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The impending depletion of Disability Insurance trust fund

By STEVE PRESTEGARD | Aug. 19, 2015

The Social Security trustees reported July 22 that the Social Security Disability Insurance trust fund reserves are projected to drop to zero during the fourth quarter of 2016.

That is no surprise. Last year, the Wisconsin Policy Research Institute reported in its Wisconsin Interest magazine that SSDI funds were projected to be depleted in late 2016 as a result of costs exceeding non-interest income since 2005.

The fact that SSDI is now a year closer to a mandatory 19% benefit cut once reserves are depleted doesn’t mean there is much more urgency in Congress for reforming disability benefits.

“I hear a lot of talk, but anytime you ask anybody, some of those ideas are good, but Republicans claim they need Democrats to get anything through, which is probably true,” says Jason Turner, executive director of the Secretaries’ Innovation Group, a coalition of state human services and workforce secretaries that claims reforms are needed to get disability recipients back in the workforce. “I still fault (congressional Republicans) for not putting something on the table. They’re afraid to go out and make an argument to the voter.”

Most people may think of Social Security as something they start receiving at retirement age. SSDI, however, is also part of Social Security, paying benefits to disabled people who paid enough Social Security taxes to receive benefits.

SSDI is funded by a 1.8% payroll tax, split between employer and employee, part of the 15.3% federal payroll tax that funds Social Security and Medicare. It is one of two federal disability programs. Supplemental Security Income also pays disability benefits, but based on financial need; SSDI has no means test. Unlike SSDI, SSI is funded out of general government revenues.

The trustees reported that Disability Insurance trust fund reserves dropped from $90.4 billion at the end of 2013 to $60.2 billion at the end of 2014. At that rate, reserves will drop to zero at the end of 2016. Unless Congress acts to change Disability Insurance funding, SSDI benefits are mandated to be cut 19% should the trust fund run out of reserves.

Ironically, the trustees’ report was issued during celebrations of the 25th anniversary of the Americans with Disabilities Act, which, by requiring employer accommodation of employee disabilities, was supposed to give people with disabilities “an equal opportunity to benefit from the full range of employment-related opportunities,” both before and after hiring.

Since 1995, five years after the ADA became law, the number of people receiving SSDI benefits doubled during a period when U.S. population increased 19% and the U.S. workforce increased 17%. This could not have been the intent of the ADA’s creators.

A U.S. census report, “Americans with Disabilities: 2010,” stated that 19% of Americans claimed they had a disability, “according to a broad definition of disability, with more than half of them reporting the disability was severe,” in the words of a census news release.

Just between 2010 and the beginning of 2014, the number of SSDI beneficiaries increased 10%, from 10 million to 11 million (9 million beneficiaries and 2 million surviving spouses and children), during a period when the U.S. population increased about 2.5%. The census report stated that 41% of people with a disability were employed, while 79% of people without a disability were employed.

The jump in SSDI beneficiaries has forced increased spending in both SSDI and SSI. One reason for the increase is an easing of the original definition of “disability,” which when SSDI was created in 1956 was the “inability to engage in a substantial gainful activity in the U.S. economy” — that is, any work at all. MIT economist David Autor, who has written or co-authored several papers on SSDI, described the standard as “an individual must have a medically determinable physical or mental impairment that is expected to result in death or to last for at least a year.”

Autor and other economists blame the Social Security Disability Benefits Reform Act of 1984 for most of the jump in SSDI disability claims, specifically the percentage of recipients with back pain and mental illness. Among other changes to the previous law, the burden of proof to deny disability benefits shifted to require the Social Security Administration to prove a recipient could engage in “substantial gainful activity,” instead of requiring the recipient to prove he or she could not. The law also made the screening process more subjective and required the SSA to rely more on applicants’ statements about their own pain and on applicants’ doctor’s assessments rather than the SSA’s.

Turner says the SSA is “following old rules and procedures that are opening the door wide open for new disability entrants,” most of whom never return to the workforce. “They get $1,200 a month for life without doing anything.”

This is not the first time SSDI was projected to run out of money. In 1994, Congress reallocated the payroll tax split between Social Security for retirees and SSDI funding. The White House’s fiscal year 2016 budget proposes another “rebalancing” so that, in the words of the White House’s “Social Security Disability Insurance: A Lifeline for American Workers in Families”: “Congress can prevent sharp and sudden benefit cuts while working to develop the long-term policy changes needed to strengthen the entire Social Security program.”

Social Security for retirees is projected to run out of reserves in 2034, and reallocating funds from retirees to SSDI may deplete retiree funds faster. (Or perhaps not, given that, as a sub-headline in the White House report says, “Today’s disabled workers are tomorrow’s retirees.”)

But “rebalancing” doesn’t change the reality of the number of disability beneficiaries growing four times the population increase this decade. It does nothing to address the concerns of the Secretaries’ Innovation Group, which argued in 2013’s “Reforming Disability” that major changes were needed in SSDI and SSI. “Rebalancing” doesn’t change the disincentives for those receiving disability to return to work, nor does it change the standards that Turner argues need to be completely revamped.

The University of Maryland School of Public Policy hosted a conference in February to go over options to reform the disability benefits system. Since 1994, there have been just six SSA demonstration projects to determine ways to slow down the depletion of the SSDI trust fund. The conference proposed eight new ideas, including targeting early intervention to workers younger than 50 diagnosed with mental illness; extending private disability insurance to support workers for 27 months after disability; reforms from the United Kingdom and the Netherlands; reforms developed in the state of Washington; and a Wisconsin-based proposal to change SSI benefits to an account structured like a health care flexible spending account.

“Some of them were good,” says Turner. “Not all of them were good, but some of them were good and well thought through.”

Autor wrote in 2010 that the SSDI program “is so badly out of step with our contemporary understanding of disability that one can readily envision feasible reforms … that would make both SSDI beneficiaries and taxpayers better off.”

Turner calls the SSDI system a “total, total mess,” adding, “There are so many things that are wrong with the system, it’s hard to know where to start.”

We are no closer to Autor’s “feasible reforms,” but we are one year closer to SSDI’s running out of money. A mandatory 19% cut in disability benefits might be an added twist to the November 2016 presidential and congressional elections.

Steve Prestegard, an award-winning multimedia journalist for more than a quarter-century, writes at StevePrestegard.com blog. This column represents his personal opinion.

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