Originally posted at the Institute to Reduce Spending.
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.
While SSDI provides vital aid to many truly disabled individuals, its trust fund will hit insolvency near the end of 2016. Without action by Congress, benefit payments will automatically drop by nearly 20%.
This issue raises serious questions about the propriety of both its program acceptance and benefits structures. The cause of this fiscal crisis is rather simple: program costs are growing faster than program revenues. The impending insolvency of the SSDI trust is not new or unexpected, however, as the SSDI Trustees warned of it in their 2013 annual report.
While benefits per capita are growing to compensate for inflation and other factors, one of the fundamental problems is a growing beneficiaries pool, resulting from baby boomers in their peak age-range for disability, in addition to the unexpected increase in the number of women in the job force who would now be 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.
An unexpected and steep drop in benefits following continuance of the status quo is something that both Republicans and Democrats will avoid at all costs, if not to protect their own jobs from disenamored constituents, then for the sake of those who truly need the aid. Unfortunately, it’s likely Congress will continue to push back real reform debate as long as possible, and such last minute, ad-hoc plans tend to favor expensive, inefficient, and ultimately “tie-over” solutions that do not address the root of the problem.
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.
The first proposed solution would include allocating a larger share of payroll tax revenue to SSDI, and thus a smaller portion to OASI, as the former currently gets 1.8 points of the 12.4 percent payroll tax, and the latter gets 10.6 points. In a perfect world, this would theoretically extend the solvency of both programs to around 2033. However, this tactic would not do anything to address the fundamental causes of the fiscal shortfalls in the first place. Given that, Congress has enacted legislation to prevent such a funds reallocation without some kind of structural reforms. While this measure may help catalyze some small change, its guidelines are still loose enough for Congress to avoid needed, substantial reforms. Worse still, OASI actually faces the largest actuarial imbalance in the long-run, so such a funds reallocation could only set the stage for an even worse fiscal battle down the road.
Another 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 too obfuscates the fundamental issue of long-term increases in mandatory spending. 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 whatsoever, further aggravating potential issues with spending wastage.
In his 2016 budget proposal, President Obama suggested that in addition to reallocating funds from 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 DI benefits would be reduced to $600, effectively preventing “double dipping” into the safety net. Additionally, he suggests 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.
The President’s two latter ideas certainly would be a step in the right direction, and 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. Still, more significant improvement in the program is the only guarantee of its effective workings for generations to come.
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 EEA age standard of 62, rather than 65, mandating CDR’s, time-limiting benefits when individuals are expected to recover within 3 years, and a whole host of other reforms.
Sen. Coburn’s plan is a contains the deep structural reforms needed to ensure that SSDI, OASI, and SSRI maintain solvency well into the future, but whether such significant changes are politically possible is another issue entirely. It’s unlikely we’ll see Sen. Coburn’s plan adopted wholesale anytime soon, but there is reason to be hopeful that good reforms will be made with continued pressure on policymakers to focus on more sustainable, long-term solutions. As insolvency creeps ever closer, they simply can’t afford not to.