The following script is from "Disability, USA" which aired on Oct. 6, 2013. The correspondent is Steve Kroft. James Jacoby and Michael Karzis, producers.
There is a Senate hearing scheduled tomorrow on a subject of some importance to millions of Americans, but with the government shutdown it's not clear that the Senate Committee on Government Affairs will be able to pay for a stenographer to record the event. The hearing involves the Federal Disability Insurance Program, which could become the first government benefits program to run out of money. When it began back in the 1950s it was envisioned as a small program to assist people who were unable to work because of illness or injury.
Today, it serves nearly 12 million people -- up 20 percent in the last six years -- and has a budget of $135 billion. That's more than the government spent last year on the Department of Homeland Security, the Justice Department, and the Labor Department combined. It's been called a "secret welfare system" with it's own "disability industrial complex," a system ravaged by waste and fraud. A lot of people want to know what's going on. Especially Sen. Tom Coburn of Oklahoma.
Tom Coburn: Go read the statute. If there's any job in the economy you can perform, you are not eligible for disability. That's pretty clear. So, where'd all those disabled people come from?
The Social Security Administration, which runs the disability program says the explosive surge is due to aging baby boomers and the lingering effects of a bad economy. But Sen. Tom Coburn of Oklahoma, the ranking Republican on the Senate Subcommittee for Investigations -- who's also a physician -- says it's more complicated than that. Last year, his staff randomly selected hundreds of disability files and found that 25 percent of them should never have been approved -- another 20 percent, he said, were highly questionable.
Tom Coburn: If all these people are disabled that apply, I want 'em all to get it. And then we need to figure out how we're going to fund it. But my investigation tells me and my common sense tells me that we got a system that's being gamed pretty big right now.
And by a lot of different people exploiting a vulnerable system. Coburn says you need look no further than the commercials of disability lawyers trolling for new clients. Namely, the two thirds of the people who have already applied for disability and been rejected. There's not much to lose, really. It doesn't cost you anything unless you win the appeal and the lawyers collect from the federal government.
Marilyn Zahm: If the American public knew what was going on in our system, half would be outraged and the other half would apply for benefits.
Marilyn Zahm and Randy Frye are two of the country's 1,500 disability judges. They are also the president and vice president of the Association of Administrative Law Judges. They are each expected to read, hear, and decide up to 700 appeals a year to clear a backlog of nearly a million cases. They say disability lawyers have flooded the system with cases that shouldn't be there.
Marilyn Zahm: In 1971, fewer than 20 percent of claimants were represented. Now, over 80 percent of claimants are represented by attorneys or representatives.
Steve Kroft: Why do you think there's so many more lawyers involved in this than there used to be?
Marilyn Zahm: It's lucrative.
Randy Frye: Follow the money.
Last year the Social Security Administration paid a billion dollars to claimants' lawyers out of its cash-strapped disability trust fund. The biggest chunk -- $70 million - went to Binder & Binder, the largest disability firm in the country. Lawyer Jenna Fliszar and Jessica White worked for Binder & Binder representing clients in front of disability judges from New Hampshire to West Virginia.
Jenna Fliszar: I call it a legal factory because that's all it is. I mean, they have figured out the system and they've made it into a huge national firm that makes millions of dollars a year on Social Security disability.
Jessica White: I was hired at the end of 2008 and business was booming because the economy was so bad. We had a lot of people who -- their unemployment ran out and this was the next step.
Jenna Fliszar: If you're unable to find a job, and you have any type of physical issue, then it really becomes a last ditch effort because the job market is so bad.
Steve Kroft: Hard to prove you've got it?
Jenna Fliszar: Yes. And there's really no diagnostic testing for it.
Steve Kroft: Hard to deny you don't have it.
Jenna Fliszar: Correct.
Steve Kroft: Out of the hundreds of people that you represented, how many of these cases involved strong cases for disability?
Jenna Fliszar: Strong cases I would say maybe 30 percent to 40 percent. And then I would say half of my cases were not deserving of disability.
Steve Kroft: How many of them ultimately ended up getting benefits?
Jenna Fliszar: Half.
We tried repeatedly to reach Binder & Binder for comment, but our phone calls were not returned.
Tom Coburn: We ought to err on the side of somebody being potentially disabled. And we have a ton of people in our country that are, but what's coming about now with where we are, is the very people who are truly disabled, because we have so many scallywags in the system, are going to get hurt severely when this trust fund runs outta money.
Sen. Coburn says disability payments are now propping up the economy in some of the poorest regions in the country. Which is why he sent his investigators to the border area of Kentucky and West Virginia.
More than a quarter of a million people in this area are on disability -- 10 to 15 percent of the population -- about three times the national average. Jennifer Griffith and Sarah Carver processed disability claims at the Social Security regional office in Huntington, West Virginia.
Steve Kroft: How important are disability checks to people in this part of the country?
Jennifer Griffith: They're a vital part of our economy. A lot of people depend on them to survive.
To see it first hand, they suggested we come back right after the disability checks went out. And we did, to find crowds and traffic jams.
Jennifer Griffith: You avoid the pharmacy. You avoid Wal-Mart. You avoid, you know, restaurants because it's just--
Sarah Carver: Any grocery stores.
Jennifer Griffith: It's just extremely crowded. Everybody's received their benefits. Let's go shopping.
Not everyone in the throngs we saw is on disability, but Jennifer Griffith and Sarah Carver say there's no question that a lot of them are and probably shouldn't be.
Sarah Carver: We have a lot of people who have exhausted their unemployment checks and have moved onto Social Security disability.
Steve Kroft: This is, sort of, a bridge between unemployment and collecting Social Security.
Sarah Carver: Generally, yes.
Steve Kroft: Are they disabled?
Sarah Carver: Not always, no.
Jennifer Griffith: More often than not, no.
Around here, people call it "getting on the draw" or "getting on the check," but they have other names for it.
Sarah Carver: I think you could call it a scheme. You could call it a scam. You could call it fraud. I mean, there's different definitions for it.
Steve Kroft: Large scale?
Jennifer Griffith: Very large scale.
He runs the third largest disability practice in the country out of the Eric C. Conn Law Center which is just off Route 23 in Stanville, Ky. It's a complex of several doublewides welded together with an imposing replica of the Lincoln Memorial in the parking lot. Surprisingly, it has only one space for the disabled.
Steve Kroft: I mean, it's kinda hard to miss Eric Conn around here, isn't it, with all the billboards and--
Jennifer Griffith: You'd be hard pressed to find somebody who doesn't know who he is in this area.
Steve Kroft: He calls himself Mr. Social Security. And some of his ads say "guaranteed success." How can he make that claim?
Sarah Carver: He backs that up.
Steve Kroft: A slam dunk?
Sarah Carver: Uh-huh (affirm). Pretty much.
Steve Kroft: That's a remarkable record.
Sarah Carver: Yes, it is.
Steve Kroft: Is he that good a lawyer?
Sarah Carver:: You know--
Jennifer Griffith: No. (laugh)
A lot of Conn's success, they say, had to do with a particularly friendly disability judge, David Daugherty, who sought out Conn's cases and approved virtually all 1,823 of them, awarding a half a billion dollars worth of lifetime benefits to Conn's clients. The decisions were based on the recommendations of a loyal group of doctors who often examined Conn's clients right in his law offices and always endorsed them for the disability rolls.
Steve Kroft: Were most of the medical reports submitted by the same doctors?
Jennifer Griffith: Yes.
Sarah Carver: Yes. Sometimes up to 13 to 20 reports a day.
Jennifer Griffith: I know on one, we counted 16 exams by the same doctor all in one day at his office.
Steve Kroft: And they were all approved?
Jennifer Griffith: They were all approved.
Steve Kroft: Were all those valid claims?
Sarah Carver: There's no way that you're going to have 100 percent of clients walk through your door and be disabled. 100 percent of claimants, there's no way.
We were hoping that given Eric Conn's outgoing personality and love of publicity, he would be eager to talk to us, but that turned out not to be the case. At first we were told he wasn't in the office. We said we'd wait.
Conn staffer: Hey, take some pens, too. Alright?
Steve Kroft: OK. Great.
About an hour later, we got a call from his lawyer in Washington.
Steve Kroft (on phone): You know, we don't want to make it seem like he's hiding from us.
The lawyer said he'd try to coax Conn out of the office and eventually he emerged.
Eric Conn: I'm very much familiar with you. How we doing today?
Steve Kroft: I'm doing good. Look, there's a lot of allegations out there--
Eric Conn: There are.
Steve Kroft: --about you that we wanted to talk to you about.
Eric Conn: I understand. Well, I'm not normally a shy person, but I think it's probably best I speak in the legal realm rather than here. I know you all have come a long way, and I don't mean to be inhospitable but I just think it's probably best right now.
Steve Kroft: You can't talk about your relationship with Judge Daugherty or your incredible success in disability court?
Eric Conn: Boy, that's tempting. Oh, I would love to comment on some of that. But not - I'm really sorry, I don't think I should right now.
Steve Kroft: What did you find out in West Virginia and Kentucky?
Tom Coburn: Significant fraud.
Steve Kroft: Does the name Eric Conn ring a bell?
Tom Coburn: Uh-huh (affirm). I would tell you, I wouldn't want him for a brother-in-law. And he's got a lot of money. And the American taxpayer paid him that money.
Steve Kroft: Is he breaking the law?
Tom Coburn: That's probably going to be determined by the Department of Justice.
Coburn says the report -- to be released tomorrow -- will show that Conn collected more than $13 million in legal fees from the federal government over the past six years and that he paid five doctors roughly $2 million to regularly sign off on bogus medical forms that had been manufactured and filled out ahead of time by Conn's staff.
Steve Kroft: You think what you found there is just an isolated case?
Tom Coburn: No. I mean, it's-- it may be one of the worst cases. It just shows you how broken it is. You take a good concept that's well meaning. And then you don't manage it, you don't monitor it, you don't over-- Congress doesn't oversight it, and pretty soon, you end up with places like in West Virginia, certain counties, where, you know, you're born to be on disability.
It should be pointed out that no one is getting rich off disability payments of $1,100 a month. It's a minimum wage income with Medicare benefits after two years. But each new case will eventually cost taxpayers, on average, $300,000 in lifetime benefits. For Marilyn Zahm, the disability judge from Buffalo, the high demand for it is a measure of the low prospects that still exist for millions of Americans.
Marilyn Zahm: People run out of unemployment insurance. They are not going to die silently. They are going to look for another source of income. It is not unusual for people, especially people over 40, to have some sort of an ailment or impairment. So they will file for disability benefits based upon that. For many of these people, the plant closed. There are no jobs in their communities. What are people supposed to do?
Steve Kroft (to Coburn): Some of these people are desperate people.
Tom Coburn: Absolutely desperate. I agree. But what you're really describing is our economy and the consequences of it. And we're using a system that wasn't meant for that, because we don't have a system over there to help them. Which means we're not addressing the other concerns in our society. And that's a debate Congress ought to have.