Securing the Long-Term Solvency of Social Security Disability Insurance Benefits

(Note: The pdf for the issue in which this article appears is available for download: Bifocal Vol. 35, Issue 6.)

The Social Security Disability Insurance (SSDI) program is about two years away from a solvency crisis; unless Congress acts, monthly benefits will need to be cut by about 20% for about nine million Americans with serious disabilities.¹ While it is estimated that 57 million Americans live with a disability, about 38 million of them with a serious disability, only about nine million Americans receive disability benefits from Social Security.² For those who do receive SSDI, the average benefit of $1,140³ is all or the majority of their monthly income.⁴

Background

Social Security retirement and disability benefits are funded through a payroll tax under the Federal Insurance Contributions Act (FICA).⁵ For Social Security, the employee and employer each pay 6.2% on the first $117,000 in earnings.⁶ This money is allocated between the Social Security retirement trust fund and the disability insurance trust fund and benefits are paid out of the trust funds.⁷ Projections are that by 2016, the resources in the disability insurance trust fund will only be about 80% of what is needed to pay benefits.⁸ Because the trust funds are not allowed to run a deficit a reduction in benefits will be necessary if there is no congressional action to rebalance the funds. The average benefit today is $1,140; the projected 20% reduction would reduce that to $912.

Shifting Demographics

As demographics change, so does the number of people drawing benefits from each trust fund. Experts tell us that the changes contributing to the current solvency issue include

• the aging of the baby boomers into the years when they are most likely to be affected by an age-related disability and
  
• an increase in the number of people eligible for SSDI, as a result of the increase in the number of women in the work force.⁹
  

Experts caution against attributing the current demographic shift to the economic slowdown of 2008-2009. Though there was an increase in the number of applications for disability benefits from workers displaced by the economic slowdown, the percentage approved for benefits decreased; experts conclude that although displaced older workers may have applied for disability benefits in larger numbers, fewer applications were approved.¹⁰

A History of Rebalancing

The last time the formula for how revenue is allocated between the retirement and disability trust funds was changed was in 1994 and at that time the prediction was that it would need to be adjusted again in about 20 years.¹¹

Congress sets the formula for how the revenue is allocated between the trust funds and has changed that formula 11 times in the past.¹² Under the current allocation formula for the 6.2% payroll tax, 5.3% goes to the retirement trust fund and 0.9% goes to the disability trust fund.¹³

How Rebalancing Could Extend Solvency

Shifting the allocation to 4.8% and 1.4%, respectively, for two years, and then tapering back to the current distribution over the next 12 years, would provide sufficient funding to pay full benefits in both programs through 2033.¹⁴ This change does not involve new or increased revenue, but is merely a shifting of how current revenue can be spent. This change would shorten the solvency of the retirement trust fund by two years.¹⁵ There is a longer-term solvency issue with Social Security retirement benefits as discussed in a companion article by Zachary Chapman.¹⁶

Alternate Solutions

There is some opposition to reallocation in Congress, and politicians have called for a variety of solutions including

• cutting benefits;
  
• making it harder to qualify for benefits;¹⁷ and
  
• eliminating waste, fraud, and abuse of benefits.¹⁸
  
  

Cutting Benefits

Cutting benefits would cause a significant hardship to Americans living precariously close to poverty. For most Americans with significant disabilities, Social Security is either all or the majority of their income. A 20% reduction in benefits would have a devastating impact on the most vulnerable members of our society. 

Making it Harder to Qualify

SSDI benefits are already hard to qualify for—fewer than 40% of applicants for disability benefits are successful after all levels of appeal.¹⁹

Fraud Reduction

While any amount of fraud is too much fraud, the experts report that fraud is extremely rare in the Social Security Disability System.²⁰ And, while fraud and abuse should be eliminated, doing so is unlikely have an impact large enough to close the funding gap that is rapidly approaching.

FICA Rate Adjustment

An alternate long-term solution would be an increase in the FICA rate.²¹ Increasing the FICA tax rate from 6.2% to 6.4% and allocating the increased amount to the disability trust fund would ensure the solvency of the disability trust fund for 75 years.²² If this were combined with eliminating the $117,000 cap on earnings subject to Social Security FICA, the system would be further strengthened.

Conclusion

Good health is fragile; all of us are only one illness or one injury away from not being able to work. Social Security Disability serves as a vital safety net for all workers, assuring basic income in the event that a worker, because of injury or illness, becomes permanently unable to earn a very modest living.²³ It is essential that Congress take steps to assure the solvency of this essential program. Now is not the time to cut benefits or politicize this essential program. 

^[1] Virginia P. Reno et al., Social Security Disability Insurance: Action Needed to Address Finances 1, SOCIAL SECURITY BRIEF, No. 41 (Nat’l Acad. of Soc. Ins.), June 2013, at 1, http://www.nasi.org/sites/default/files/research/SS_Brief_041.pdf.

^[2] Facts for Features: Anniversary of Americans with Disabilities Act: July 26, U.S. CENSUS BUREAU NEWS CB12-FF.16 (July 25, 2012), http://www.census.gov/newsroom/releases/pdf/cb12ff-16_disabilities.pdf; Matthew W. Brault, Americans with Disabilities: 2010, HOUSEHOLD ECON. STUD. P70-131 (U.S. Census Bureau), July 2012, at 3, http://www.census.gov/prod/2012pubs/p70-131.pdf; Reno, supra note 1, at 1, 3.

^[3] Social Security Administration, Monthly Statistical Snapshot, December 2013, http://ssa.gov/policy/docs/quickfacts/stat_snapshot/index.html.

^[4] Kathy Ruffing, Social Security Disability Insurance Benefits are Vital to Workers with Severe Impairments, CTR. ON BUDGET & POL’Y PRIORITIES 1, 9 (Aug. 9, 2012) [hereinafter Severe Impairments], http://www.cbpp.org/cms/?fa=view&id=3818.

^[5] IRS Tax Topic 751 as accessed 8/7/2014 http://www.irs.gov/taxtopics/tc751.html.

^[6] Id.

^[7] The Financing Challenges Facing the Social Security Disability Insurance Program, Testimony Before the H.R. Subcomm. on Soc. Sec. of the H. Ways & Means Comm., 113th Cong. 1, at 4 (Mar. 14, 2013) (testimony of Stephen Goss, Chief Actuary, Soc. Sec. Admin.), http://waysandmeans.house.gov/uploadedfiles/goss_testimony.pdf.

^[8] Reno, supra note 1.

^[9] The Financing Challenges Facing the Social Security Disability Insurance Program, Testimony Before the H.R. Subcomm. on Soc. Sec. of the H. Ways & Means Comm., 113th Cong. 1, at 4 (Mar. 14, 2013) (testimony of Stephen Goss, Chief Actuary, Soc. Sec. Admin.), http://waysandmeans.house.gov/uploadedfiles/goss_testimony.pdf.

^[10] The Financing Challenges Facing the Social Security Disability Insurance Program, Testimony Before the H.R. Subcomm. on Soc. Sec. of the H. Ways & Means Comm., 113th Cong. 1, at 4 (Mar. 14, 2013) (testimony of Stephen Goss, Chief Actuary, Soc. Sec. Admin.), http://waysandmeans.house.gov/uploadedfiles/goss_testimony.pdf; see also Kathy Ruffing, Disability Benefits Are Hard to Get – Even in Recessions, OFF THE CHARTS BLOG (Sept. 3, 2013, 2:14 PM) [hereinafter Benefits Are Hard to Get], www.offthechartsblog.org/disability-benefits-are-hard-to-get-even-in-recessions/.

^[11] The Financing Challenges Facing the Social Security Disability Insurance Program, Testimony Before the H.R. Subcomm. on Soc. Sec. of the H. Ways & Means Comm., 113th Cong. 1, at 4 (Mar. 14, 2013) (testimony of Stephen Goss, Chief Actuary, Soc. Sec. Admin.), http://waysandmeans.house.gov/uploadedfiles/goss_testimony.pdf.

^[12] Reno, supra note 1.

^[13] Reno, supra note 1, at 2.

^[14] Reno, supra note 1, at 5.

^[15] Virginia P. Reno & Elisa A. Walker, Nat’l Acad. of Soc. Ins., Soc. Sec. Benefits, Finances & Pol’y Options: A Primer 26 (June 2013).

^[16] Hackman, Zach. "Social Security: Reform or Perish?" Bifocal, Vol. 35, No. 6 (2014): 165­–66.

^[17] Rachel Greszler & Alexander Shen, Soc. Security Disability Ins. Prog. Requires Immediate Reform, The Foundry (Mar. 5, 2014 3:32 PM), http://blog.heritage.org/2014/03/05/social-security-disability-insurance-program-requires-immediate-reform. Currently, two-thirds of all applications for DI are rejected. Id. at 16.

^[18] H.R.5260 — 113th Congress (2013-2014), https://beta.congress.gov/bill/113th-congress/house-bill/5260.

^[19] Kathy Ruffing, Social Security Disability Insurance Benefits are Vital to Workers with Severe Impairments, CTR. ON BUDGET & POL’Y PRIORITIES 1, 9 (Aug. 9, 2012) [hereinafter Severe Impairments], http://www.cbpp.org/cms/?fa=view&id=3818; see also, Kathy Ruffing, “No Surprise: Disability Beneficiaries Experience High Death Rates,” Off the Charts Blog, April 4, 2013, http://www.offthechartsblog.org/no-surprise-disability-beneficiaries-experience-high-death-rates.

^[20] Katy Neas, Social Security disability fraud is rare, The Hill, January 26, 2014 as accessed on 8/11/2014 http://thehill.com/blogs/congress-blog/economy-budget/195559-social-secuity-disability-fraud-is-rare.

^[21] Virginia P. Reno & Elisa A. Walker, Nat’l Acad. of Soc. Ins., Soc. Sec. Benefits, Finances & Pol’y Options: A Primer 26 (June 2013) [hereinafter Soc. Sec. Primer], http://www.nasi.org/sites/default/files/research/2013_Social_Security_Primer_PDF.pdf.

^[22] Id. at 41.

^[23] http://www.ssa.gov/dibplan/dqualify4.htm and http://www.socialsecurity.gov/oact/cola/sga.html.