WASHINGTON – The leading safety-net program for America’s disabled workers is in a financial death spiral in the aftermath of the Great Recession.
The sour economy, weak eligibility standards and a wave of aging baby boomers are driving an explosive increase in the number of injured workers who get disability benefits through the Social Security Disability Insurance program.
At the current growth rate, the SSDI trust fund, which pays for benefits, won’t have enough money to meet its obligations in 2018.
In September, SSDI paid nearly 8.5 million injured workers an average of $1,070 per month. That’s up nearly 20 percent from 7.1 million when the recession began in December 2007. There were only about 3 million recipients in September 1990.
Roughly half of all applicants eventually get accepted into the program, and less than 1 percent ever return to work.
Among new program enrollees in 2010, more than half cited back pain or mental problems, like depression or mood disorders, as their disabling injury, compared with just 26 percent of such claims in 1965.
Both types of ailments are among the hardest to evaluate medically, which opens the door for potential fraud – both in program applications and during appeal hearings, where 60 percent of previous benefit denials are reversed.
Flaw in the system?
Mismanagement is also a problem. A 2010 investigation by the Government Accountability Office found thousands of cases in which private-sector workers and federal employees in the program may have received improper benefits, or violated program rules on the amount of work allowable in order to continue receiving benefits.
The Social Security Administration disputed the GAO report, but experts say it’s past time to tighten program management and overhaul SSDI’s eligibility standards, its appeal process for benefit denials and the incentives that drive injured people to leave the workforce and seek disability status.
“This is not a disability crisis in the sense that suddenly our workers are becoming less healthy,” said Richard Burkhauser, professor of policy analysis and management at Cornell University. “This is a fundamental flaw in the system that leads us to increasingly use SSDI as a long-term unemployment program for people who could be in the workforce if they had the appropriate (workplace) accommodations and rehabilitation.”
Between 1989 and 2009, the share of working-age Americans with SSDI benefits doubled to 4.6 percent, while benefit payments tripled to $120 billion over the same period. Yet the number of SSA disability reviews to determine if longtime recipients still meet program medical standards has fallen precipitously.
Employers could help
Burkhauser, who has co-authored a new book on the troubled program, said new SSDI enrollment could shrink by 25 percent or more if employers had an incentive to help their injured workers return to work. The SSDI trust fund is supported through payroll taxes on employers and eligible workers.
“I’m for reducing payroll taxes of employers who have better records of helping their workers not to come onto the SSDI rolls and increasing the payroll tax on those who don’t,” Burkhauser said.
The same reform helped the Netherlands cut the share of workers who receive disability benefits by one-third since 1980.
“And they did it, not by kicking people off the rolls, but by slowing down the movement of people who come onto the rolls,” Burkhauser said.
Unlike worker’s compensation, which partially replaces wages for workers injured on the job, SSDI goes to eligible workers even if their disabling ailment wasn’t caused by a work-related incident.
But employers are more likely to help rehabilitate a worker who was injured on the job because the company will face higher insurance premiums if that employee files for worker’s compensation.
No such incentive exists for employers in the SSDI program. They all pay the same 1.8 percent SSDI payroll tax regardless of how many of their employees are in the program.
David Autor, an economist at Massachusetts Institute of Technology, has also called for adopting the Dutch approach. He said the SSDI program simply isn’t set up to help disabled people work.
“It’s basically, ‘Prove to us that you can’t work, so you can get some help.’ So it’s a death knell for anyone’s future in the labor force,” Autor said.
Increasingly, jobless disabled workers are winding up on SSDI. When they lose jobs, disabled workers typically look for other employment because it pays more than SSDI benefits, said Social Security Administration spokesman Mark Hinkle. But during economic downturns, the program sees a rise in applications when work opportunities dry up.
The wave of baby boomers hitting their disability-prone years is also fueling the enrollment surge.
In addition to monthly benefit checks, SSDI enrollees also get Medicare coverage after two years in the program, regardless of their age. Because of that, Autor of MIT estimates that each new SSDI recipient costs taxpayers an average of $300,000 in total lifetime costs (figured on a present-value basis).
As the SSDI caseload grew, its immediate financial problems did likewise. The program paid out an estimated $130 billion in benefits in fiscal 2011, while the trust fund took in only $111 billion in taxes.
A GAO report in June found that beneficiaries who were overpaid by the program owed the agency $5.4 billion in fiscal 2010.
Those shortfalls, however, were largely ignored by budget-conscious lawmakers who’ve instead tried to cut the troubled Medicare and Social Security retirement programs, which both dwarf SSDI’s total cost to taxpayers.
As part of a plan to cut government spending, Sen. Tom Coburn, R-Okla., has proposed a slew of reforms to the troubled program, such as more reviews to see if current beneficiaries meet program standards; administrative sanctions for program violations; ending benefit payments while program terminations are appealed; and eliminating one level of the application appeals process.
While most applicants eventually get benefits, the approval process isn’t easy.
“You have to have a condition so severe it’s going to keep you out of work for more than a year or result in your death. It’s a pretty strict definition, so we’re looking at pretty severe cases when you’re talking about SSDI,” said Hinkle, the Social Security Administration spokesman.
Most stay on for life
While fewer than 1 percent ever leave the program once on it, some 18 percent of new recipients could probably work again within two years of joining the program as their conditions improve, said Nicole Maestas, director of the Center for Disability Research at the RAND Corp. in Santa Monica, Calif., a policy research center.
Because of this, Autor of MIT suggested that the first two years of SSDI benefits should be support services focused on returning injured workers to the labor force. If that’s unsuccessful after two years, then full SSDI cash benefits should be applied, Autor said.
Acting on similar concerns and rapid caseload growth in 1980, Congress directed the SSA to conduct disability reviews to make sure all recipients met the program’s medical standards. This led to widespread removal of people from the rolls.
Congress halted those efforts in 1983, however, as political backlash mounted. In 1986, Congress expanded the program’s eligibility standard for mental illness.
In fact, the screening process for new applicants can take well over a year of rejections and appeals to finally be approved for benefits. But roughly half of all SSDI applicants eventually get accepted. And while only 36 percent of initial applications are approved, a whopping 60 percent are approved at appeals hearings before administrative judges.
“That, to me, is astounding,” Maestas said. “That’s saying half of the cases were originally evaluated incorrectly, which seems too high.”
The actual approval rate at hearings is probably 80 percent or more, Autor said, because people can re-apply and often end up getting benefits years after their first attempt. Some of the program’s 1,500 judges have been found to approve more than 90 percent of the appeals they hear.
Sens. Orrin Hatch, R-Utah, and Coburn sounded the alarm in a May letter to Social Security Administration Inspector General Patrick O’Carroll Jr. The senators wrote that “the rate of approvals raises questions about the integrity of the approval process.”
“One outlier (administrative judge) would be bad enough, but according to reports, at least 100 of the 1,500 judges at Social Security are approving 90 percent or more of the cases they review. These numbers defy conventional logic and demand further scrutiny,” the senators wrote.
Richard Pierce, a law professor at George Washington University, said the high approval rates could reflect the fact that judges must write a 15- to 20-page explanation for each denial, but have no such requirement for benefit approvals.
An administrative law scholar, Pierce said judges should no longer hear SSDI appeals. The hearings already favor applicants, he said, because the Social Security Administration isn’t represented at them and the agency can’t review or appeal a judge’s final decision.
Still, he, Autor, Maestas and Burkhauser say it’s the system that’s broken – not the players.
“If you’re a motivated applicant and have some health issues and you’re not employed, with sufficient effort you can make the case that you have a mental disorder or work limitation, especially if you’re less educated and older and you can convince Social Security that you’re not capable of engaging in a substantial gainful activity in the U.S. economy,” Autor said. “I would not call that fraud, but I don’t think that’s what the program is supposed to do.”