Politicians have a tendency to wait until the last minute and then try to solve every problem with a quick fix. Taxpayers witnessed this with the raising of the debt ceiling and with every recent “stimulus” bill that has passed.
Social Security Disability Insurance (SSDI)—the federal entitlement program that was originally created in 1956 as an insurance plan for long-tenured workers with the misfortune of becoming disabled before retirement—now faces a major fiscal crisis. But quick fix strategies are likely to fail and are ill-advised when dealing with such complex programs.
Any meaningful reform will need to contend with long-term deficits and acknowledge the necessity of significant restructuring and an amount of sacrifice. The Congressional Budget Office (CBO) has stated that this program will be insolvent by 2016. At that time options to save the program will be severely limited. Policy makers will be forced to reduce benefits or steal from a more solvent program to cover the shortfall. Before either of these options become the only reality, our elected representatives would be wise to reform the program in meaningful ways that incentivize getting Americans back to work.
The growth of SSDI has not occurred over night, but has seen a steady increase over the last several decades. SSDI benefits have already grown from 10 percent of Social Security benefits in 1970 to 18 percent today. The number of disabled workers receiving SSDI benefits has multiplied more than six times since 1970, from 1.4 million to 8.9 million in 2012. The number has doubled since 1995. Over that same period, annual inflation-adjusted SSDI benefit payments have risen more than 800 percent, climbing to an all-time high of $135 billion in 2012.
Even more troubling is the fact that adding more people to the SSDI rolls puts even more strain on Medicare, which has its own solvency woes. Many SSDI recipients receive Medicare coverage. In fact, disabled workers have come to receive a significant portion of Medicare payments–$80 billion in 2012 alone. Left unchecked, this number will balloon to $130 billion by 2023, draining Medicare further.
Couple these numbers with an aging work force and a meek economic recovery and the situation starts to look dire. Aside from the solvency issues, the recent demographic trends should cause policy makers sleepless nights as well. In 1970, just 1.3 percent of adults between the ages of 20 and 64 were SSDI beneficiaries; today that number has risen to 4.6 percent. Even worse yet, the spike in unemployment has correlated to a spike in SSDI applications—but unlike unemployment where benefits run out or people go back to work, SSDI beneficiaries almost always leave the labor force for life. A study by the Center for Studying Disability Policy found that only 2.8 percent of beneficiaries return to work within 10 years of receiving benefits.
Why have these trends occurred? For starters, the loosening of SSDI eligibility standards by Congress in the 1980s is a chief culprit, as well as a weak economic recovery and generous benefits. Part of the solution to stop rising SSDI costs is to get some cost controls and oversight into the program. This can be done with tightening eligibility requirements and conducting Continuing Disability Reviews of existing beneficiaries to ensure that those who are still disabled are those who are covered by the program. The private sector can help out by getting some of the disabled back to work.
Chief among the fixes Congress should consider is what economists Richard Burkhauser of Cornell and Mary Daly of the Federal Reserve refer to as an “experience rating.” This would work by adding a rating for disability payroll taxes so employers who can keep individuals with disabilities on the job will be rewarded with lower taxes, while those who shift workers onto SSDI will pay more.
Adding controls and creating incentives for the disability program has worked in the past. Similar reforms were enacted in the Netherlands, which at one time had some of the highest disability rates in the world. Reforms throughout the 1990s reduced its disability application rates by nearly 60 percent.
Congress needs to get past its impulse for quick fixes and legislate some real reforms for the SSDI program before it is too late.
MacMillin Slobodien is executive director of Our Generation, a non-profit advocacy group which is launching the Reform SSDI Now project.