America's $124 Billion Secret Welfare Program?
Imagine for a moment that Congress woke up one morning, realized that the United States was suffering from a paralyzing long-term unemployment crisis, and, in a moment of progressive pique, decided to create a welfare program aimed at middle-aged, blue-collar workers.
The one thing everybody could probably agree on is that it should help all those jobless 50-somethings find employment, right?
Well, as NPR's Planet Money argues in an eye-opening story, it turns out there already is a "de facto welfare program" for those struggling Americans. The problem is, instead of getting the unemployed back on their feet, it pays them to give up work for good.
I'm talking about Social Security's disability insurance program, which over 20 years has quietly morphed into one of the largest, yet least talked about, pieces of the social safety net. Since the early 1990s, the number of former workers receiving payments under it has more than doubled to about 8.5 million, as shown in Planet Money's graph below. More than five percent of all eligible adults are now on the rolls, up from around 3 percent twenty years ago. Add in children and spouses who also get checks, and the grand tally comes to 11.7 million.
That rapid, under-the-political-radar expansion has turned the program into a massive budget item. As of 2010, its monthly cash payments accounted for nearly one out of every five Social Security dollars spent, or about $124 billion. In 1988, by comparison, it accounted for just one out of eight Social Security dollars. Because disabled workers qualify for Medicare, they also added $59 billion to the government's healthcare tab.
Are disabilities just becoming more common? According to economists such as MIT's David Autor, the evidence says no. The workforce is indeed getting older, and thus more ailment prone. But Americans over 50, who make up most disability cases, report much better health today than in the 1980s. And demographers have found that the percentage of Americans older than 65 suffering from a chronic disability has fallen drastically since then. In the end, economists Mark Duggan and Scott Imberman estimate that, at most, the graying of America's workers explained just 4 percent of the increase in the rate of disability program participation for women, and 15 percent for men, through 2004.
Instead, it seems two things have happened: Qualifying for disability got easier, and finding work got harder. As the Planet Money piece puts it, "there's no diagnosis called disability." According to the letter of the law, disability recipients must prove they are too physically or mentally impaired to hold a job. And early in the program's life, the most commonly reported ailments were easy-to-diagnose problems such as heart-disease, strokes, or neurological disorders. But after the Reagan administration began trying to thin out the program's rolls in the early 80s, an angry Congress reacted by loosening its criteria. Suddenly, subjective measures like self-reported pain or mental health problems earned more weight under Social Security's formula. Today, the most common diagnoses are musculo-skeletal issues, such as severe back pain, and mental illnesses, such as mood disorders -- health problems where the line between a disability and a mild impairment is far blurrier.
Just as the bar for disability fell, the economy turned on the working class. Factories laid off their assembly workers. The service sector picked up the slack. Wages stagnated for anyone without a college diploma. These changes have made disability more attractive for reasons both obvious and subtle. Although program's payments are small -- the average benefit is a bit over $1,000 per month -- they're not much worse than a minimum wage job. Better yet, they're indexed to inflation, meaning they sometimes rise faster than wages, and come with generous government healthcare. For former blue-collar workers who feel they've lost all hope of finding employment, or who don't want to spend their last years leading to retirement standing all day at McDonald's, disability isn't a bad offer.
It's little surprise then that, as MIT's Autor notes, disability applications tend to rise and fall with the unemployment rate (as shown in his chart below), or that most applications come from workers who have recently lost jobs.
If you're a conservative, the reasons to worry about all this are obvious. There are probably a couple million people who could work if absolutely necessary, and are instead choosing to subsist on taxpayer money. The system, from that perspective, is simply being abused.
But the failures here should be obvious to liberals, too. If the job market is so miserably weak that these workers cannot find jobs -- that they are choosing to live in government-guaranteed poverty rather than take a chance on the labor market -- we need to find a better solution than paying them to sit while their skills atrophy. As of now, that's all we seem to be doing. Despite Clinton-era changes to the program that made it possible for participants to ease back into the work force without losing all their benefits, less than one percent of Americans who go on disability ever leave the program.The surge in the numbers of Americans who are now living off of Social Security's disability insurance program is troublesome. But it reflects the harsh reality of an ongoing jobs crisis that is leaving millions of people unemployed or under-employed, barely scraping by, desperate to find work or better jobs.
Moreover, that program, is headed for bankruptcy. As of last year, Social Security's disability trust fund was on pace to run dry by 2016, which would lead to an automatic 21 percent benefit cut affecting all of the program's participants, including the millions who truly can't work because of their impairments.
Like I said, even if we wanted a new welfare program for the struggling poor, this wouldn't be the way to run it.
Conservatives will point out that incentives are all wrong but liberals will point out the real problem is gross inequality, lack of jobs and affordable healthcare as the U.S. government panders to the financial elite, like big banks and rich private equity fund managers who made off like bandits in the fiscal cliff deal, leaving millions of people struggling in this economy to collect disability checks.
But what really worries me is that even those Americans who are working and managing to save something on the side, their retirement dreams are evaporating, and many of them will likely have to enroll in this "de facto welfare program" before they reach retirement age.
And the real losers in all this are the unemployed, under-employed and especially persons struggling with a disabling condition who need this insurance program to survive. As the program heads for bankruptcy, they will get hit harder than anyone else.
Also, one of the comments to the Atlantic article above struck me:
Keep in mind that some disabled people WANT to work but employers are less than willing to make accommodations. I'd love to work. I HAVE worked. I'm currently in school so that I can get a great job. The problem is that most employers aren't willing to work around my "absences" related to my illness. They hear chronic, frequent atypical migraine and freeze up. If more employers were open to telecommuting and flexible work hours, there would be less of a need for disability for pain related absences for people who WANTED to work.The sad fact is that far too many employers treat persons with disabilities as a liability instead of an asset. I bet you many truly disabled people on Social Security's disability program would much prefer to work for an employer who can accommodate their disability and recognize the value they can bring to their workforce.
Finally, while I'm happy to see the unemployment rate for people with disabilities dropped to a four-year low as the job market improves, the latest from Allsup points out the discrepancy in the unemployment rate between people with disabilities and those with no disabilities is concerning:
The fourth quarter 2012 unemployment rate for people with disabilities dropped to its lowest level since the fourth quarter of 2008. The number of people with disabilities applying for Social Security Disability Insurance (SSDI) also reached a four-year low, according to a study by Allsup, a nationwide provider of SSDI representation and Medicare plan selection services.
While this may seem to indicate that the worst of the economic crisis has passed, the unemployment rate for people with disabilities was still 70 percent higher than for those with no disabilities during the fourth quarter of 2012, according to the Allsup Disability Study: Income at Risk. The full study is available at http://www.allsup.com/Portals/4/allsup-study-income-at-risk-q4-12.pdf
Specifically, the unemployment rate averaged 12.4 percent for people with disabilities and 7.3 percent for people with no disabilities during the fourth quarter of 2012. This compares to 13.7 percent for people with disabilities and 7.9 percent for people with no disabilities during the third quarter of 2012. These figures are based on non-seasonally adjusted data from the U.S. Bureau of Labor Statistics.
"The discrepancy in the employment rate between people with no disabilities and people with disabilities is concerning," said Tricia Blazier, personal financial planning manager for Allsup. "If more people with disabilities capable of working were provided the opportunity to do so, the trust fund for the Social Security disability program would be stronger. These individuals would be paying into the trust fund just as other workers do."
Beginning in 2013, the projected assets of the Disability Insurance Trust Fund will fall below 100 percent of the annual costs, according to the 2012 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (2012 OASDI Trustees Report). The DI Trust Fund is projected to exhaust its reserves in 2016.
At that time, revenues from payroll taxes will cover only 79 percent of benefits. This means there would be a 21 percent cut in benefits to the millions of people with disabilities so severe they are unable to work, as well as to their families. At year-end 2012, more than 8.8 million disabled workers received an average monthly benefit of $1,130.34, and nearly 2.1 million children and spouses of disabled workers relied on average monthly benefits of nearly $334.
SSDI Applications Continue to Decline
While the unemployment rate for people with disabilities is still significantly higher than for people with no disabilities, the number of people with disabilities applying for SSDI has declined for the second year in a row.
The Allsup Disability Study: Income at Risk shows that 638,223 people with disabilities applied for SSDI during the fourth quarter of 2012, down from 726,026 for the previous quarter. The quarterly number of applications has not dropped below this level since the fourth quarter of 2008, when there were 577,306 applications.
In 2012, 2.82 million people filed SSDI applications, compared to 2.88 million in 2011. Applications are now down 3.92 percent from the record high of nearly 2.94 million SSDI applications in 2010. The average age of people applying for SSDI is 53.
"The average age of SSDI applicants is about midway in the baby boom generation, so it's likely SSDI applications will remain elevated," Blazier said. "Because of this, more is needed to educate people with severe disabilities about their SSDI benefits. It's also important people understand their options for rejoining the labor pool if their condition improves in the future."
Many people confronted with a disabling condition wait longer than they should to apply for SSDI benefits. Often, Social Security disability applicants must wait several months or years before they receive their benefits. For example, nearly 1.89 million SSDI claims are pending with an average cumulative wait time of more than 800 days, according to Allsup's analysis of the Social Security disability backlog.
Blazier recommends individuals understand the following:
1. Who is covered by Social Security disability insurance?
To be covered, a person must have worked and paid into the SSDI program through payroll taxes (FICA) for five of the last 10 years. They also must be disabled before reaching full-retirement age (65-67) and must meet Social Security's definition of disability. Generally, this means being unable to work because of a verifiable mental or physical impairment expected to result in death, or which has lasted, or is expected to last, for at least 12 months.
2. When should someone with a severe disability apply for SSDI benefits?
Anyone with SSDI coverage who is unable to work because of a severe disability expected to last 12 months or longer or is terminal should apply as soon as possible. It can take two to four years to receive benefits, during which time many people struggle financially as a result of lost income and, often, mounting healthcare costs. The sooner someone applies the sooner he or she may begin to receive monthly benefits. They also are eligible for Medicare 24 months after they start receiving SSDI cash benefits.
3. Is SSDI representation needed?
Individuals can apply for SSDI on their own. However, there are several advantages to having a Social Security disability representative. This is especially true at the initial application. For example, more than half of Allsup claimants are awarded benefits at the initial application level compared to just 34 percent nationally.
4. Can someone with SSDI benefits ever return to work?
Yes. If a person's condition improves to the point where they can return to work, Social Security offers a trial work period, which allows someone to test their ability to work over at least nine months and receive full SSDI benefits no matter how high their earnings. In addition, Social Security's work incentives include the extended period of eligibility, which lasts 36 months. Once someone's benefits stop because they have substantial earnings, they still have five years in which benefits can be reinstated without going through the SSDI application process again -- if they must stop working because of their disability. This is known as expedited reinstatement. Additionally, it's possible to continue Medicare coverage for up to 93 months.
Individuals can determine their Social Security disability benefits using Allsup's free online Social Security benefits calculator. For a free evaluation, or for more information about eligibility for Social Security disability benefits, contact Allsup's Disability Evaluation Center at (800) 678-3276.
Allsup is a nationwide provider of Social Security disability, veterans disability appeal, Medicare and Medicare Secondary Payer compliance services for individuals, employers and insurance carriers. Founded in 1984, Allsup employs more than 800 professionals who deliver specialized services supporting people with disabilities and seniors so they may lead lives that are as financially secure and as healthy as possible. The company is based in Belleville, Ill., near St. Louis. For more information, go to http://www.Allsup.com or visit Allsup on Facebook at http://www.facebook.com/Allsupinc.I provided the information above for people who are confronted with a disabling condition and need help applying for disability insurance. If you're confronted with a disabling condition, inform yourself and know that you have every right to collect disability insurance and even work during this time if you feel capable.
Below, Fox News hypes the high number of people receiving federal disability benefit payments to push myths about the program and suggest many recipients are "moochers" and "takers." In fact, a majority of applicants are denied benefits, and experts agree the higher levels of disability recipients are a direct result of the recession and an increased number of women receiving benefits (if video doesn't work, click here).
And CNBC's resident claptrap, Rick Santelli, screams it's all about incentives, propagating more myths on Social Security's disability program. If you want to know the truth, read this comment on Media Matters for America.