Bloomberg News

Congress Unwilling to Address Disability Plan’s Shortfall

May 29, 2012

Social Security Disability Seen Insolvent Unless Congress Votes

Demonstrators are led away by police during a protest against cuts to federal safety net programs, including Social Security, Medicare, and Medicaid in Chicago. Photographer: Scott Olson/Getty Images

A U.S. government entitlement program is headed for insolvency in four years, and it’s not the one members of Congress are talking about most.

The Social Security disability program’s trust fund is projected to run out of cash far sooner than the better-known Social Security retirement plan or Medicare. That will trigger a 21 percent cut in benefits to 11 million Americans -- disabled people, their spouses and children -- many of whom rely on the program to stay out of poverty.

“It’s really striking how rapidly this is growing, how big it’s become and how D.C. is just afraid of it,” said Mark Duggan, a University of Pennsylvania economist and adviser to the Social Security Administration.

Part of the reason for the burgeoning costs is that the 77 million baby boomers projected to swamp federal retirement plans will reach the disability program first. That’s because almost all boomers are at least 50 years old, the age at which someone is most likely to become disabled.

The growing costs are also a result of the economy, because when people can’t find work and run through their jobless benefits, many turn to disability for assistance.

“They’re desperate,” said Ken Nibali, a retired associate commissioner of the program. “Some who are marginal and struggling to have a low-paying job now literally have no options.” So, he said, “they figure, ‘I do have trouble working and I’m going to apply and see if I’m eligible.’”

Senator Tom Coburn, an Oklahoma Republican, said he has tried to interest fellow lawmakers in the issue, so far without much luck.

‘Going Bankrupt’

“Nobody wants to touch things where they can be criticized,” Coburn said, adding, “the fund is going bankrupt” and “then what are we going to do?”

Applications to the disability program have risen more than 30 percent since 2007 -- the last recession started in December of that year -- and the number of Americans receiving disability benefits is up 23 percent.

More Americans receive disability benefits than 20 years ago though people are less likely to have physically demanding jobs, health care has improved and the Americans With Disabilities Act bans discrimination against the handicapped.

“The weird thing is disability enrollment is going up like crazy” when “we should be able to help keep people in the workforce,” Duggan said.

Two Programs

Social Security is comprised of two separate programs: the retirement plan supporting 40 million senior citizens and 6 million survivors, and the disability insurance program created during the Dwight Eisenhower administration to prevent sick and injured workers from becoming destitute.

The disability program currently pays benefits averaging $1,111 a month, with the money coming from the Social Security payroll tax taken out of workers’ paychecks.

The program cost $132 billion last year, more than the combined annual budgets of the departments of Agriculture, Homeland Security, Commerce, Labor, Interior and Justice.

That doesn’t include an additional $80 billion spent because disability beneficiaries become eligible for Medicare, regardless of their age, after a two-year waiting period.

The disability program, which has been spending more than it receives in revenue for four consecutive years, is projected to exhaust its trust fund in 2016, according to a Social Security trustees report released last month. By comparison, the separate trust fund financing senior citizens’ Social Security benefits is projected to run out in 2035 while Medicare’s primary fund will be exhausted in 2024.

$600 Billion

The retirement portion of Social Security costs $600 billion a year, while Medicare costs $560 billion annually.

Once the disability program runs through its reserve, incoming payroll-tax revenue will cover only 79 percent of benefits, according to the trustees. Because the plan is barred from running a deficit, aid would have to be cut to match revenue.

Duggan said the disability plan has been running on autopilot for decades and lawmakers could find savings to help avoid the scheduled cuts. While federally financed, the program is administered by the states and disability rates among them vary widely. West Virginia topped the list in 2010, with 9 percent of residents between ages 18 and 64 receiving aid. Utah and Alaska had the lowest rates at 2.8 percent.

Subjective Conditions

People whose benefit applications are rejected can appeal to administrative law judges, and statistics show some judges are far more likely to approve benefits than others. One reason is that the program, which once focused largely on people who suffered from strokes, cancer and heart attacks, increasingly supports those with depression, back pain, chronic fatigue syndrome and other comparatively subjective conditions.

“They’re very, very hard to evaluate,” said Nicole Maestas, director of the RAND Center for Disability Research. “Reasonable people differ about what constitutes a disability.”

Statistics show that once people enter the program they are unlikely to leave, with fewer than 1 percent rejoining the workforce. Many worked “menial” jobs that didn’t offer health insurance and the program gives them an opportunity to join Medicare long before they might otherwise qualify, Nibali said.

“Many want to be on the disability rolls not necessarily for the cash income but for the medical coverage,” he said. “That’s a real plus for them.”

Review Backlog

The agency faces a backlog of 1.4 million reviews it’s supposed to periodically conduct to ensure beneficiaries are entitled to stay on the rolls. The agency has said it doesn’t have the money to do the reviews.

Lawmakers haven’t made major cuts in the program since President Ronald Reagan’s administration, and Congress reversed those changes after a public outcry.

Amid concerns about increasing disability rolls and wasteful spending, the agency in 1981 began stricter screening of beneficiaries. It halted aid to hundreds of thousands.

Lawmakers were besieged with constituents’ complaints of unfairly being cut off. Some people lost their homes or killed themselves after being dropped.

“Government Gets Tough on the Disabled,” the Miami Herald said on its front page on Jan. 16, 1983. “Vietnam-Era Hero Falls Victim to Cuts in Social Security,” the Washington Post reported in a May 27, 1983, article about a Medal of Honor winner who was dropped from the disability rolls. The veteran’s benefits were later reinstated by a judge who considered the case on appeal.

Suicide Threats

In 1983, the Social Security Administration developed guidelines for handling beneficiaries who threatened suicide if their aid was cut, the New York Times reported at the time.

Congress reversed the cuts in 1984 and expanded benefits beyond what had been previously offered.

Both parties are steering clear of the issue. Neither President Barack Obama nor U.S. House Republicans in their proposed budgets has addressed the disability program’s shortfall.

“We’re not trying to fix every problem in America with this one document,” said House Budget Committee Chairman Paul Ryan, a Wisconsin Republican. “We’re trying to prevent a debt crisis and this is not a driver of our debt.”

“The administration believes that disability insurance is a vital lifeline for millions of Americans,” Kenneth Baer, a spokesman for the White House budget office, said in an e-mail. “The president remains willing to work with Congress on a bipartisan basis to strengthen Social Security and protect the millions of beneficiaries.”

Screening Beneficiaries

He added that lawmakers didn’t fully fund the administration’s request for more money to screen beneficiaries.

Senate Finance Committee Chairman Max Baucus, whose committee sets Social Security policy, said the program’s finances are less dire than they may appear. Congress can funnel revenue from elsewhere in the government to cover the program’s shortfall, he said.

That’s what happened the last time the disability program faced insolvency. Congress voted in 1994 to increase the share of the Social Security payroll tax that supports disabled workers, which shored up disability payments at the expense of the retirees’ program.

Baucus said lawmakers won’t consider broader changes any time soon. First, they must sort out what to do about George W. Bush-era income tax cuts scheduled to expire at the end of this year, automatic spending reductions that begin taking effect in January and overhauling the tax code, he said.

“One thing at a time,” said Baucus, a Montana Democrat. “There are other things that are more imminent.”

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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