SSDI: Challenges beyond its Trust Fund

Henry Aaron – Chair of the Social Security Advisory Board and a Senior Fellow at the Brookings Institution – recently weighed in on the Social Security Disability Insurance (SSDI) debate. Given the imminent depletion of the program’s trust fund – leading to an across the board cut in benefits in 2016 absent congressional action – experts and policymakers are starting to wonder how to best address the program’s needs.

As we have argued before, many experts agree that SSDI is facing more challenges than insolvency. Many aspects of the program could be improved, from the incentives created by the eligibility criteria to the determination process to the efforts to encourage beneficiaries to return to work.  While policymakers could simply inject funds into the program – through a payroll tax reallocation from the old-age fund, an inter-fund loan, or a general fund transfer – this would waste an opportunity to enact reforms that would make the program better for beneficiaries, workers insured by the program, and society as a whole. As Aaron explains:

Whether out of compassion or an instinct for political survival, Congress is quite unlikely to cut benefits for disabled Americans, a group that contains some of the neediest of our fellow citizens… Simply reallocating payroll taxes is not acceptable to many members of Congress in both parties. A consensus has arisen that both the design and administration of disability benefits are flawed. Critics of the program have promised to insist on reforms as a condition for agreeing to shift taxes around. Alas, agreement on just what the flaws are and what to do about them is elusive. Even worse, we lack information to undergird well-considered reforms.

The program faces challenges in a number of areas, including its core tenet, the definition of disability. To qualify for benefits, insured workers must be unable to earn above a certain threshold ($1,010 a month in 2012 for non‐blind individuals) due to a “medically determinable physical or mental impairment” (or combination of impairments) that is expected to last at least 12 months or result in death. By defining disability as the inability to work, the program discourages beneficiaries who could potentially go back to the workforce from trying, out of fear that they may lose benefits.

Even by this standard, determining who qualifies for the program is tricky. Aaron explains:

Quite simply, some people with any given set of measurable characteristics can work and some can't. Of course, the incentives people face matter as well… The challenge for society is to choose a definition that best balances its willingness to award benefits to some people who do not ‘deserve' them and to deny benefits to some who do. The challenge is also to design incentives that encourage work but are also compassionate.

This subjectivity leads to a lengthy determination and appeals process. As we have reported before, wait times at every step of the process are long and the backlog for hearings is the largest in the federal government. This comes at a high cost for claimants, as Aaron describes:

The delays in determining eligibility wreak havoc. During these waits, people are discouraged from working, as significant earnings prove the earner is ineligible for benefits. Idleness erodes whatever skills they may retain. Meanwhile, those who cannot work are without sustenance, other than whatever savings they may have or the largesse of family or friends. They risk defaulting on mortgages, becoming homeless, or going bankrupt.

Aaron is right that, unlike the options to reform the old-age program, which are straight-forward and well-studied, the options to reform SSDI are more complex and their impact not as well understood. But more complex options should not be a justification for inaction. Former Congressmen Jim McCrery (R-LA) and Earl Pomeroy (D-ND) launched the SSDI Solutions Initiative precisely to enhance our understanding of the program and to propose practical, concrete recommendations. The Initiative will provide policymakers with thoughtful options to improve different areas of SSDI, from work incentives to administrative processes, that could accompany any legislation temporarily shoring up the program's trust fund and lay the foundation for further reforms based on what works.

Aaron concludes by saying:

If ever there were a situation in which it would be prudent to carry out demonstrations and experiments before far-reaching programmatic changes are instituted, this would be it. If ever there were a situation in which the false economy of underfunding administration was apparent, this would be it too.

Given the need for caution, many of the proposals generated by the McCrery-Pomeroy Initiative will recommend incremental steps, pilots, and other interim steps that will help policymakers learn more about what policies would improve the program. Policymakers can thus be prudent, implementing beneficial reforms that proactively reform a program in need of improvement.