WASHINGTON -- Reversing one of the most widely criticized policies of the Reagan administration, federal officials have agreed to reopen tens of thousands of cases in which the government denied benefits to people who said they could not work because of mental or physical disabilities.
People who prove they were wrongly denied benefits could receive substantial back payments, anywhere from $3,000 a year to more than $6,000 a year, for up to 4 1/2 years of missed benefits.
The new policy is set forth in the proposed settlement of a lawsuit involving more than 200,000 people in New York state. Although the settlement applies only to New York residents, lawyers said it should set a pattern for government conduct in other parts of the country.
Approval of the settlement is recommended by lawyers on both sides. The settlement would affect those who were denied benefits at any point in the 11 years since the Reagan administration began a systematic campaign to purge the Social Security disability rolls.
The administration said its campaign was required under a 1980 law and was essential to control the cost of the rapidly growing disability program.
The government contended that many beneficiaries were able to work, even though courts later found that thousands were helpless because of severe physical or mental problems.
The Reagan administration's efforts to purge the Social Security rolls produced a flood of lawsuits, and many judges ruled against the government.
The U.S. District Court in Minnesota said in 1984: "Claimants who lose or are denied benefits face foreclosure proceedings on their homes, suffer utility cutoffs and find it difficult to purchase food. They go without medication and doctors' care; they lose their medical insurance. They even die from the very disabilities the agency denies they have."
Under the proposed settlement, the Social Security Administration will instruct its employees that they must follow any decisions issued in the past or in the future by the U.S. 2nd Circuit Court of Appeals in New York, even if they disagree with them.
The circuit court has issued at least 75 opinions describing the standards and procedures to be used in deciding whether people are entitled to disability benefits. The government has disregarded many of those rulings.
If the settlement is approved, the government will send out letters offering to re-examine the claims of more than 200,000 people in New York state who have been denied disability benefits since Oct. 1, 1981.
People found to be disabled can get up to 4 1/2 years of past benefits in addition to regular benefits in the future.
Monthly payments now average $590 for a disabled worker and $165 for a spouse or a child. Benefits are increased each year to reflect changes in the cost of living.
By making substantial concessions in the proposed settlement, federal officials will avoid a court order that could have been more burdensome and more embarrassing to the government in this election year.
President Bush and the Social Security commissioner, Gwendolyn S. King, have repeatedly said their policies are "kinder and gentler" than those of the Reagan administration.
No other aspect of Mr. Reagan's social policy was so widely criticized by federal judges, governors and members of Congress as his effort to remove people from the disability rolls, often in defiance of court rulings.
Judges, in particular, expressed exasperation because they had to decide case after case raising the same legal issues.
Federal officials had long argued that court decisions in one Social Security case do not have to be applied to other people seeking benefits, even if the medical facts and legal issues are identical.
The Reagan administration announced in June 1985 that it would follow appeals court rulings, but judges found that Social Security officials continued to ignore many rulings after that time. While the agency told judges and the public that it was adhering to court precedents, it rarely instructed its employees to do so.
The new settlement was negotiated by lawyers for the federal government, for disabled people and for the city of New York.
Judge Leonard B. Sand of the U.S. District Court in Manhattan encouraged the negotiations. People who filed claims have until May 29 to file comments. Courts usually approve settlements endorsed by all the participants in a case.
Judge Sand, like many other federal judges, had already ruled that Social Security officials acted unlawfully in refusing to follow appeals court decisions.
New York City joined disabled people in suing the federal government in 1984. It argued that federal policies increased city costs because people denied federal aid relied on welfare programs financed by the city.
Under the proposed settlement, the government agrees that decisions of the federal appeals court in New York must be applied not only to the people who brought those cases, but to other state residents with similar claims.
In the past, Social Security officials often asserted that they were bound only by Supreme Court decisions and that they did not have to "acquiesce" in decisions of lower courts if such decisions contradicted their reading of the law.