Paxton v. Secretary of Health and Human Services

Decision Date08 September 1988
Docket NumberNo. 87-1769,87-1769
Citation856 F.2d 1352
Parties, 23 Soc.Sec.Rep.Ser. 37 Florence PAXTON, Plaintiff-Appellant, v. SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant-Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

Phillip N. Bruce, Sacramento, Cal., for plaintiff-appellant.

Nancy Wever, Asst. U.S. Atty., San Francisco, Cal., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of California.

Before SCHROEDER, PREGERSON and BRUNETTI, Circuit Judges.

PREGERSON, Circuit Judge:

This case concerns the interrelationship of Supplemental Security Income (SSI) benefits and Veterans Administration (VA) benefits. The specific issue is whether that portion of VA benefits paid to a veteran for the support of the veteran's dependent may be counted as unearned income to the dependent in calculating the dependent's SSI benefits. We reject the Secretary's 1981 policy of automatically counting the dependent's portion of VA benefits as unearned income to the dependent. Because the district court upheld the Secretary's policy, the district court's decision is reversed. 657 F.Supp. 93.

I BACKGROUND

The goal of the SSI program is to provide aged, blind, or disabled individuals with at least a subsistence level income. 20 C.F.R. Sec. 416.110 (1988). The SSI regulations set a minimum income level below which the federal government thinks people should not have to live. Id. The level for a single eligible individual as of January 1, 1986 was $4,032 per year, or $336 per month. Sec. 416.410.

"Supplemental Security Income" benefits are so named because they supplement an individual's other sources of income. The Secretary totals the amount of income an individual receives from other sources, subtracts that amount from the minimum income level, and pays the SSI claimant the difference. Thus, "[t]he monthly rate is reduced by the amount of the individual's [other countable] income." Id.

This approach to paying benefits places critical importance on the definition of income. See Sec. 416.1100 ("the amount of income you have is a major factor in deciding whether you are eligible for SSI benefits and the amount of your benefit"). The basic SSI definition of income is:

... anything you receive in cash or in kind that you can use to meet your needs for food, clothing, or shelter. In-kind income is not cash, but is actually food, clothing, or shelter, or something you can use to get one of these.

Sec. 416.1102. This definition is deceptively simple. Subpart K of the SSI regulations, 20 C.F.R. Secs. 416.1100 to 416.1182, contains thirty-two pages of rules explaining what is counted and what is not counted as income. The term "income" is also broken down into different kinds of income: "earned income," "unearned income," "in-kind income," and "deemed income."

"Earned income" may be cash or in-kind income and consists of either (1) wages; (2) net earnings from self-employment; (3) refunds of federal income taxes and advance payments by employers made in accordance with the earned income credit provisions of the Internal Revenue Code; and (4) payments for services performed in a sheltered workshop or work activities center. Sec. 416.1110. "Unearned income" is countable income that is not earned income, and it too may be received in cash or in kind. Sec. 416.1120. Periodic payments such as Mr. Paxton's VA pension benefits are generally considered unearned income. Sec. 416.1121(a).

"In-kind income" is "not cash, but is actually food, clothing, or shelter, or something you can use to get one of these." 20 C.F.R. Sec. 416.1102. "Deemed income" is someone else's income that has been deemed to be the claimant's. The SSI regulations use the term "deeming" to describe "the process of considering another person's income to be [the claimant's when] it does not matter whether the income of [another] person is actually available to [the claimant]." 20 C.F.R. Sec. 416.1160(a). The process of deeming income from one person to another is detailed and technical. The entire process is set forth at 20 C.F.R. Secs. 416.1160 to 416.1169.

If a non-SSI benefit is counted as income, the claimant's SSI benefits will be reduced by the amount of the non-SSI benefit. If a non-SSI payment is not counted as income, the claimant's SSI benefits will not be reduced by the amount of the non-SSI benefits. When a family is living at subsistence level, the subtraction of any benefit can make a significant difference to its budget and to its ability to survive. The Secretary's reduction of Florence Paxton's SSI benefits illustrates the mechanics of the SSI program and the effect on a family of labeling as countable income certain non-SSI benefits.

As a family, the Paxton's incoming resources are meager. At all times relevant to this appeal, Florence Paxton lived with her husband, Mr. Paxton, and their minor son, Hugh. Mr. Paxton is a completely disabled veteran who receives a non-service-connected VA disability pension from the Veterans Administration pursuant to 38 U.S.C. Sec. 521 (1982 & Supp. III 1985). The Veterans Administration sends Mr. Paxton a check, made payable to him, for approximately $650 per month. Approximately $200 of that check is money granted to Mr. Paxton for the support of his two dependents: Florence and Hugh Paxton. See 38 U.S.C. Sec. 521(c) (1982); Whaley v. Schweiker, 663 F.2d 871, 874 (9th Cir.1981). The precise amount of Mr. Paxton's VA pension changes every year to cover cost-of-living increases. See 38 U.S.C. Secs. 521(a), 3112 (1982 & Supp. III 1985).

Florence Paxton is also disabled. Before the Secretary reduced Florence Paxton's SSI benefits, she received SSI payments of roughly $300 per month. The precise amount of her SSI benefits has also changed over time to cover cost-of-living increases. Hugh, the Paxton's minor son, had no means of support other than his parents. Thus, the total income of the Paxton family is in the neighborhood of $1,000 per month. This money must be budgeted to provide for the needs of two disabled adults and one child.

Until 1981, the Paxton family was allowed to receive the full amount of Mr. Paxton's VA pension as well as the full amount of Florence Paxton's SSI benefits. This is because the Secretary previously regarded Mr. Paxton's entire VA pension, including the dependents' portion, as countable unearned income to Mr. Paxton. Mr. Paxton is not eligible for SSI benefits because the amount of his VA pension, even excluding the dependents' portion, exceeds the SSI minimum income level. As a result, he had no SSI benefits that could be reduced by the dependents' portion of his VA pension. The Secretary did not count any of Mr. Paxton's VA pension as unearned income to Florence Paxton. Therefore, none of Mr. Paxton's VA pension was used to reduce Florence Paxton's SSI benefits.

In 1981, the Secretary changed the Social Security Administration's (SSA) policy regarding VA benefits paid for dependents. As of November 1981, the Secretary began to regard that portion of VA benefits paid to a veteran for the support of the veteran's dependent as countable unearned income to the dependent for the purpose of computing the dependent's SSI benefits. The Secretary issued this policy in the form of an interpretive ruling. Title XVI: SSI Treatment of Veterans Administration Payments to SSI Eligibles/Fiduciaries, 82-31 S.S.R. 291 (Cum.Ed.1982) [hereinafter SSR 82-31]. Under SSR 82-31, the dependent's portion of VA benefits is now automatically used to reduce the dependent's SSI benefits.

The Secretary adopted this new policy in response to court decisions, including our opinion in Whaley v. Schweiker, 663 F.2d 871 (9th Cir.1981). SSR 82-31. In Whaley, we held that the dependent's portion of VA pension benefits may not be counted as income to the veteran for the purpose of computing and reducing the veteran's SSI benefits. 663 F.2d at 875.

The Secretary argues that our holding in Whaley mandates the policy expressed in SSR 82-31. As we shall further explain, we disagree.

Despite the Secretary's new policy, Florence Paxton continued to receive the full amount of her SSI benefits until 1984. In 1984, SSA determined that Florence Paxton was living with a veteran who received a VA disability pension and that the VA pension included benefits for the support of Florence and Hugh Paxton. After an initial determination, a reconsideration, and an Administrative Law Judge (ALJ) hearing, the ALJ issued a decision that became the final decision of the Secretary after the Appeals Council denied Florence Paxton's request for review.

The ALJ found that Florence Paxton's SSI benefits should have been reduced by $128.23 from January through June 1982; by $137.62 from July 1982 through December 1983; and by $142.46 from January through February 1984. The ALJ stated that "[t]he Claimant's Supplemental Security Income should have been offset by the dependent increments of Veterans Administration Benefits as those were unearned income to her in the months in question." After February 1984, SSA reduced Florence Paxton's SSI benefits by the amount of Mr. Paxton's VA disability pension that SSA determined was granted to Mr. Paxton for the support of Florence Paxton.

When the Secretary applied its new policy to the Paxton household, the Paxtons stopped receiving the full amount of Florence Paxton's SSI benefits. The family had to learn to survive on Mr. Paxton's VA pension and Florence Paxton's SSI benefits minus almost $150 per month. This reduction in benefits had two effects on the Paxton household. On an ongoing basis, the family had to adjust to living on public assistance benefits that had been reduced by about fifteen percent of the original amount. As we stated earlier, this type of reduction may be harsh when a family is already living at the subsistence level. In addition, the Paxtons face the possibility that the...

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