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Urban Institute on SSDI Budget Proposal

Thursday, May 25, 2017   (0 Comments)
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The following article was written by Jonathan Schwabish of the Urban institute and can be found here: http://www.urban.org/urban-wire/proposed-cuts-social-security-disability-insurance-could-increase-poverty-and-may-not-save-program-money

 

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Proposed cuts to Social Security Disability Insurance could increase poverty and may not save the program money

More than 10 million Americans received benefits from the Social Security Disability Insurance (DI) program in 2015. But the DI program is running deficits that will soon leave the trust fund exhausted. Under his budget proposal released Tuesday, President Trump plans to cut more than $63 billion from the program over the next 10 years and invest $500 million in demonstration projects to inform long-term solutions. The president’s budget is unclear on how those savings will be achieved other than encouraging more DI beneficiaries to return to the labor force, but how that will be accomplished and how people will be affected is uncertain.

The disability insurance program faces a financial shortfall

The DI program is under considerable fiscal strain because of an underlying structural problem: more benefits are being paid out than revenues are collected. Congress has regularly reallocated the payroll tax in recent decades to balance various components of the larger Social Security system. When the DI trust fund neared exhaustion two years ago, Congress saved it by passing the Bipartisan Budget Act of 2015 and transferring money from the Old-Age and Survivors Insurance trust fund to the DI trust fund to ensure benefits are paid until 2022. After that, the DI trust fund will be exhausted.

How the DI system works

On average, the 8.9 million people who qualified for DI worker benefits in 2015—which does not include people who receive benefits as a spouse, widow(er), or child—received a monthly benefit of $1,166, or nearly $14,000 a year. This average masks important variation, however. More than two-fifths (43.5 percent) of DI beneficiaries receive monthly benefits less than $1,000, and about 8 percent receive monthly benefits that exceed $2,000.

People qualify for DI by providing evidence they have a “substantial” impairment that prevents them from working and that is expected to last at least 12 months or result in death. Once on the program, beneficiaries can work if they are able, but they can’t earn too much. They are not allowed to earn more than the “substantial gainful activity” amount, which is $1,170 a month in 2017, and maintain their full benefits. (There are exceptions. For example, beneficiaries can test their ability to work through a trial work period and still be considered disabled.)  

What the president’s budget proposes

The president’s 10-year budget proposal for DI can be viewed in two parts. In the first part, the federal government will invest $500 million over the first five years to “expand demonstration authority to allow the administration to test new program rules and processes and require mandatory participation by program applicants and beneficiaries.” Such demonstration projects are vital to understanding how structural changes to the DI program might affect beneficiaries and their families. True, long-term reform requires structural change.

The second part of the budget proposal estimates cost savings from benefit reductions for some program participants. But the largest savings—more than $49 billion between 2023 and 2027—come from modifying the program to “increase labor force participation” among DI participants. It is unclear how the president plans to achieve these savings. Only a small fraction of DI participants work. A 2011 study found the employment rate of DI participants was 12 percent in 2007. A related study found that about 4 percent of new DI beneficiaries left the program for work over a 10-year period.

One way to encourage disabled workers to participate in the labor force is to move to a partial disability system, such as the one used by the Department of Veterans Affairs. Partial disability systems use a set schedule to calculate a “percent disabled” rating for each person, which is used to determine the benefits the person receives. Evidence from other countries, however, suggests such programs are difficult to implement consistently.

Another way to move disabled workers into the labor market is to change the benefit amount so program participation is less attractive to the worker. But such a change would almost certainly lead to increases in poverty, and DI beneficiaries already have high poverty rates, low wealth, and high economic reliance on their income and health benefits.

Yet another way is to encourage employers to be more involved in supporting workers with disabilities, especially at the earlier stages in their disability when interventions might be most effective. Other possibilities include extending Medicare coverage for people who return to the workforce, improving the initial application and case reexamination process, or using other programs for support.

It is unclear how the projected savings in the president’s budget would be achieved even though, on paper, those savings would close the gap between taxes received and benefits paid in 2015. Further, it is not clear how people with disabilities would be affected.

How the budget affects people with disabilities is unknown

People who receive disability benefits don’t work, for the most part, because they can’t, not because they choose not to. Critics of the program have called it wasteful, but many beneficiaries would work full time rather than live with the pain of multiple sclerosis or lung cancer. Some people with disabilities can work part time but are constrained by DI program rules. Others simply can’t work. Finding ways to help these workers find job opportunities while providing them the support they need is a worthwhile goal. It is unclear, however, whether the president’s budget does that.



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