A Simple but Critical Fix Is Needed Now for the Nation’s Disability System

Unless Congress acts, the modest insurance benefits that Social Security Disability Insurance provides will be cut by 20 percent.

Rebecca Vallas is the Associate Director of the Poverty to Prosperity Program at the Center for American Progress. 
National Journal
Sept. 11, 2014, 6:39 a.m.

So­cial Se­cur­ity Dis­ab­il­ity In­sur­ance, which provides ba­sic but es­sen­tial pro­tec­tion from in­come loss due to life-chan­ging dis­ab­il­ity or ill­ness for more than nine in 10 Amer­ic­an work­ers and their fam­il­ies, is one of the corner­stones of our So­cial Se­cur­ity sys­tem. But ac­cord­ing to pro­jec­tions is­sued by the So­cial Se­cur­ity trust­ees in late Ju­ly, the So­cial Se­cur­ity Dis­ab­il­ity In­sur­ance trust fund will run dry in late 2016.

Un­less Con­gress acts, the mod­est in­sur­ance be­ne­fits that So­cial Se­cur­ity Dis­ab­il­ity In­sur­ance provides — an av­er­age of about $1,140 a month, just over the fed­er­al poverty level for an in­di­vidu­al — will be cut. Those cuts would slash be­ne­fits by 20 per­cent, across the board.

So So­cial Se­cur­ity Dis­ab­il­ity In­sur­ance must be broken, right, and in need of a rad­ic­al over­haul? That’s cer­tainly what some con­ser­vat­ive crit­ics crave.

Wrong. The truth is, we’ve known for 20 years that this was com­ing. And a one-time, routine ac­tion is all that’s needed to en­sure that So­cial Se­cur­ity can pay all prom­ised be­ne­fits for the next two dec­ades.

To un­der­stand why, it’s help­ful to re­view the his­tory of So­cial Se­cur­ity’s fin­an­cing. The Old Age and Sur­viv­ors’ In­sur­ance trust fund, or OASI, is a re­serve fund for So­cial Se­cur­ity be­ne­fits paid to re­tir­ees and their sur­viv­ing spouses and chil­dren. The Dis­ab­il­ity In­sur­ance trust fund re­mains tech­nic­ally sep­ar­ate. However, Con­gress has typ­ic­ally dis­cussed, shaped, and reg­u­lated them to­geth­er due to the close re­la­tion­ships between So­cial Se­cur­ity’s dis­ab­il­ity and re­tire­ment pro­grams. In par­tic­u­lar, the two pro­grams share a be­ne­fit for­mula, and be­ne­fi­ciar­ies reg­u­larly move between the two pro­grams. Thus, changes to one pro­gram — such as rais­ing the re­tire­ment age — af­fect both trust funds.

The last round of ma­jor changes to So­cial Se­cur­ity oc­curred in 1983, and in­cluded a deep cut in the share of the payroll tax ded­ic­ated to Dis­ab­il­ity In­sur­ance, which in turn cre­ated a long-term fin­an­cial loss. Ac­tion in 1994 only par­tially off­set the loss, and in 1995, the trust­ees ac­cur­ately pre­dicted that fur­ther ac­tion would be needed in 2016. Had the 1983 cut nev­er happened, we wouldn’t be where we are today.

Some crit­ics have ar­gued that the num­ber of dis­abled work­ers re­ceiv­ing help from So­cial Se­cur­ity Dis­ab­il­ity In­sur­ance has grown “too much,” and sug­gest that the in­creases have been sur­pris­ing and un­sus­tain­able. But in fact, the in­crease in the num­ber of dis­abled work­ers re­ceiv­ing So­cial Se­cur­ity Dis­ab­il­ity In­sur­ance in re­cent dec­ades has long been ex­pec­ted. As far back as 1995, the trust­ees foresaw that the num­ber of work­ers re­ceiv­ing Dis­ab­il­ity In­sur­ance would in­crease sig­ni­fic­antly, and even guessed the num­ber of new be­ne­fi­ciar­ies nearly right on the money.

They were able to do so be­cause the in­crease in SSDI be­ne­fi­ciar­ies is chiefly due to a set of well-un­der­stood and long an­ti­cip­ated demo­graph­ic and labor-mar­ket shifts. A su­per­sized gen­er­a­tion of baby boomers has be­gun aging in­to dis­ab­il­it­ies. The once massive gap in labor-force par­ti­cip­a­tion between men and wo­men has nar­rowed con­sid­er­ably, which means many more wo­men have suf­fi­cient work his­tor­ies to be in­sured in case of dis­ab­il­ity. Ad­di­tion­al con­trib­ut­ing factors in­clude the in­crease in the So­cial Se­cur­ity re­tire­ment age. Any in­crease in the re­tire­ment age causes SSDI be­ne­fi­ciar­ies to con­tin­ue re­ceiv­ing cov­er­age for a longer peri­od of time be­fore they be­come eli­gible to switch over to re­tire­ment be­ne­fits. Then, there’s the fal­lout from good old-fash­ioned pop­u­la­tion growth.

When it comes to the dis­ab­il­ity pro­gram’s sus­tain­ab­il­ity, the key fact to know is that as boomers age in­to re­tire­ment, growth in dis­ab­il­ity in­sur­ance has leveled off and is now at its low­est level in 25 years.

Crit­ics of So­cial Se­cur­ity Dis­ab­il­ity In­sur­ance have also tried to link the pro­gram’s growth to a de­cline in labor-force par­ti­cip­a­tion, point­ing to the rise in ap­plic­a­tions for SSDI dur­ing the re­ces­sion. But while ap­plic­a­tions in­creased, the share of ap­plic­ants who were awar­ded be­ne­fits has de­clined, as ap­plic­ants who didn’t meet the pro­gram’s strict eli­gib­il­ity cri­ter­ia were screened out. Moreover, between 2007 and 2014, labor-force par­ti­cip­a­tion has fallen by about 3 per­cent­age points, from 65.9 per­cent to 62.8 per­cent. But in a re­cent re­port, the White House Coun­cil of Eco­nom­ic Ad­visers care­fully ex­amined the factors at play in the de­cline in labor-force par­ti­cip­a­tion. They found no evid­ence to sup­port the claim that dis­ab­il­ity in­sur­ance con­trib­uted to the de­cline. The group of eco­nom­ic ex­perts even con­cluded that since 2009 the in­crease in work­ers re­ceiv­ing dis­ab­il­ity in­sur­ance has been lower than one would have pre­dicted.

Look­ing for­ward, Con­gress needs to act by 2016 to avoid an across-the-board cut in be­ne­fits for dis­abled work­ers and their fam­il­ies — something no pre­vi­ous Con­gress has ever al­lowed to hap­pen. In­stead, Con­gress has re­peatedly, and on a bi­par­tis­an basis, voted to “re­bal­ance” the OASI and dis­ab­il­ity-in­sur­ance trust funds to keep both on sound foot­ing amid chan­ging demo­graph­ics. Con­gress has op­ted to re­bal­ance — mean­ing it altered the share of payroll-tax con­tri­bu­tions that go in­to each fund — 11 times since the SSDI pro­gram was es­tab­lished in 1956. These de­cisions dir­ec­ted ad­di­tion­al funds to the OASI fund about half the time, and to the dis­ab­il­ity-in­sur­ance fund about half the time.

To ad­dress the pro­jec­ted 2016 short­fall, Con­gress need only en­act a mod­est, tem­por­ary real­loc­a­tion of the 6.2 per­cent payroll tax to equal­ize the solvency of the two funds. The real­loc­a­tion plan out­lined by So­cial Se­cur­ity’s chief ac­tu­ary would en­sure that both funds re­main fully solvent un­til 2033.

Re­bal­an­cing would have es­sen­tially no im­pact on the fin­an­cial health of the over­all So­cial Se­cur­ity sys­tem. The change would also al­low each trust fund to pay all sched­uled be­ne­fits un­til 2033, with about 77 per­cent of prom­ised be­ne­fits there­after. Look­ing past the 2016 Dis­ab­il­ity In­sur­ance fin­an­cing gap, there are a num­ber of op­tions for en­sur­ing the long-term solvency of the en­tire So­cial Se­cur­ity sys­tem without cut­ting already-mod­est be­ne­fits — something that polls con­sist­ently con­firm most Amer­ic­ans op­pose.

If Con­gress doesn’t take the routine ac­tion needed to avoid cut­ting vi­tal be­ne­fits for dis­abled work­ers and their fam­il­ies, then it is Con­gress that is broken — not So­cial Se­cur­ity Dis­ab­il­ity In­sur­ance.

Re­becca Val­las is the as­so­ci­ate dir­ect­or of the Poverty to Prosper­ity Pro­gram at the Cen­ter for Amer­ic­an Pro­gress. Shawn Frem­stad is a pub­lic-voices fel­low at The OpEd Pro­ject, and seni­or re­search as­so­ci­ate at the Cen­ter on Eco­nom­ic and Policy Re­search.

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