The Boom In Disability Benefits
June 30, 2015 | By Neil Howe
This editorial originally appeared in Forbes.
In 2013, NPR covered the rise of people on disability insurance (DI) in the United States. The piece depicted a program that was outdated and abused—sparking a media firestorm that culminated in a rebuttal signed by eight former Social Security disability insurance commissioners. Today, DI rates continue to rise. Why? The explanations range from demography to perceptions of disease to generational change. As Boomers age, they risk pushing the DI system to the breaking point—a development that could force the next generation of lawmakers to implement drastic changes to ensure that the program survives.
According to the Social Security Administration (SSA), disabled workers qualify for DI benefits if they cannot perform the activities required of their job, cannot adjust to another type of work due to their condition, and their disability has lasted or is expected to last for at least a year or will result in death. Eligible individuals receive a monthly DI check from the federal government until they reach retirement age, die, or recover (which rarely happens). The benefit amount reflects their previous earnings.
In recent years, the number of DI caseloads as a share of the working-age population has soared. Between 1980 and 2011, the DI recipiency rate doubled from 2.3% to 4.7%. In 2013, DI covered almost 9 million workers—up from 5 million in 2000. This growth has come with a huge price tag: The $150 billion fund is set to run out in 2016.
What’s behind this impending crisis? The evolving demography of the workforce is partly responsible. Increased women’s workforce participation, which has made more women eligible for DI benefits, explains as much as 29.1% of the doubling of the DI rate since 1980. Next, the aging of workers into older, health-vulnerable age brackets accounts for 17.9% of the rate increase. Finally, the raising of the Social Security retirement age from 65 to 66 explains an additional 9.1% of the rate increase.
If you add all of these together, over 40% of the doubling of the DI rate is unexplained. What else is going on?
Some blame the collision of low-earning, downwardly mobile workers with an increasingly legalistic and adversarial process for determining benefits.With more workers experiencing a decline in hourly pay, a DI check adjusted to the average wage seems like an attractive alternative to work. DI has thus become, according to some experts, a “de-facto welfare” program for low-skilled workers.
At the same time, a new brand of disability law has emerged to serve this clientele. While DI was originally designed to work without lawyers, today’s claimants are lawyering up to beat the system, often with great success—making today’s process look like a court proceeding without opposing counsel.
Meanwhile, states are pushing individuals off of state-funded welfare and onto federal-funded DI. Over the past decade, the number of families on welfare has declined while the number of low-income individuals on disability has shot up. In some states, this has become a business opportunity: Companies like Public Consulting Group (PCG) are paid $2,300 by the state of Missouri for every person they transfer off of welfare and onto disability.
Another driver of DI growth is a lower threshold for what constitutes a “disability” that prevents someone from working. In 1961, the largest share of new DI recipients (25.7%) suffered from life-threatening illnesses like heart disease. By 2011, however, subjective ailments like musculoskeletal problems (33.8%) and mental illness (19.2%) had risen to the top.At the same time, high-tech tools that determine disease have made it easy to find a second (or third) opinion that supports the patient’s case.
More and more adults are also getting DI for their kids. Enrollment in Supplemental Security Income (SSI)—a program for low-income Americans who are either disabled or elderly—has surged since 1990, especially among children. That year, the Supreme Court expanded SSI to include nebulous intellectual disabilities—causing the number of children on SSI to skyrocket from 300,000 in 1990 to 1.3 million today. In some historically poor locales, parents even pull their children out of literacy classes for fear of losing their SSI checks.
Meanwhile, the stigma surrounding a person’s (particularly a man’s) inability to work has dramatically declined. Since the 1960s, labor force participation among working-age men has dropped steadily. For the G.I. and Silent Generations, manhood was defined by being the breadwinner of the family. However, this definition eased with successive generations. Boomer men insisted you could be a whole person without earning a paycheck—while Boomer women entering the workforce further diluted gendered stereotypes about work. And now, most Xer fathers aren’t ashamed to admit that they want to cut back their work hours to spend more time with their kids.
These generational shifts regarding litigiousness, the perception of disability, and non-work lifestyles mostly started with Boomers—who have been pushing up disability rates among workers in their 50s and 60s. Another force at play has been the growing wealth inequality among late-wave Boomers and Xers. First-wave Boomers have done better economically at the same age than late-wave Boomers, many of whom didn’t earn college degrees and can’t transition to less physically demanding occupations. For many Americans born in the late 1950s and ‘60s hit hard by the recession, DI is their best bet for “early retirement.”
In order to prevent the DI trust fund from going bankrupt next year, Congress may resort to temporary expedients. But for meaningful change to take place, Congress must instead ease the burden placed on an expanded DI system that was never designed to be used so heavily. Lawmakers could follow the example set in the Netherlands, where officials have reduced the number of disability beneficiaries by 60% in the past six years by requiring back-to-work plans and lowering taxes for employers who can keep disabled workers on the job. We’ve already seen signs of progress on this front: Last year, former Republican Senator Tom Coburn proposed legislation offering rehabilitation and other benefits to encourage workers to stay employed.