the
administrator "will consider all pertinent circumstances, including *
* * age, intelligence, education, and physical and mental condition");
 20 C.F.R. 416.552 ("Whether the individual is 'without fault' depends
on all the pertinent circumstances surrounding the overpayment in the
particular case.").

   With respect to the "equity and good conscience" exemption, the
regulations require the SSA to investigate whether the recipient
"because of a notice that such payment would be made or by reason of
incorrect payment, relinquished a valuable right * * * or changed (his
condition) for the worse." 20 C.F.R. 404.509;  see also 20 C.F.R.
404.512, 416.554.  A "defeat the purpose" determination, in many
instances, necessitates a comprehensive investigation of the
beneficiary's financial circumstances to ascertain if recovery would
"deprive (an individual) of income required for ordinary and necessary
living expenses." 20 C.F.R. 404.508(a) (Title II) and 416.553 (Title
XVI).

   Finally, Title XVI requires the administrator to decide whether the
amount involved is too small to justify recovery by comparing the
projected recoupment amount to the "administrative cost of handling"
an overpayment case.  See 20 C.F.R. 416.555.

   Appendix