Committee for a Responsible Federal Budget

Sahadi Warns of Disability Insurance Insolvency

Jun 25, 2014 | Social Security

We've written many times on the need to reform Social Security well before it becomes insolvent in the 2030s. But as Jeanne Sahadi explains in a recent CNN Money article, "there is a near-term cash crunch in one part of Social Security that lawmakers must resolve in the next year or two": the Disability Insurance program.

The Social Security Trust Fund is technically split up into two parts -- one for the Old Age Survivors Insurance (OASI) program, and the other for the Social Security Disability Insurance (SSDI) program. And while the old age program has sufficient dedicated revenue to pay benefits through about 2035, the SSDI program's trust fund will be depleted in 2016 or 2017. In fact, SSDI faces a nearly $400 billion shortfall through 2024 alone.

If the trust fund does run out of money, it will trigger an effective 20 percent across-the-board cut for all 9 millon disabled beneficiaries. As Sahadi explains:

The most dramatic thing Congress could do, of course, would be to do nothing and just let benefit checks be cut across the board.

No one expects that will happen. But lawmakers have let the supposedly "unthinkable" occur twice in the past two years.

"I might have said it was impossible, but that was before witnessing sequestration and the government shutdown," said Marc Goldwein, the senior policy director at the bipartisan Committee for a Responsible Federal Budget.

Nevertheless, the most likely outcome is that Congress will do what it has done several times before: reallocate some revenue from the retirement trust fund to the disability trust fund between now and 2025, according to Elisa Walker, an income security policy analyst at the National Academy of Social Insurance.

This reallocation would change the portion of Social Security funds devoted to disability benefits. Right now, 1.8 points out of the 12.4 percent payroll tax goes to SSDI. Increasing that to 2.8 percent briefly and then phasing it down to 2.1 percent would keep it solvent for the next 75 years. However, it would do so by taking money from the old age program, moving up its insolvency date by two years and increasing the automatic cut when the trust fund goes insolvent from 23 to 25 percent. As Sahadi explains:

Simply reallocating revenue, however, may not go down well with Republicans or some Social Security reform advocates. Their line of argument: you're just pulling from one underfunded program to feed another and you're missing an opportunity to put in place needed reforms.

While fraudulent disability claims get a lot of attention, the program has much bigger problems in Goldwein's view. Among them: a complicated and uneven determination process, and outdated definitions of disability that don't always account for the most recent medical and technological advances.

At the very least, Goldwein would like to see revenue reallocation accompanied by changes that improve the disability program financially and administratively.

CRFB policy director Marc Goldwein, who is cited in the article, has argued before that the SSDI program is "needlessly complex, difficult to navigate, inconsistent and unfair in determining eligibility, inflexible to changes in the structure of the workforce, administratively overburdened, almost completely uncoordinated with other government policies, and unable to help or reward those who are interested in reentering the workforce." With so many available options to improve the SSDI program -- and so many more waiting to be developed -- it would be a huge missed opportunity not to begin discussion on Disability Insurance reform.

To read the CNN article, click here.