Hoover Daily Report

A Capsizing Disability-Insurance Program

via Wall Street Journal
Tuesday, January 20, 2015

While Medicare and Social Security dominate discussion about entitlement reform, too little attention is paid to the dire financial straits of the Social Security Disability Insurance trust fund. Without legislative action, SSDI benefits will be cut nearly 20% by the end of 2016.

Congress likely will pass a short-term measure to shore up the trust fund and enable it to pay full benefits. But to survive long term, the program needs far-reaching reform.

SSDI is funded by a portion of payroll taxes and pays an average monthly cash benefit of about $1,150 to disabled workers below Social Security’s retirement age. The program has been growing rapidly: While the pool of workers eligible for disability benefits increased by 11.3% between 1999 and 2014, to 151 million from 136 million, the number of workers (not including dependents) getting these benefits grew by 83.5%, to nine million from 4.9 million. Between January 2009 and December 2014, more than 1.5 million workers joined the disability rolls.

SSDI paid $140.1 billion to disabled workers and their dependents in 2013 (according to the latest trust-fund data). By the end of that year spending outpaced receipts by $32 billion, and the balance of the program’s trust fund was a little more than $90 billion. Trust-fund reserves are expected to run out in late 2016.

Congress can reallocate payroll tax revenues from the Old-Age & Survivors Insurance trust fund to shore up the SSDI trust fund. But the Congressional Budget Office estimates that rebalancing tax revenue between the trust funds would cause the reserves of both to run out in 2030.

When the disability program faced a crisis in 1994, Congress reallocated payroll-tax revenues. During the same year it also outlawed SSDI payments to individuals with drug or alcohol addictions. This time the Social Security Administration has made clear that President Obama wants revenue reallocated with no strings attached. This is a bad idea.

Instead, any reallocation legislation should include reforms that will reduce the future growth in the number of people getting benefits and increase the number of beneficiaries who can and should return to gainful employment. Some of these reforms were proposed by former Oklahoma Sen. Tom Coburn during his last week in Congress.

One option to tighten eligibility would require that applicants have worked more in recent years—for example, in four of the past six years rather than five of the past 10 years that is currently required. The Congressional Budget Office estimates that increasing the recency-of-work requirement in this way starting in 2013 would have reduced the number of SSDI beneficiaries by 4% and decreased spending by $8 billion in 2022.

Another option: Disability determinations are currently made based in part on factors like age, education and work experience. As an applicant gets older, the eligibility requirements get less stringent. Congress could tighten SSDI eligibility by raising the age when it becomes easier to qualify for benefits.

A third option that has bipartisan support and is included as a pilot project in Mr. Coburn’s bill: “supported work” services such as vocational rehabilitation, health care or wage subsidies, or preventive care that could help keep an individual working instead of going on disability.

Many on disability cannot be expected to return to the workforce. But SSDI has a powerful disincentive for anyone on disability to leave the program: the promise of a stream of income in return for a promise not to go back to work. Mr. Coburn’s legislation places a time limit on benefits for applicants who have temporary physical disabilities or injuries that are expected to improve with time.

Today a beneficiary is generally not terminated from the program unless he is selected for a Continuing Disability Review and the government finds he has experienced substantial medical improvement. By time-limiting benefits for some beneficiaries—those with disabilities that are expected to improve to a point that they are able to work again—Congress can place the onus on them to prove that they are still eligible for benefits while accelerating the transition of more people back into the workforce.

Congress can also boost funding targeted at improving the integrity of the program. This would allow the Social Security Administration, for example, to clear the current backlog of more than one million Continuing Disability Reviews.

Congress could also require the Social Security Administration to assess the quality of decisions made by the administrative law judges who review appeals by individuals whose claims for disability benefits are denied. Particular attention should be paid to judges who overturn denials at disproportionately high rates.

Between 2005 and 2013 these judges on average allowed 66% of the appellants to receive benefits. But more than one in five judges allowed more than 85% of claims they considered; and a handful of judges allowed benefits even more frequently. Stories of individuals who remain on disability who aren’t disabled, and of judges who seemingly let anyone get benefits, undermine public trust.

Wasting this opportunity for reform will only exacerbate SSDI’s problems, hurting taxpayers and imperiling the program

Mr. Chen is a research fellow at the Hoover Institution and the director of Domestic Policy Studies in the Public Policy Program at Stanford University.