What initial denials cost the government and the economy

When the Social Security Administration denies a disability claim on first review, the financial damage spreads far beyond the rejected applicant. The government loses tax revenue from workers who cannot work but are not yet receiving benefits. Employers lose productivity. Hospitals and emergency rooms absorb uncompensated care. State Medicaid programs pay for medical treatment that federal SSDI would have covered. The applicant often turns to other safety-net programs—food information, housing vouchers, crisis intervention—that cost money but do not address the underlying problem.

No single federal agency tracks the total cost of initial denials across all these systems. But the pieces are measurable. In 2023, Social Security received roughly 2.7 million disability claims. About 65 to 70 percent were denied at the initial stage. That means roughly 1.75 million people were told no, most of them still unable to work. Many appealed. Many did not. The ones who did not appeal often fell into a gap: too sick to work, but not yet receiving benefits.

Key Takeaways

  • Initial denials force applicants into a two-to-three-year appeals process, during which they receive no income from Social Security but often may have access to for state Medicaid and other emergency programs that cost taxpayers money anyway.
  • Applicants denied at the initial stage are more likely to file for unemployment insurance, Supplemental Security Income (SSI), food information, and emergency Medicaid—shifting costs to state budgets and creating administrative duplication.
  • The appeals process itself costs Social Security millions annually in administrative overhead, and denials that are later reversed at the hearing stage represent pure waste: the government paid for two rounds of review instead of one.
  • Workers who are denied and do not appeal often leave the labor force entirely, reducing future tax revenue and increasing long-term dependency on public programs.
  • Medical providers absorb the cost of treating uninsured or underinsured applicants waiting for appeals, which raises healthcare costs for everyone else.

The cost of the appeals process itself

Every initial denial that gets appealed requires a second review by the Disability information Services (DDS), then a third review by an Administrative Law Judge (ALJ) if the applicant requests a hearing. Each stage costs money: salaries for reviewers, ALJs, support staff, and the infrastructure to manage the cases. Social Security's Office of Disability Adjudication and Review (ODAR) employs thousands of people whose entire job is to reconsider cases that were already reviewed once.

In fiscal year 2022, Social Security spent approximately $1.2 billion on the entire disability appeals process. That includes reconsideration reviews and hearings. Many of those cases end in reversal—meaning the initial denial was wrong. When an ALJ reverses a denial and awards benefits, the government has now paid for two full reviews instead of one, plus the applicant receives back pay for the months they waited. The back pay itself is not a cost—it is money owed—but it represents resources that could have been deployed elsewhere.

The real cost is the delay. An applicant waiting 18 months for a hearing is 18 months without SSDI income. During that time, they are more likely to file for state Medicaid, which the state pays for. They are more likely to use emergency services. They are more likely to lose housing and enter the shelter system. All of these are costs that would not exist if the initial decision had been correct.

How denials shift costs to state budgets

When Social Security denies a disability claim, the applicant does not disappear. They still need medical care, food, and housing. Many turn to state and local programs because they have no other option. Medicaid is the largest of these. A person denied SSDI but living below the poverty line often qualifies for emergency Medicaid in their state, which covers hospital and emergency-room visits. The federal government pays about 50 to 75 percent of Medicaid costs depending on the state; the state pays the rest.

Supplemental Security Income (SSI) is another route. SSI is a federal program, but it has a lower income threshold than SSDI and is means-tested. Some people denied SSDI can get SSI instead. When they do, the federal government pays the benefit, but states often add a supplement. The applicant also becomes may be able to access for Medicaid in most states. So a denial that leads to SSI approval has straightforward shifted the case from one Social Security program to another, often with a state cost attached.

Food information (SNAP) and housing vouchers (Section 8) are also more likely to be used by people waiting for disability appeals. These are federal programs, but they have administrative costs and they represent resources that could have gone elsewhere. A person receiving SNAP while waiting for a disability hearing is using a program designed for working families with low income, not for people unable to work.

Lost tax revenue and workforce participation

An applicant denied SSDI and unable to work faces a choice: keep trying to work and fail, or leave the labor force. Many choose to leave. When they do, they stop paying payroll taxes. Over a working lifetime, that adds up. A 45-year-old denied disability who stops working has roughly 20 years of lost tax contributions ahead. At an average wage, that is tens of thousands of dollars in lost federal income tax and payroll tax.

The Social Security Trust Fund itself depends on payroll taxes from current workers. When workers leave the labor force—whether because they are disabled or because they give up trying to work while waiting for a decision—the fund loses revenue. This is not a direct cost to the government in the way that paying a benefit is, but it is a real economic loss. It also accelerates the date when the Trust Fund reserves are depleted, which affects all beneficiaries.

Employers also lose. A worker who is denied disability and stops working is a worker the employer can no longer count on. The employer has to hire and train a replacement. Productivity drops during the transition. If the worker was in a specialized role, the loss is even larger. These are private costs, not government costs, but they are real.

Emergency room use and uncompensated care

People waiting for disability decisions often have serious medical conditions. They may have cancer, heart disease, severe mental illness, or degenerative neurological conditions. They cannot afford private insurance and do not yet may have access to for Medicare (which comes after 24 months on SSDI). Many have no insurance at all during the appeals process. When they need urgent care, they go to the emergency room.

Hospitals are required to provide emergency care regardless of ability to pay under the Emergency Medical Treatment and Labor Act (EMTALA). The cost of that care is absorbed by the hospital. Some hospitals pass the cost to insured patients through higher rates. Some absorb it themselves, which reduces their margins and their ability to invest in other services. The total cost of uncompensated emergency care in the United States is estimated in the tens of billions annually. A portion of that is people waiting for disability decisions.

If those same people had been approved for SSDI on the first review, they would have may have access to for Medicare after 24 months. Medicare would have paid for their care. The cost would have been predictable and budgeted. Instead, the cost is hidden in emergency-room bills and absorbed unevenly across the healthcare system.

The cost of incorrect initial denials that are later reversed

Not all initial denials are wrong, but a significant share are. At the hearing stage, roughly 40 to 50 percent of cases are reversed—meaning the ALJ awards benefits. This does not mean the initial reviewer was careless; disability law is genuinely difficult and cases often turn on medical evidence that was not available at the initial stage. But it does mean that for every case reversed at hearing, the government has paid for two full reviews instead of one.

An ALJ reversal also triggers back pay. The applicant receives a lump sum covering the months between the initial denial and the hearing decision. If the hearing was 20 months after the initial denial, the applicant receives 20 months of back pay. This is money owed to them, not a cost in the accounting sense, but it represents a large payment that would not have been necessary if the initial decision had been correct.

The applicant also receives retroactive Medicare coverage in many cases. If they were approved at the hearing stage, Medicare coverage goes back to the month they were first found disabled, minus a five-month waiting period. Any medical bills they paid out of pocket during that time may be reimbursed. Again, this is money owed, but it is money that would not have been owed if the initial decision had been right.

Administrative burden and duplicate processing

Every appeal requires the applicant to submit medical records, work history, and other documentation again. The DDS has to review it again. The ALJ has to review it again. The applicant often has to hire a lawyer, which costs money they do not have—many lawyers work on contingency, taking a portion of back pay if they win. The applicant has to attend a hearing, which may require time off from any work they are attempting, transportation, and childcare.

This administrative burden is not just a cost to the government. It is a cost to the applicant and to the healthcare providers who have to send records multiple times. It is a cost to employers who may have to provide employment records. It is a cost to the entire system. If the initial decision had been correct, none of this would be necessary.

Social Security has made some efforts to reduce this burden through electronic records sharing and streamlined review processes, but the fundamental problem remains: every appeal is a duplicate of work already done. The system is designed this way for good reasons—to prevent errors and to give applicants a fair hearing—but the cost is real.

Frequently Asked Questions

How much does a single initial denial cost the government?

There is no standard figure because costs vary by whether the case is appealed, how long the appeal takes, what other programs the applicant uses, and whether the denial is later reversed. A case that is appealed and reversed at hearing costs the government at least $5,000 to $10,000 in administrative overhead alone, plus back pay and retroactive benefits. A case that is denied and never appealed costs less in direct government spending but may cost more in state Medicaid and other programs.

Why does Social Security deny so many claims on the first review if many are reversed later?

Initial reviewers work with incomplete information. Medical records may not have arrived yet. The applicant may not have seen a doctor recently enough to document their condition. The initial reviewer may interpret the evidence differently than an ALJ would. The system is also designed to screen out cases that do not meet the strict definition of disability, which sometimes results in denials of people who would may have access to under a more thorough review.

Does the cost of denials include the cost of people who never appeal?

Not directly. Social Security does not track what happens to people after they are denied. But research suggests that many people denied SSDI do not appeal, and they often fall into poverty or become dependent on other programs. The cost of that dependency is real but is spread across multiple agencies and is hard to measure.

Could Social Security reduce costs by approving more claims on the first review?

Possibly, but only if the additional approvals were correct. Approving claims that do not meet the disability standard would cost more in the long run because those people would receive benefits they were not may have access to to. The real question is whether the current denial rate is too high because of errors in the initial review process, not whether the standard itself is too strict.

Who pays for the appeals process?

The federal government pays for Social Security's appeals process through the Disability Insurance Trust Fund and the general revenue that funds the Social Security Administration. States pay for Medicaid and other programs that applicants use while waiting for appeals. Applicants and healthcare providers bear the non-monetary costs of delay and administrative burden.