SSR 92-7c: SECTIONS 202(a), 204(a), 204(a)(1), 204(a)(1)(A) AND (B), 204(b), 205(a), 1611(c)(1), 1631(b)(1)(A) AND (B) OF THE SOCIAL SECURITY ACT (42 U.S.C. 402(a), 404(a), 404(a)(1), 404(a)(1)(A) AND (B), 404(b), 1382(c)(1), 1383(b)(1)(A) AND (B)) OVERPAYMENTS AND UNDERPAYMENTS -- PAYMENT ERRORS CALCULATED (NETTED) FROM THE FIRST PAYMENT ERROR TO THE MONTH THE INITIAL DETERMINATION OF OVERPAYMENT OR UNDERPAYMENT IS MADE

SSR 92-7c

EFFECTIVE/PUBLICATION DATE: 06/29/92

20 CFR 404.502-404.504, 404.902, 416.538, 416.558(a), and

416.1402

Sullivan v. Everhart, 494 U.S. 83 (1990)

SCALIA, Supreme Court Justice:

If the Secretary of Health and Human Services determines that a

beneficiary has received "more or less than the correct amount of

payment," the Social Security Act requires him to effect "proper

adjustment or recovery," subject to certain restrictions in the case of

overpayments. This case requires us to decide whether the Secretary's

so-called "netting" regulations, under which he calculates the difference

between past underpayments and past overpayments, are merely a permissible

method of determining whether, "more or less than the correct amount of

payment" was made, or are instead, as to netted-out overpayments, an

"adjustment or recovery" that must comply with procedures for recovery of

overpayments imposed by the Act.

I

Two statutory benefit programs established by the Social Security Act

(Act) are involved: the Old-Age, Survivors, and Disability Insurance

program (OASDI), 53 Stat. 1362, as amended, 42 U.S.C. § 401 et seq. (1982

ed. and Supp. IV), and the Supplemental Security Income program (SSI), 86

Stat. 1465, 42 U.S.C. § 1381 et seq. (1982 ed. and Supp. IV). Millions of

Americans receive benefits under these programs; inevitably, some

beneficiaries occasionally receive more than their entitlement, and others

less. The OASDI program provides the following procedure for correcting

such errors:

As to overpayments, the Act provides:

The provisions regulating payment errors in the SSI program are

substantially similar. [1] Califano v. Yamasaki , 442 U.S. 682, 697, 99 S.Ct. 2545,

2555, 61 L.Ed.2d 176 (1979), held that the limitation on adjustment or

recovery of overpayments imposed by § 204(b) of the Act gives recipients

the right to an oral hearing in which they may attempt to convince the

Secretary to waive recoupment.

provisions regulating payment errors in the SSI program are

substantially similar. [1] Califano v. Yamasaki , 442 U.S. 682, 697, 99 S.Ct. 2545,

2555, 61 L.Ed.2d 176 (1979), held that the limitation on adjustment or

recovery of overpayments imposed by § 204(b) of the Act gives recipients

the right to an oral hearing in which they may attempt to convince the

Secretary to waive recoupment.

In the provisions set forth above, the Act contemplates that the

Secretary will "fin[d] [whether] more or less than the correct amount" of

payment has been made. Elsewhere, it confers upon the Secretary general

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," Act § 205(a), 42 U.S.C. §

405(a) (1982 ed.); see also Act § 1631(d)(1), 42 U.S.C. § 1383(d)(1) (1982

ed., Supp. IV) (SSI). Pursuant to that authority, the Secretary

promulgated the regulations at issue here. The SSI regulation provides:

The OASDI regulation unhelpfully provides that "[t]he amount of an

overpayment or underpayment is the difference between the amount paid to

the beneficiary and the amount of the payment to which the beneficiary was

actually entitled," 20 CFR § 404.504 (1989), but the Secretary has

interpreted this as embodying the methodology set forth in the SSI

regulation. Dept. of Health and Human Services, Social Security Ruling

81-19a (cum.ed. 1981).

amount of an

overpayment or underpayment is the difference between the amount paid to

the beneficiary and the amount of the payment to which the beneficiary was

actually entitled," 20 CFR § 404.504 (1989), but the Secretary has

interpreted this as embodying the methodology set forth in the SSI

regulation. Dept. of Health and Human Services, Social Security Ruling

81-19a (cum.ed. 1981).

Two hypotheticals will illustrate the operation of the netting

regulations. Mr. A, entitled to $100 per month, is erroneously paid $80 in

January and erroneously paid $150 in February. In March the Secretary

determines that these payments were incorrect, nets the errors (i.e.,

calculates the difference between the underpayment and the overpayment),

and seeks to recover the net overpayment of $30. Mrs. B, also entitled to

$100 per month, receives $50 in April and $110 in May. In June, the

Secretary makes the incorrect payment determination, nets the errors, and

pays out $40. In neither case may the beneficiaries seek to have the

underpayment and the overpayment treated separately: Mr. A could not

demand $20 for January and seek a waiver of the recoupment of $50 for

February, and Mrs. B could not demand $50 for April and seek a waiver for

the $10 in May.

In the present case, the Secretary made both underpayments and

overpayments to each of the respondents, and netted those errors pursuant

to the regulations. He determined that three respondents (the original

plaintiffs) received net underpayments, and paid that net amount. The

other respondents (intervenors below) received net overpayments, and the

Secretary offered them hearings to determine whether recoupment should be

waived as to the net overpayment. The plaintiffs (later joined by the

intervenors) filed this suit under §§ 205(g) and 1631(c)(3) of the Act, 42

U.S.C. §§ 405(g), 1383(c)(3) (1982 ed.), in the United States District

Court for the District of Colorado

espondents (intervenors below) received net overpayments, and the

Secretary offered them hearings to determine whether recoupment should be

waived as to the net overpayment. The plaintiffs (later joined by the

intervenors) filed this suit under §§ 205(g) and 1631(c)(3) of the Act, 42

U.S.C. §§ 405(g), 1383(c)(3) (1982 ed.), in the United States District

Court for the District of Colorado. They claimed that the netting

regulations were facially invalid because (1) they were contrary to the

Act and (2) they violated beneficiaries' rights to procedural due process.

The District Court granted respondents' motion for summary judgment on the

former ground, and the Court of Appeals for the Tenth Circuit affirmed in

all relevant respects. 853 F.2d 1532 (1988). The Court noted that two

other Courts of Appeals had upheld the netting regulations against similar

attacks. Id., at 1536-1537 (citing Lugo v. Schweicker , 776

F.2d 1143 (CA3 1985), and Webb v. Bowen , 851 F.2d 190 (CA8

1988)).

We granted certiorari, 490 U.S. _____, 109 S.Ct. 2098, 104 L.Ed.2d

660.

II

Our mode of reviewing challenges to an agency's interpretation of its

governing statute is well established: We first ask "whether Congress has

directly spoken to the precise question at issue. If the intent of

Congress is clear, that is the end of the matter, for the court, as well

as the agency, must give effect to the unambiguously expressed intent of

Congress." Chevron U.S.A. Inc. v. Natural Resources Defense

Council , Inc., 467 U.S. 837, 842-843, 104 S.Ct. 2778, 2781, 81 L.Ed.2d

694 (1984). "In ascertaining the plain meaning of the statute, the court

must look to the particular statutory language at issue, as well as the

language and design of the statute as a whole." K Mart Corp. v. Cartier, Inc. , 486 U.S. 281, 291, 108 S.Ct. 1811, 1817, 100 L.Ed.2d

313 (1988); see also Mead Corp. v. Tilley , 490 U.S. _____,

_____, 109 S. Ct. 2156, _____, 104 L.Ed.2d 796 (1989)

694 (1984). "In ascertaining the plain meaning of the statute, the court

must look to the particular statutory language at issue, as well as the

language and design of the statute as a whole." K Mart Corp. v. Cartier, Inc. , 486 U.S. 281, 291, 108 S.Ct. 1811, 1817, 100 L.Ed.2d

313 (1988); see also Mead Corp. v. Tilley , 490 U.S. _____,

_____, 109 S. Ct. 2156, _____, 104 L.Ed.2d 796 (1989). But "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, supra, 467 U.S. at 843, 104

S.Ct., at 2781, that is, whether the agency's construction is "rational

and consistent with the statute." NLRB v. United Food &

Commercial Workers, 484 U.S. 112, 123, 108 S.Ct. 413, 420, 98 L.Ed.2d

429 (1987). These principles apply fully to the Secretary's administration

of the Act. See Schweiker v. Gray Panthers , 453 U.S. 34, 43,

101 S.Ct. 2633, 2639, 69 L.Ed.2d 460 (1981); Batterton v. Francis , 432 U.S. 416, 425, 97 S.Ct. 2399, 2405, 53 L.Ed.2d 448

(1977).

A

We first consider whether the Act speaks directly to the validity of the

netting regulations. Two provisions are relevant: a general authorization,

and a specific limitation. First, the Act authorizes the Secretary to

determine whether "more or less than the correct amount" has been paid. 42

U.S.C. §§ 404(a), 1383(b)(1)(A) (1982 ed., Supp. IV). The Act does not

define the term "correct amount." It assuredly could be construed to refer

to the amount properly owing for a given month. If that were the only

possible interpretation, respondents would prevail, since the netting

regulations ascertain the correct amount for a longer time period. But the

Act does not foreclose a more expansive interpretation of "correct

amount," viz., the amount properly owing as of the date of the

determination

y could be construed to refer

to the amount properly owing for a given month. If that were the only

possible interpretation, respondents would prevail, since the netting

regulations ascertain the correct amount for a longer time period. But the

Act does not foreclose a more expansive interpretation of "correct

amount," viz., the amount properly owing as of the date of the

determination. Although the Act elsewhere describes OASDI and SSI as

monthly benefit programs, e.g., Act § 202(a), 42 U.S.C. § 402(a) (1982

ed., Supp. IV); Act § 1611(c)(1), 42 U.S.C. § 1382(c)(1) (1982 ed., Supp.

IV), it nowhere specifies that the correctness of payments must be

determined on a month-by-month basis.

The fuller context of the OASDI provisions suggests that Congress,. in

authorizing the Secretary to determine whether the "correct amount" was

paid, did not prohibit him from making that determination for more than a

monthly time period. The Act authorizes a determination of whether "the

correct amount of payment has been made," 42 U.S.C. § 404(a)(1), and

mandates adjustments "[w]ith respect to payment to a person of more than

the correct amount," § 404(a)(1)(A), and "[w]ith respect to payment to a

person of less than the correct amount," § 404(a)(1)(B). If Congress had

in mind only shortfalls or excesses in individual monthly payments, rather

than in the overall payment balance, it would have been more natural to

refer to "the correct amount of any payment," and to require adjustment

"with respect to any payment . . . of less [or more] than the correct

amount." This terminology is used elsewhere in § 204(a)(1)(A), whenever

individual monthly payments are at issue ("the Secretary shall decrease

any payment under this subchapter to which such overpaid person is

entitled"; "shall decrease any payment under this subchapter payable to

his estate"). 42 U.S.C. § 404(a)(1)(A) (emphases added)

ny payment . . . of less [or more] than the correct

amount." This terminology is used elsewhere in § 204(a)(1)(A), whenever

individual monthly payments are at issue ("the Secretary shall decrease

any payment under this subchapter to which such overpaid person is

entitled"; "shall decrease any payment under this subchapter payable to

his estate"). 42 U.S.C. § 404(a)(1)(A) (emphases added). Moreover, the

provision governing adjustment of overpayments to a deceased beneficiary

seems to contemplate computation on a multi-payment basis ("the Secretary

. . . shall decrease any payment under this subchapter payable to his

estate or to any other person on the basis of the wages and

self-employment income which were the basis of the payments to such

overpaid person") Ibid. (emphasis added).

The Act's provisions governing SSI are slightly different, but in no way

contradict the Secretary's position. They authorize the Secretary to

determine whether "more or less than the correct amount of benefits has

been paid," 42 U.S.C. § 1383(b)(1)(A) (1982 ed., Supp. IV) (emphasis

added). Had this read "more or less than the correct amount of any

benefit" it might support respondents' position, but as written it at

least bears (if it does not indeed favor) the interpretation that more

than a single monthly benefit is at issue.

Respondents nevertheless maintain, as did the Court of Appeals, that

another provision of the Act directly precludes the Secretary from netting

underpayments and overpayments. They point to § 404(b) (1982 ed.), which

provides: "In any case in which more than the correct amount of payment

has been made, there shall be no adjustment of payments to, or recovery by

the United States from, any person who is without fault if such adjustment

or recovery would defeat the purpose of this subchapter or would be

against equity and good conscience." See also Act § 1383(b)(1)(B) (1982

ed., Supp. IV) (SSI)

which

provides: "In any case in which more than the correct amount of payment

has been made, there shall be no adjustment of payments to, or recovery by

the United States from, any person who is without fault if such adjustment

or recovery would defeat the purpose of this subchapter or would be

against equity and good conscience." See also Act § 1383(b)(1)(B) (1982

ed., Supp. IV) (SSI). Respondents argue that by using the phrase

"adjustment or recovery," Congress intended to subject to this requirement

all collection methods, including the set off effected by netting. They

claim this broad meaning is given to the words "adjustment" and "recovery"

by other Social Security regulations (e.g., 20 CFR §§ 404.502-404.503

(1989)), common usage (e.g., Webster's Third New International Dictionary

27, 1898 (1981) (hereinafter Webster's)), and general legal usage (e.g., United States v. Burchard, 125 U.S. 176, 8 S.Ct. 832, 31

L.Ed. 662 (1888)). Under this interpretation, when the agency calculates

the difference between, or nets, Mr. A's $20 underpayment and his $50

overpayment, see supra , at 963, it has engaged in "adjustment or

recovery," but without complying with the restrictions on "adjustment or

recovery" that the Act imposes.

In our view, however, with this provision as with those discussed

earlier, respondents have established at most that the language may bear

the interpretation they desire -- not that it cannot bear the

interpretation adopted by the Secretary. "Adjustment" can have the more

limited meaning (which the Secretary favors) of "an increase or decrease"

of payments (Webster's 27), and "recovery" can have the more limited

meaning of "get[ting] back" payments already made (see id., at 1989

("recover")). Moreover, other provisions of the Act support this limited

meaning. It is at least reasonable, if not necessary, to read the phrase

"adjustment or recovery" in § 204(b) in pari materia with the

identical phrase in § 204(a)(1)

r decrease"

of payments (Webster's 27), and "recovery" can have the more limited

meaning of "get[ting] back" payments already made (see id., at 1989

("recover")). Moreover, other provisions of the Act support this limited

meaning. It is at least reasonable, if not necessary, to read the phrase

"adjustment or recovery" in § 204(b) in pari materia with the

identical phrase in § 204(a)(1). The latter section directs the Secretary,

if he finds that incorrect payment has been made, to make "proper

adjustment of recovery . . . as follows." In the case of overpayment, he

shall "decrease any payment under this subchapter to which such overpaid

person is entitled, or shall require such overpaid person or his estate to

refund the amount in excess of the correct amount. . . ." 42 U.S.C. §

404(a)(1)(A) (1982 ed., Supp. IV). As to SSI, "adjustment or recovery

shall . . . be made by appropriate adjustments in future payments to such

individual or by recovery from . . . or by payment to such individual or

his eligible spouse. . . ." 42 U.S.C. § 1383(b)(1)(A) (1982 ed., Supp.

IV). Giving the terms their more limited meaning does not produce absurd

policy consequences. Reducing future benefits, or requiring the

beneficiary to pay over cash, will ordinarily produce more hardship than

merely setting off past under payments and overpayments. It is not at all

unreasonable to think that waiver hearings were established only for the

former.

(1)(A) (1982 ed., Supp.

IV). Giving the terms their more limited meaning does not produce absurd

policy consequences. Reducing future benefits, or requiring the

beneficiary to pay over cash, will ordinarily produce more hardship than

merely setting off past under payments and overpayments. It is not at all

unreasonable to think that waiver hearings were established only for the

former.

As used in the Act, therefore, adjustment can be read to mean decreasing

future payments, and recovery to mean obtaining a refund from the

beneficiary. Under this interpretation, when the agency nets Mr. A's

underpayment against his overpayment, it is not engaged in "adjustment or

recovery," but only in the calculation of whether "more or less than the

correct amount of payment has been made." Only after making that

calculation does the Secretary take the additional step to rectifying any

error by "adjustment" (increasing or decreasing future payments) or

"recovery" (obtaining a refund from the beneficiary). And it is only this

latter step that is governed by § 204(b) of the Act. We do not say this is

an inevitable interpretation of the statute; but it is assuredly a

permissible one.

B

Since the Act reasonably bears the Secretary's interpretation that

netting is permitted, only one issue remains: Respondents contend that the

manner in which the regulations provide for netting to be conducted is

arbitrary and capricious, because of their definition of the netting

period. Overpayments are netted with underpayments up to the "month [of]

the initial determination" of error. 20 CFR § 416.538 (1989). "Initial

determination" is a term of art meaning the Secretary's formal

determination that an error was committed. See 20 CFR §§ 404.902, 416.1402

rovide for netting to be conducted is

arbitrary and capricious, because of their definition of the netting

period. Overpayments are netted with underpayments up to the "month [of]

the initial determination" of error. 20 CFR § 416.538 (1989). "Initial

determination" is a term of art meaning the Secretary's formal

determination that an error was committed. See 20 CFR §§ 404.902, 416.1402

(1989). Needless to say, that formal determination will not be

simultaneous with the Secretary's first discovery that something is amiss;

delay is inevitable. Respondents contend that this delay is fatal. At

best, they say, the period over which netting is conducted will turn on

the fortuity of the time period between discovery and formal

determination. At worst, the Secretary will manipulate the netting period

by delaying formal determination, thus including more underpayments in the

netting period and reducing the net overpayment subject to the

recoupment-waiver procedures.

It seems to us not arbitrary or capricious to establish a grace period

within which these determinations can be considered and formally made;

they should not be spur-of-the-moment decisions. That delay will extend

the netting period, and may result in the inclusion of more underpayments

to be netted. But we cannot say that the alternatives -- immediate

determinations, or determinations within a fixed period -- would not

produce errors that make beneficiaries worse off on the whole.

Moreover, although the Secretary's regulations do not establish a fixed

time period for the formal determination, they do establish a time limit

upon the principal adverse consequence of delay; the netting-in of

additional underpayments. The regulations provide:

erminations, or determinations within a fixed period -- would not

produce errors that make beneficiaries worse off on the whole.

Moreover, although the Secretary's regulations do not establish a fixed

time period for the formal determination, they do establish a time limit

upon the principal adverse consequence of delay; the netting-in of

additional underpayments. The regulations provide:

See also HHS, Program Operation Manual System, GN 02201.002 (1989)

(Social Security Administration policy to resolve overpayments as quickly

as possible). Respondents' fear of intentional manipulation of the netting

period can be entirely dismissed if this provision is observed in good

faith -- as we must presume, in this facial challenge, it will be. See,

e.g., FCC v. Schreiber, 381 U.S. 279, 296, 85 S.Ct. 1459,

1470, 14 L.Ed.2d 393 (1965). The intentional manipulation hypothesis is in

any event implausible. Deliberately protracting the netting period may

indeed draw in future underpayments; but it may just as likely draw in

future overpayment, which will be uncollectible until the Secretary's

determination is made. The Secretary might conceivably ensure that delay

works to the Government's financial advantage by deliberately underpaying

while keeping the netting period open, but since that is an obvious

violation of the Act it is again not the stuff of which a facial challenge

can be constructed.

draw in

future overpayment, which will be uncollectible until the Secretary's

determination is made. The Secretary might conceivably ensure that delay

works to the Government's financial advantage by deliberately underpaying

while keeping the netting period open, but since that is an obvious

violation of the Act it is again not the stuff of which a facial challenge

can be constructed.

In addition to the fact that the disadvantages of the Secretary's

approach are less than respondents assert, the disadvantages of

respondents' approach are more. The Secretary points out that a separate

accounting for each month would cause the agency great expense, in the

cost of a greatly increased volume of complex recoupment-waiver

proceedings, in the cost of overpayments that are simply written off

because the cost of the proceedings would exceed the recovery, and in the

cost of overpayments whose return will be subject to lengthy delays. These

expenses "in the end come out of the pockets of the deserving since

resources available for any particular program of social welfare are not

unlimited." Matthews v. Eldridge, 424 U.S. 391, 348, 96

S.Ct. 893, 909, 47 L.Ed.2d 18 (1976).

Respondents seek to minimize the administrative burden by proposing a

scheme under which the Secretary would notify the beneficiary of under

payments and overpayments, withhold reimbursement of the underpayments for

a brief period during which the beneficiary may seek waiver of recoupment

of overpayments, and then net the underpayments and that portion of the

overpayments as to which waiver has not been sought. This scheme, however,

does not at all address the problem of delay in netting that is the

asserted basis for finding the regulations arbitrary and capricious.

Substituting, "notification" of underpayments and overpayments for

"determination" of underpayments and overpayments merely gives the

occasion for the delay another name

of the

overpayments as to which waiver has not been sought. This scheme, however,

does not at all address the problem of delay in netting that is the

asserted basis for finding the regulations arbitrary and capricious.

Substituting, "notification" of underpayments and overpayments for

"determination" of underpayments and overpayments merely gives the

occasion for the delay another name. What this alternative proposal of

respondents really puts forward is an alternative means of assuring that

overpayments cannot be "netted out" without an opportunity for waiver

hearing. As we discussed at length earlier, the statute does not require

such assurance. In sum, we find no basis for holding the regulations

arbitrary and capricious.

* * *

The Court of Appeals did not reach respondents' contention that the

regulations violate due process, and we will not address that claim in the

first instance. See, e.g., United States v. Sperry Corp., 493 U.S. _____, _____ 110 S.Ct. 387, _____, 107 L.Ed.2d 290 (1989).

Accordingly, the judgment is reversed and the case remanded for further

proceedings consistent with this opinion.

It is so ordered.

Justice Scalia delivered the opinion of the Court, in which Chief Justice

Rehnquist and Justices White, Blackmun, and O'Connor joined. Justice

Stevens filed a dissenting opinion, in which Justices Brennan, Marshall,

and Kennedy joined.

[1] "(A) Whenever the Secretary

finds that more or less than the correct amount of benefits has been paid

with respect to any individual, proper adjustment or recovery shall,

subject to the succeeding provisions of this subsection, be made by

appropriate adjustments in future payments to such individual or by

recovery from such individual or his eligible spouse (or from the estate

of either) or by payment to such individual or his eligible spouse (or

from the estate of either) or by payment to such individual or his

eligible spouse. . . .

* * * * *

shall,

subject to the succeeding provisions of this subsection, be made by

appropriate adjustments in future payments to such individual or by

recovery from such individual or his eligible spouse (or from the estate

of either) or by payment to such individual or his eligible spouse (or

from the estate of either) or by payment to such individual or his

eligible spouse. . . .

* * * * *

"(B) The Secretary (i) shall make such provision as he finds appropriate

in the case of payment of more than the correct amount of benefits with

respect to an individual with a view to avoiding penalizing such

individual or his eligible spouse who was without fault in connection with

the overpayment, if adjustment or recovery on account of such overpayment

in such case would defeat the purposes of this subchapter, or be against

equity and good conscience, or (because of the small amount involved)

impeded efficient or effective administration of this subchapter. . . ."

Act § 1631(b)(1)(A), (B); 42 U.S.C. § 1383(b)(1)(A), (B) (1982 ed., Supp.

IV).