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Federal lawmakers hear SIEPR director’s analysis of national disability insurance program

Nov 19 2015

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Spotlight on Policy

By Michael McAuliffe

WASHINGTON – The director of the Stanford Institute for Economic Policy Research told a congressional committee that the largest federal program to assist disabled workers is running out of money, but can be saved with policy reforms and better management.

In his testimony before the Joint Economic Committee on Nov. 4, Mark Duggan said Social Security Disability Insurance expenditures exceeded revenues by more than 25 percent last year. He said the SSDI trust fund had fallen from $215 billion in 2007 to $42 billion in September.  Duggan added that projections suggested the fund would hit zero late next year, though the recently passed Bipartisan Budget Act of 2015 should extend the fund until 2022.

But more substantial reforms are needed to ensure the longevity of SSDI, which provides benefits to about 9 million adults and insurance against the risk of disability to more than 151 million Americans.

“I do think the program has, to a large extent, been on auto pilot for decades,” said Duggan, who is the Trione Director of SIEPR and the Wayne and Jodi Cooperman Professor of Economics at Stanford.

Duggan was one of three witnesses to testify before the committee, which is chaired by Sen. Dan Coats, R-Ind. Rep. Carolyn Maloney, D-N.Y. is the committee’s ranking member. Duggan was joined at the hearing by Social Security Administration Inspector General Patrick O’Carroll Jr. and Rebecca Vallas, director of policy for the Poverty to Prosperity Program at the Center for American Progress.

Duggan focused on the primary factors responsible for growth in program enrollment since the late 1980s. He also discussed the implications of the enrollment increase for the country’s labor market and the potential for changes to the program that would increase employment and improve the economic lives of disabled individuals while easing the program’s fiscal burden.

He also said intervening earlier with individuals who can do limited work and an increased presence by Social Security Administration personnel at hearings would improve the program.

It was his third congressional testimony about SSDI.

Duggan said a contributor to SSDI’s growth between 1989 and 2014 from 2.3 percent to 5 percent among adults between 25 and 64 has been the aging of the baby boom population.  But he added that liberalizing the program’s medical eligibility criteria and a reduction in Old Age and Survivors Insurance retired worker benefits are among other factors that have proven significant in increasing enrollment as the program has become a form of long-term unemployment insurance for some.

While Duggan said the program provides valuable insurance to many millions of Americans, he also said it reduces the incentive to work because earning more than $1,090 a month will lead to SSDI payments being terminated.

“Given that the present value of the average SSDI award is about $300,000 – including Medicare benefits – that is a risk that many SSDI recipients would be reluctant to take,” Duggan said.

Duggan said men and women in their 50s and early 60s are significantly more likely to receive SSDI benefits than those in their 30s and 40s, but that there has been a sharp increase in the percentage of individuals receiving benefits in each age group.  Duggan said the fact that more women are in the workplace – and therefore insured for SSDI benefits – has contributed to enrollment growth.

But rules that have made it easier for people to qualify for benefits have proven more significant.

“A more important determinant of the growth in SSDI enrollment since the 1980s is the liberalization of the program’s medical eligibility criteria that occurred in the mid-1980s,” Duggan said. 

He said there has been a marked increase in disability awards for mental disorders and musculoskeletal system diseases.  Duggan said the most common musculoskeletal condition is back pain, adding that musculoskeletal awards are six times higher today than in 1983.

By contrast, disability award rates for cancer and circulatory conditions – including heart attacks and strokes – have remained roughly constant, he said.

“This shift is important because…the employment potential of SSDI applicants with these more subjective conditions is substantial and it is often difficult to verify the severity of these conditions in contrast to cancer or heart conditions,” Duggan said.

Duggan also told the lawmakers that SSDI applications rise during economic downturns, and individuals who lose their job or are unable to find new work are increasingly likely to leave the work force and apply for benefits.

“Thus the program is to some extent serving as a form of long-term unemployment insurance for some workers, which is troubling when one considers the low exit rate from the program back into the labor force,” Duggan said. “In 2014, just 0.8 percent of recipients left the program due to improved health or to return to work.”

Sen. Tom Cotton, R-Ark., said that in his state’s 75 counties there is an almost exact inverse relationship that as population declines disability insurance enrollment goes up. Asked if he had any thoughts on why that may be the case, Duggan said generally places where the population is falling tend to be places where economic conditions are lagging, resulting in “a pretty significant uptick” in program applications.

Duggan offered ways to strengthen the system, including intervening sooner for individuals who can do limited work so they can stay on the job.  He is also an advocate of reforming the continuing disability review process.

Another potential reform would be an increased presence by the SSA.  Duggan said that currently only the applicant and his or her representative are present at appeal hearings before administrative law judges.

Duggan also said the Bipartisan Budget Act gives the SSA the authority to fund demonstration projects that may provide evidence about the effects of potential reforms.

“There have been some changes here and there, but I view them as kind of tweaks to the fundamental system,” Duggan said. “There are opportunities to significantly reform the program so as to stem the flow of people enrolling initially and to expedite the flow off of the program among those initially enrolling.”

Michael McAuliffe is a Washington, D.C.-based freelance writer.