March 12, 2015

Social Security Disability Insurance Is Failing

  • The Social Security Disability Insurance program is failing the disabled and taxpayers. When the SSDI trust fund is depleted in 2016, payments to beneficiaries will be slashed by roughly 20 percent.

  • The SSDI trust fund has significantly worsened during this administration, and its depletion is coming 10 years sooner than experts predicted in 2007.

  • President Obama’s payroll tax reallocation proposal harms both retirees and the overall solvency of Social Security.

The Social Security Disability Insurance program is failing the disabled and taxpayers. The program faces a funding shortfall of nearly $270 billion over the next decade. The Social Security trustees project that the SSDI trust fund – funded by a 1.8 percent tax on wages up to $117,000 in 2014 – will be depleted by late 2016. At that time, payments to beneficiaries will be slashed by roughly 20 percent. The finances of trust fund have worsened drastically in comparison with the agency’s 2007 projection of what would happen. The number of program enrollees is up 21 percent during the Obama administration.

SSDI Trust Fund Balance

Payments from SSDI have grown rapidly over the past two decades. Only about a third of that growth is from changing demographic factors, such as the aging of the population. SSDI’s pending insolvency has been accelerated by the weak economic recovery, less stringent eligibility criteria, and Social Security Administration mismanagement. This includes skewed agency policies that incentivized hundreds of administrative law judges to essentially rubber stamp disability claims.

An official with an association for administrative law judges told 60 Minutes in 2013 that “if the American public knew what was going on in our [disability] system, half would be outraged and the other half would apply for benefits.” SSDI must be reformed in order to better serve both the disabled and workers paying Social Security taxes.

Unsustainable Spending Growth

Accurate disability determinations are crucial, since the lifetime cost of someone gaining eligibility for SSDI benefits, including benefits in programs linked to SSDI, is an estimated $300,000 per beneficiary. Once people get SSDI benefits, they generally receive them until they are old enough to transition to the Social Security retirement program.

In 1994, the SSDI portion of the payroll tax was increased by 50 percent. Reforms were promised with the reallocation. The reforms never happened, and SSDI’s finances have deteriorated to the point where another reallocation is being proposed.

In 2000, total spending on SSDI was $56 billion; in 2014 it was $144 billion. The program’s unfunded liability amounts to $1.2 trillion over the next 75 years. The condition of the trust fund has significantly worsened during the Obama administration, and the depletion of the trust fund is coming 10 years sooner than experts predicted in 2007.

Despite improvements in health and working conditions, a much higher percentage of working-age Americans are now on SSDI than two decades ago. This is true for both men and women, and across age groups. The number of middle-age Americans who tell the Census Bureau that they have a work-limiting disability has actually declined over the last 30 years.

Writing in the Wall Street Journal on February 23, former Social Security Administration official Andrew Biggs noted the disconnect: “Yet the percentage of the working-age population collecting disability insurance benefits has more than doubled to 5.7% in 2014 from 2.7% in 1984. These increases were not anticipated: In 1984 Social Security’s trustees projected only 4% of working-age adults would collect disability in 2015.”

The rapid growth in SSDI also has put pressure on Medicare’s finances, as people are automatically enrolled in Medicare after two years on SSDI. In 2012, SSDI beneficiaries accounted for about 19 percent of total Medicare recipients, up from about eight percent in 1975. Medicare spending for SSDI enrollees in 2011was $80 billion.

Outdated and Overly Subjective Guidelines

Under the Social Security Act, people can only lawfully be awarded disability benefits if they have an impairment “of such severity that [they] … cannot … engage in any … kind of substantial gainful work which exists in the national economy.” A key problem with this requirement is the lack of objective criteria for measuring things like an applicant’s anxiety, depression, or pain and how those conditions affect the ability to work.

Research by Mark Duggan, President Obama’s former advisor for health care policy, shows an increasing number of people qualifying for SSDI with subjective conditions like back pain or depression. More than half of all disability awards are now for people claiming musculoskeletal disorders or mental impairments. According to Duggan, “the employment potential of SSDI applicants with these more subjective conditions remains substantial, and it is often difficult to verify the severity of these conditions (in contrast to cancer or heart conditions). With the liberalization of the medical eligibility criteria, it has become increasingly possible for people who are capable of working to qualify instead for SSDI benefits.”

In addition to increasingly subjective medical criteria, many SSA policies are stuck in the past. For example, the agency relies on medical and vocational guidelines from 1978 that don’t reflect economic and demographic reality. Outdated rules also allow an inability to communicate in English to be used to award disability – even if the person can perform work that does not require communicating in English.

Workers Leaving the Labor Force

On February 3, Gallup reported that “as many as 30 million Americans are either out of work or are severely underemployed.” Economists with the Federal Reserve Bank of Atlanta concluded in May 2013 that the growth in disability is a significant factor in the rapid decline in the labor force participation rate during the Obama administration. According to Biggs, for “less-educated workers, the typical annual disability package of almost $15,000 in cash payments and another $9,000 in Medicare benefits – coupled with the ability to earn more than $13,000 from work without losing benefits – can be attractive.” Fewer than one percent of program beneficiaries return to the workforce in any given year.

A 2010 paper published jointly by the liberal Center for American Progress and the Brookings Institution echoes this point: “SSDI is ineffective in assisting workers with disabilities to reach their employment potential or maintain economic self-sufficiency. Instead, the program provides strong incentives to applicants and beneficiaries to remain permanently out of the labor force.” Applicants are often counseled that they should stop working in order to increase their chance of winning benefits. SSDI also is too often used as an early retirement program or as a long-term extension of unemployment insurance. People who lose their jobs are increasingly likely to leave the labor force and apply for SSDI.

Broken Appeals Process

The appeals process for SSDI applications consists of administrative law judges who evaluate disability claims. This step generally comes after two previous denials from government examiners. Given this, it is particularly disturbing that hundreds of ALJs over the past decade placed almost everyone before them onto disability. The broken process has inappropriately placed hundreds of thousands, if not millions, of people onto disability. According to one Social Security expert, the standards ALJs apply for mental illness and pain have become less stringent over time.

A central problem is that SSA sought to reduce a large backlog of appeals by focusing entirely on the quantity of ALJ decisions, with no concern about quality. One ALJ testified before a House committee in 2013 that a judge’s production “is SSA management’s singular and exclusive focus in its administration and oversight of SSA’s disability hearings process. … Instead of managing a meaningful federal adjudication program, SSA management has substituted a factory-type production process … causing incalculable damage to the adjudication process at SSA.”

Another ALJ put it this way: “It has become increasingly clear the Social Security disability programs, instead of only awarding benefits to adults who are unable to work, is granting benefits to those who can work – effectively giving away money for nothing.”

ALJs face incentives that encourage approvals. Since denials tend to be appealed, and approvals do not, ALJs need to spend more time crafting denial decisions. It is much easier and faster for an ALJ to approve a claim. Other problems also bias ALJ decisions to favor approvals. First, hearings are non-adversarial, so there is no one to represent the taxpayer interests. Second, there is no one involved with the previous denials to present their reasons for the denial at a hearing. Third, claimants are not required to submit all relevant evidence. One ALJ told the Washington Post in an October 18, 2014, article: “I really wonder if what we’re doing is effective at all. … If, based on the amount of evidence we get, my decision is any better than flipping a coin.”

Many Judges Incorrectly and Unfairly Apply Disability Law

In response to negative attention about problems with the disability appeals process, the Social Security Administration finally decided to evaluate the quality of a small sample of its judges. The agency conducted reviews of about 50 ALJs. It found that many of them repeatedly violated disability laws and policies, including: misusing vocational experts; inappropriately altering information to make it appear claimants cannot work; inappropriately evaluating the effect of drugs and alcohol on impairments; and inappropriately using boilerplate language in decisions. Despite the ability to do so, the agency has failed to take necessary action to protect the public from many of these rogue ALJs.

Between 2005 and 2013, ALJs approved 66 percent of claims, awarding disability benefits to 3.2 million people, including SSDI applicants and Supplemental Security Income applicants. A top management ALJ testified in the House last year that “it raises a red flag” when individual ALJs have an allowance rate in excess of 75 percent. Between 2005 and 2013, ALJs with annual allowance rates in excess of 75 percent put more than 1.3 million people onto disability. The lifetime cost to taxpayers for these claims is estimated at $400 billion. According to a congressional report, “there were 191 ALJs who had a total allowance rate in excess of 85 percent [between 2005 and 2013]. These 191 ALJs awarded more than $150 billion in lifetime benefits between 2005 and 2013. As an indication of the disproportionate nature of the problem, only one ALJ had a total allowance rate below 15 percent between 2005 and 2013.”

According to a 2012 report by SSA, “As ALJ production increases, the general trend for decision quality is to go down.” This can lead to a patently unfair system, where a claimant’s success rests more on getting the right judge than on the merits of their claim.

Agency Fails to Conduct Required Disability Reviews

The Social Security Act requires continuing disability reviews at least once every three years for all beneficiaries with nonpermanent impairments. SSA estimates that about $10 to $14 in improper payments is prevented for every $1 spent on these reviews.

For the past several years, the agency has defied this legal requirement. The number of reviews conducted by the agency dropped conspicuously in the mid-2000s as the agency diverted resources to other areas. Between 2007 and 2009, the agency only conducted reviews for one percent of SSDI recipients. Last year, SSA reported a backlog of 325,000 reviews.

Reviews conducted between 1980 and 1983 found that 40 percent of program beneficiaries were not disabled. Reviews now fail to remove anywhere close to that number, because they are inappropriately conducted. Claimants must now show significant medical improvement in order for a review to end benefits. This strict standard of review means that the agency cannot remove someone who was wrongfully awarded benefits initially.

According to the National Association of Disability Examiners, poor ALJ decisions and a lack of clarity around the medical improvement standard erode disability program integrity. GAO found that problems associated with the medical improvement standard include inadequate agency guidance, inadequate documentation in ALJ decisions, and an incorrect presumption of disability by examiners. Over the last decade, the agency reviewed 800,000 people it expected to improve when they were initially awarded benefits. As a result of the current limits on disability reviews, 82 percent were found not to have improved, and so those people remained on disability.

SSA Too Cozy with Special Interest Groups

Attorneys and other claimant representatives benefit from SSDI growth as they receive a generous portion of the payments – up to $6,000 when their clients are approved for benefits. These payments are made directly from the trust fund. In 2010, SSA paid $1.4 billion to lawyers and other claimant representatives, up from $425 million in 2001.

The large payments lead many claimant representatives to conceal information and even shop for ALJs known to rubber-stamp applications. The large fees paid from the SSDI trust fund to attorneys and claimant representatives create huge incentives for those groups to oppose common-sense program reforms.

Reforming SSDI Is Important for the Disabled and Taxpayers

Without reform, SSDI will erode economic productivity and will either result in large payment cuts for program beneficiaries or tax increases. A bipartisan solution is urgently needed to fix the program and preserve it for those who truly cannot work.

Rather than reform, President Obama and others have proposed kicking the can down the road and reallocating the Social Security payroll tax. Currently, the total payroll tax equals 12.4 percent of wage income – with 1.8 percent dedicated to SSDI and 10.6 percent to the old age and survivor component. Reallocation would worsen the solvency of Social Security’s OASI trust fund and harm retirees. Reallocation would transfer $350 billion from OASI to SSDI in the next five years. This would be a particularly bad idea given that OASI’s financial condition is in even worse long-run shape than is SSDI’s.

According to Social Security trustee Charles Blahous, “[r]earranging the deck chairs, rather than slowing cost growth, would be an inadequate response with potentially ruinous implications for the program.” In a January 15 editorial, the Wall Street Journal used the analogy of “an underwater borrower transferring debt from one maxed-out credit card to another with a higher balance but also a higher spending limit.” The president has failed to lead on this important issue, meaning it falls to Congress to protect and reform SSDI.

Issue Tag: Health Care