Committee for a Responsible Federal Budget

CATO Event: "Disability Insurance: The New Welfare?"

Jun 20, 2013 | Social Security

Yesterday, the CATO Institute hosted a panel discussion featuring CATO Senior Fellow Jagadeesh Gokhale, MIT economics professor David Autor, University of Chicago professor Harold Pollack, and Social Security Administration Chief Actuary Stephen Goss. In response to the recently released 2013 Social Security Trustees Report, the panel gathered to discuss their views on the projected depletion of Social Security Disability Insurance (SSDI) trust fund reserves by the year 2016. Although each panelist disagreed on the severity of DI's financial situation and the causes of its increasing costs, they all agreed that policy changes should ultimately be made to maximize efficiency and work towards fiscal solvency. 

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Source: Social Security Actuaries

Stephen Goss spoke largely on how the number of SSDI beneficiaries increased by 187 percent from 1980 to 2012 and why the drivers of this increase are not as threatening as they may appear. He stated that 41 percent of the increase was a result of the nation's growing population, 38 percent was a result of aging demographics, 21 percent of the rise was caused by increasing employment as women entered the labor force, and the remainder was fueled by the 2010 recession, the one year increase in the natural retirement age, and age-adjusted incidence rates. In reality, Goss stated that these trends were following a foreseen path and should not come as a large concern. He stated that, as predicted, DI costs have peaked and will remain stagnant as the Baby Boomers retire and the female participation rate in the work force steadies. 

On the other hand, David Autor argued that SSDI's future is much bleaker. Contrary to Goss, he showed that aging and the expanding labor force really only accounted for roughly 40 percent of the growth in SSDI beneficiaries. In reality, Autor believes, 60 percent of the rise was fueled by large increases in SSDI incidence within age groups. Essentially, a higher proportion of the population has been applying for and receiving disability benefits. Furthermore, Autor argued that another large driver of costs is the transition from circulatory and neoplastic disabilities under SSDI in the 1980's to musculatory and mental disabilities today. These disabilities are all given the same weight, yet this transition strains SSDI as musculatory and mental disabilities are difficult to identify, are diagnosed young, and are generally incurable. Autor ultimately believes that SSDI reforms are necessary and should ultimately ensure positive incentives for work.

Next, Jagadeesh Gokhale discussed some of the critical problems associated with SSDI, most notably the huge variation in allowance rates by administrative law judges (judges who adjudicate applicants in the program). He called for a better design for decision procedures, improved decisional consistency, and reduced system costs. Gokhale stated that disability insurance has transformed from "an 'early retirement' program for disabled workers age 50 and older, to a program that provides wage-replacement insurance to all workers." He said that postponing policy changes by temporarily transferring funds from OASI would only accelerate old-age Social Security's insolvency and compromise the program's goal of providing support to the "genuinely permanently disabled." 

Finally, although Harold Pollack mentioned potential reforms to SSDI, including stronger work incentives, he viewed it in a much more positive light. He discussed disability legislation as a "quiet policy success" for the United States and stressed its importance. Ultimately, Pollack reminded the audience that while working to enact SSDI's necessary reforms, policymakers cannot retract from the program's original purpose. 

SSDI's continuation is critical but, like the Social Security program as a whole, it faces financial problems. In only three years, the SSDI program will have exhausted all trust fund reserves. As a result, in 2016, the program will have to begin transfer funds from the old-age trust fund (which would accelerate its insolvency by two years) or face 20 percent cuts to benefits. Although the event's panelists came from a variety of perspectives, they all agreed on the necessity for effective reform and urge Congress and our nation's policymakers to do the same.