Rehabilitating Social Security Disability Insurance

The Basics:
Social Security Disability Insurance, or SSDI, is a component of the overall Social Security program. Its official purpose is providing monthly payments to workers with disabling medical conditions that prevent them from earning above a set amount in a given year or more. It also provides benefits to those who have worked in the past, paying into Social Security, whose disabilities prevent them from working at all. SSDI pays these benefits until the individual can begin drawing from the Social Security retirement program. The goal of SSDI is to provide income enough to prevent poverty to those unable to work at all, and enough supplemental income to partially disabled people so that they can remain hired in a situation when their employer would not be able to pay them enough to continue employment.
 

In 2015, Congress passed a temporary bailout of Social Security Disability Insurance (SSDI), a move to stop the program from going completely insolvent. This temporary fix shifted a higher percentage of tax revenues towards SSDI—simply buying extra time before inevitable bankruptcy. This reallocation may have temporally solved the problem, but it has not gone away.

 

The Problem:
The recent near-insolvency of the SSDI trust was not new or unexpected, as the SSDI Trustees warned of it in their 2013 annual report. Nor were they solved with the recent bailout. In a 2015 report, the Congressional Budget Office estimated that both of the Social Security programs are on track to have 30% higher outlays than revenues by as early as 2025—that number jumps to 40% by 2040. The CBO report also notes that the disability insurance program in particular, will be completely exhausted by fiscal year 2021. It is clear that the system is broken and needs a more viable solution.

 
Since 1990, the working age population that receives SSDI benefits has more than doubled. In 2014, the Social Security office released information on just how many people were recipients of these benefits; over 10 million disabled workers, spouses and children received benefits. This amounted to $141.6 billion paid out that year. That’s right: One out 20 Americans ages 16-64 are beneficiaries.
 

While benefits per capita are growing to compensate for inflation and other factors, one of the fundamental problems is this growing beneficiaries pool, resulting from Baby Boomers in their peak age-range for disability. In addition, there is an unexpected increase in the number of women in the job force who are becoming eligible for benefits.
 
These factors, however, still cannot account for the increased growth in benefits payouts, because there has been very little change in the rate of disability among the working population. There is reason to suspect deeper issues with SSDI’s structure in the first place.

 

A surge in applications after the acceptance criteria were liberalized, mostly during the 2008 economic crisis, is a likely culprit. Even just considering this issue of poor accountability and widening program scope, it’s clear SSDI needs significant structural reform if it is to continue its stated purpose.

 

Where Do We Go From Here?
Solutions for restoring solvency to the SSDI trust range from redirecting a portion of tax funds going to other SS programs like OASI (Old-Age Survivors Insurance), and thus avoiding permanent solutions, to deeper reforms to the structures of both SSDI and OASI in approval qualifications, benefits payout structures, and funds sourcing.
 
One idea would be to allocate funds from general tax revenues rather than just payroll taxes. While this plan may ultimately access a funds source large enough to bridge the actuarial gap in SSDI, it fails to address the fundamental issue of long-term increases in mandatory spending. Taxing more simply will not make up the gap quickly enough. The issue is not insufficient tax revenue, but rather, out-of-control and unchecked spending. It is important to note here that SSDI does no means testing—something that is often used to determine if a person is eligible for specific benefits.
 
In his 2016 budget proposal, President Obama suggested that in addition to reallocating funds from Old-Age and Survivors insurance (OASI), unemployment benefits could be used to offset disability benefits. Simply put, if an individual is entitled to $1000 per month in disability benefits, but also receives $400 per month in unemployment benefits, then their disability benefits would be reduced to $600, effectively preventing “double-dipping” into the safety net. Additionally, he suggested providing funding for continuing disability reviews (CDR’s), which would shorten the period between reassessments of individuals’ eligibility for the program based on their medical status.
 
All efforts to offset spending, especially when it adds accountability to the system, should be applauded. These proposed changes are expected to save over $32 billion in 10 years and would be a step in the right direction, but there is a long way still to go.
 
Retired Senator Tom Coburn, a longtime champion of offsets such as those proposed by the President, introduced legislation that would significantly cut SSDI costs by providing funds for targeted vocational rehabilitation, thereby reducing the number of individuals on SSDI long-term, requiring beneficiaries to be converted to the retirement fund at the eligible early age standard of 62, rather than 65, mandating continuing disability reviews (CDR’s), time-limiting benefits when individuals are expected to recover within 3 years, and a whole host of other reforms.
 
Senator Cotton (R-AR) and Representative Hill (R-AR) also introduced a bill—which ultimately failed—that hoped to permanently fix this program. Similar to Sen. Coburn’s legislation, it created a timeframe to get people back to work and would invest in CDR’s to assess disabilities and eliminate fraud, saving taxpayers billions of dollars over the years.
 
Although neither effort ultimately passed, they provided a useful blueprint for the type of large-scale reforms needed to keep this program from bankruptcy. Policymakers are faced with a choice: Allow the program to continue limping along toward insolvency, with tax dollars at risk, or make the type of serious, lasting reforms that are so desperately needed.