The Five Step Sequential Evaluation Process

by | May 11, 2020 | Firm News

Check out my new video series on the YouTube channel, linked right here.  I discuss the overall legal standard for proving disability, which is known as the 5-step Sequential Evaluation Process.  Here’s the overview video, and you can follow along below for more details.

The SEP is the legal test that an adjudicator has to perform in determining whether a person is disabled.  When a claim goes to a hearing, the ALJ is required to spell out his or her findings to each of these steps in the course of the written decision.  This is also required at the lower levels of initial application and reconsideration, but the analysis is not all shared right away in a written decision – while there exists a written decision going through the steps, it’s not sent right away, but instead just resides in the claim file.

The SEP is spelled out in the regulations at 20 CFR § 404.1520 for SSD and 20 CFR § 416.920 for SSI, but the text of the regulation is identical in both sections.

Here is the relevant text:

(4) The five-step sequential evaluation process. The sequential evaluation process is a series of five “steps” that we follow in a set order. See paragraph (h) of this section for an exception to this rule. If we can find that you are disabled or not disabled at a step, we make our determination or decision and we do not go on to the next step. If we cannot find that you are disabled or not disabled at a step, we go on to the next step. Before we go from step three to step four, we assess your residual functional capacity. (See paragraph (e) of this section.) We use this residual functional capacity assessment at both step four and step five when we evaluate your claim at these steps. These are the five steps we follow:

(i) At the first step, we consider your work activity, if any. If you are doing substantial gainful activity, we will find that you are not disabled. (See paragraph (b) of this section.)

(ii) At the second step, we consider the medical severity of your impairment(s). If you do not have a severe medically determinable physical or mental impairment that meets the duration requirement in § 404.1509, or a combination of impairments that is severe and meets the duration requirement, we will find that you are not disabled. (See paragraph (c) of this section.)

(iii) At the third step, we also consider the medical severity of your impairment(s). If you have an impairment(s) that meets or equals one of our listings in appendix 1 of this subpart and meets the duration requirement, we will find that you are disabled. (See paragraph (d) of this section.)

(iv) At the fourth step, we consider our assessment of your residual functional capacity and your past relevant work. If you can still do your past relevant work, we will find that you are not disabled. See paragraphs (f) and (h) of this section and § 404.1560(b).

(v) At the fifth and last step, we consider our assessment of your residual functional capacity and your age, education, and work experience to see if you can make an adjustment to other work. If you can make an adjustment to other work, we will find that you are not disabled. If you cannot make an adjustment to other work, we will find that you are disabled. See paragraphs (g) and (h) of this section and § 404.1560(c).

In the video, I explain a little more about the statute, and I’ve done a more detailed video about each of the five steps.  There’s a wealth of additional information that I can add later, and I may do so in future blog or knowlege base posts.

Step 1: Substantial Gainful Activity

In this first step of the analysis, the adjudicator must determine if you are disqualified from benefits due to gainful work activity.  The term that is used is “Substantial Gainful Activity” or “SGA” for short.  Substantial gainful activity is defined elsewhere in the regulations, at § 404.1572.  This is important to understand if you are working or earning money while pursuing a claim for disability benefits, because your work can disqualify you from benefits.

Substantial gainful activity is work activity that is both substantial and gainful:

(a) Substantial work activity. Substantial work activity is work activity that involves doing significant physical or mental activities. Your work may be substantial even if it is done on a part-time basis or if you do less, get paid less, or have less responsibility than when you worked before.

(b) Gainful work activity. Gainful work activity is work activity that you do for pay or profit. Work activity is gainful if it is the kind of work usually done for pay or profit, whether or not a profit is realized.

(c) Some other activities. Generally, we do not consider activities like taking care of yourself, household tasks, hobbies, therapy, school attendance, club activities, or social programs to be substantial gainful activity.

SGA is measured by a dollar amount threshold.  The amount is published on an SSA web page, linked here.  The dollar amount for 2020 is $1260.  If you have earned income that meets that dollar threshold, you cannot be eligible for disability benefits during that month.  This can also impact on the 12 month duration requirement that is considered at step 2, because if you are not eligible through the full SEP for each of 12 months in a row, you will not qualify for benefits.

If the claimant has earned income, it will be known to the judge through an earnings report, which is forwarded to SSA from the IRS.  Your employer is required to report your earnings every quarter under tax laws, and the judge will have access to your quarterly earnings as most recently reported.  The judge will look at the annual or quarterly earnings through the period at issue in your claim, and divide the number to get to a monthly figure.  If that monthly figure is above the SGA threshold, you will be considered disqualified for benefits throughout that period, unless you can prove (such as with pay stubs or similar records) that the earnings were concentrated in fewer months.  In some cases the reverse applies – if the numbers are borderline, and straddle the threshold, the judge will want to figure out whether your earnings were spread out enough to stay below the threshold in each and every month.  Any month over the threshold can cause a problem.

This rule has additional nuances that can be discussed in future posts.  Particularly, you may want to know about Unsuccessful Work Attempts, a term in the law that allows a person to exceed SGA for a few months on a trial basis while attempting to return to work.  The rules for an unsuccessful work attempt are also fairly detailed, but in short: it must last less than six months and end because of the original medical impairment, and it must follow at least a 30 day period of being out of work due to the impairment.

SGA is an area in which “gaming the system” comes up in discussion fairly often.  People often ask me about working while pursuing benefits, and the most frequent question is “How much can I work?”  One answer to that is that you can only pursue your claim while your earnings are below the SGA threshold.  But this does not by any means imply that it’s okay to intentionally limit your work just to stay below the threshold.  If you are working below SGA during your claim, the focus of the hearing may shift from “Why can’t you work” to “Why couldn’t you work just a little more to earn SGA?”  My recommendation, as a result, is that you not try to game the system in this way at all.  I recommend to my clients to do their best to work and earn as much as they can within the range of their limitations.  If you are able to earn more than SGA, in most cases it makes the most sense to commit to that work and abandon your claim.  Since your SSD benefit is determined as only a small percentage of your past earnings, odds are good that if you’re able to work more than SGA you’re going to be able to earn more than your SSD benefit would be.  There are of course exceptions to this.  Sometimes it’s not possible to get as good a job as you had before your disability began or hit this level of severity, or some other economic factor prevents you from earning what you are used to.  In those cases, yes, it may make more financial sense to pursue benefits versus work that doesn’t really pay, but it’s definitely a case-by-case analysis that I recommend discussing with a qualified attorney.

Step 2: Severe Impairments

The second step of the SEP is the question of whether the claimant has a “severe impairment.”  A “severe impairment” is a diagnosed medical condition that imposes some “more than minimal” limitation on the claimant’s ability to function in the workplace.  At this step, we are not evaluating whether the impairment is disabling enough to keep the person from working altogether, simply whether there is an impairment at all.  This is a step at which a person can be found “not disabled” if the test is not met, but if the test is met, the analysis simply proceeds onward.

A severe impairment must be an actually diagnosed medical condition, and the diagnosis must come from an “acceptable medical source.”  This means that technically the condition needs to be diagnosed by one of the types of treating provider that the Administration has previously deemed “acceptable.”  This would include medical doctors (MDs and DOs), psychologists with a Ph.D. or Psy.D., and a few other types of specialists, generally with doctorate credentials.  You can find the list of acceptable medical sources here.  Here is the actual regulation.  Recently, certain types of nurse practitioners were added to the list, which does make matters a bit better for many people who do not have regular access to a credentialed doctor.

The severe impairment must last a continuous period of twelve months or until death to satisfy the requirement.  This is stated at 20 CFR § 404.1509.

Step 3: The Medical Listings

Step 3 of the SEP considers the Social Security Medical Listings.  The Listings are a list of numerous specific medical conditions and precise criteria that need to be proven from the medical records.  The “book” of listings is also sometimes called “The Bluebook” because it has traditionally been published as a book which has a blue cover.

The Medical Listings are divided by bodily system, in a total of 14 categories which are each numbered, and within each system’s set of listings there are numerous individual conditions listed with a code of two integers, such as 1.02, 12.06, etc.  Within each individual listing, there are several paragraphs laying out the criteria, which often include specific measurements, numerical thresholds, or test results.  Each section of the listings also has “forematter” paragraphs that give definitions for certain terms that appear in the Listing criteria.  For example, in section 1.00 Musculoskeletal System, there is a paragraph that explains “ineffective ambulation” as that is a criteria that is cited in several of the musculoskeletal listings.

While most of the listing criteria are objectively measurable, some are partially subjective, and require a doctor’s opinion to assess, although often judges will render their own opinion on the issue, which is generally improper.  This is particularly the case in the paragraph “B” criteria of each mental health listing under section 12.00.  The mental listings require “marked” or “extreme” limitation in specific functional areas, which are spelled out.  To prove that the listing is satisfied, you must obtain an opinion from a treating mental health provider as to the degree of limitation in each of those functional areas.

There are two ways that step 3 can be satisfied.  It can be met either by a listing being met (the criteria of the listing are exactly satisfied by findings in the medical record) or by a listing being Equalled.  A listing is “equalled” when a qualified doctor renders a medical opinion that while the criteria of a listing are not precisely met, the findings that are present in the file document a condition of equivalent severity to the listing criteria.  This is intended to come into play when the specific diagnosis is not mentioned in the Listings, but is similar to a condition that is covered by a listing.

Most cases are not decided at step 3.  That is, most claimants do not have a medical condition that meets or equals a Listing.  When the finding at step 3 is that a listing is met or equalled, the evaluation is concluded and the claimant is granted benefits.  When no listing is met or equaled, evaluation proceeds to step 4.

Before Steps 4 and 5: The Residual Functional Capacity

Before evaluating steps 4 and 5, the judge or analyst must determine the claimant’s “residual functional capacity” or RFC for short.  The relevant regulation is 20 CFR § 404.1545.  RFC is defined in the regulation as “the most you can still do despite your limitations.”  In practice, an RFC is a detailed description of what the person can or cannot do in the workplace.  It starts with an “exertional level” which is a choice between “Sedentary,” “Light,” “Medium,” “Heavy,” and “Very heavy.”  These all correspond to amounts of weight that the person is considered capable of lifting frequently and occasionally, and how much of the day can be spent standing and walking.

The exertion level should only be a starting point in the RFC.  A proper RFC assessment is “function by function” and evaluates all of the required functions of work, including exertion limits, postural activities, manipulative activities, mental activities, attendance, and social capabilities.  All of the limitations in an RFC must be supported by medical evidence, ideally including both an opinion statement from a treating medical source as well as objective findings that support the basis of that opinion.

Steps 4 and 5 proceed “mechanically” from the RFC.  In an ALJ Decision, most of the writing and analysis will fall under the RFC assessment.  What the RFC is essentially determines the outcome of the case, since the other portions of step 4 and 5 analysis are very rigid.

Step 4 of the SEP: Past Relevant Work

At step 4, the adjudicator must determine whether, in light of the RFC, the claimant can perform any of their “past relevant work.”  Past relevant work is defined as any full-time job performed in the last 15 years.  At a hearing, a Vocational Expert (VE) will be employed to characterize your work history in terms of the Dictionary of Occupational Titles, a government publication that categorizes every job in the economy and assigns to each a code number and a set of skill and exertion requirements.  The VE will be asked by the judge to state the claimant’s past relevant work, and will state a job title, DOT code, exertional level, and skill level for each of the claimant’s full-time jobs from the last 15 years.  Then the judge will read off one or more “hypothetical” RFCs, and ask the VE whether with those limitations the claimant could perform their past relevant work or any other work.

The main role of an advocate or lawyer at step 4 is to develop the evidence to restrict the RFC in the first place.  But a skilled lawyer can also help restrict the VE’s testimony in the step 4 analysis.  First, we can question the VE to clarify the requirements of any of your past jobs to bring out any job requirements that are not compatible with the RFC.  One way this happens is by identifying exertion requirements of a job to get the VE to reclassify the job to a higher exertion category.  We can also identify specific tasks in the job that are incompatible with the RFC.

If you can perform any of your past relevant work, in light of your RFC that results from your impairments, you are found “not disabled,” and the evaluation ends.  If you cannot, the analysis proceeds to step 5.

Step 5: Other work

At step 5, the adjudicator must determine whether, in light of your RFC, you can perform any jobs that exist in the national economy.  This is generally assessed with the aid of a vocational expert (VE).

This is the first “burden shifting” step in the evaluation.  Prior to step 5, the burden of proof is on the claimant; that means that it is up to the claimant and their representative to prove that they are disabled.  At step 5, however, the burden is on the government to prove that the claimant is not disabled.  Specifically, to deny a claim at step 5, the government generally must name specific jobs that can be done within your RFC.

Step 5 considers your RFC and your past work in terms of whether you have any skills acquired from past work that can be applied to other work at a lower exertion level.  We call this “transferable skills.”  Transferable skills come into play in relation to the “grid rules,” which we will discuss more generally in another post, but what you need to know is that if there are transferable skills to within the RFC, the grid rules will not apply.  For younger individuals, transferable skills analysis will not generally matter because if they can perform skilled sedentary work they would be found capable of other unskilled work anyway regardless of the transferable skills.

Since the burden is on the government at this step, the role of a VE can be very important, and cross-examining a VE or challenging their findings in an appeal can be helpful.  The goal of your advocate in a hearing when we get to step 5 analysis is to get the VE to say “no jobs” for the judge’s RFC finding.  If the RFC is nuanced and contains limitations that may be incompatible with work, but the VE names jobs that could be performed, it may be necessary for the advocate to challenge the VE and try to get them to change their mind on those jobs.  Again, this really comes down to documenting the limitations in the first place, as the VE’s testimony is mostly a mechanical application of job requirements to functional capabilities.  If the limitations aren’t there in the RFC, there won’t be anything an attorney can do to knock out jobs at step 5.  But some VEs don’t do their job thoroughly and may miss some limitations in the RFC or some requirements in the DOT entry for a job, so an attentive attorney can sometimes salvage a claim from bad VE testimony.

That’s it for my overview of the 5-step sequential evaluation process.  While this has been a lengthy post, I still have only scratched the surface of the analysis at each of these steps.  There are additional regulations and case law that spell out details of how these rules are applied.  In the future I may add more blog posts or knowledge base articles going through them, so subscribe or check back later for more information.  As always, you can contact me directly for a free consultation to develop a strategy for winning your claim.