Trump Budget Includes Meaningful SSDI Reforms
President Trump has been disappointingly reluctant to propose any changes to improve the solvency of Social Security's retirement program, but his Fiscal Year 2018 budget includes a package of reforms to the Social Security Disability Insurance (SSDI) program that would meaningfully improve its solvency as well as (potentially) the labor force attachment of people with disabilities. Included among the proposals are several put forward by our own McCrery-Pomeroy SSDI Solutions Initiative. The President's SSDI proposals deserve consideration.
While legislation in 2015 delayed SSDI's insolvency, the program will return to running permanent deficits when its temporary payroll tax reallocation ends in 2019, exhausting its trust fund reserves by 2023 and threatening millions of beneficiaries with substantial and indiscriminate benefits cuts. Over the next 75 years, the program's own Trustees estimate SSDI faces a shortfall equal to 12 percent of spending (0.26 percent of taxable payroll). Meanwhile, as former Representatives Jim McCrery (R-LA) and Earl Pomeroy (D-ND) explained in the book SSDI Solutions, "much can be done to improve the program."
The budget includes a number of proposals for changing SSDI's benefits and eligibility process aimed at reducing inequities and possible overlapping payments. The budget also calls for testing several new strategies aimed at improving the labor force participation of SSDI beneficiaries. Altogether, these reforms would likely close one-quarter to one-half of SSDI's long-term funding gap.
Programmatic Improvements and Reforms
The budget includes several relatively small changes to improve solvency, fairness, program integrity, and interactions with other programs. Specifically, the budget would:
- Limit retroactive SSDI benefits, which currently offer a lump-sum payment covering up to 12 months of eligibility before the beneficiary’s application date, to only cover six months. A similar policy was proposed by the George W. Bush Administration, and in SSDI Solutions we showed this proposal would improve SSDI's solvency by 0.02 percent of payroll.
- Disallow concurrent receipt of SSDI and unemployment insurance (UI) benefits, which are two benefits that are generally for opposite purposes since the former is for those who cannot work and the latter for those who are looking for work. A similar policy was proposed by President Obama as well as a number of Congressional Republicans. We showed this would increase solvency by 0.01 percent of payroll.
- Reinstating the reconsideration stage of appeal in the 10 states where it has been eliminated as part of a pilot program, with the goal of improving the uniformity of the SSDI determination process. We showed this proposal would improve solvency by 0.01 percent of payroll.
- Eliminate the Workers' Compensation (WC) "reverse offset," which allows 15 states to reduce their WC benefits for those collecting SSDI rather than the reverse. This was recommended by John Burton and Steve Guo in their chapter on improving the interaction between SSDI and Workers' Compensation programs.
- Reform the hiring process for Administrative Law Judges (ALJs) by creating a one-year probationary period to ensure ALJs are performing at a satisfactory level before they convert to a lifetime appointment.
- Improve program integrity through a number of measures, including increasing the overpayment collection threshold, making Social Security debts non-dischargable in bankruptcy, holding fraud facilitators liable for overpayments, and other reforms. The budget also requests increased program integrity funding for the Social Security Administration.
Together, these policies would save about $15 billion over ten years and increase SSDI solvency by about 0.05 percent of payroll, or roughly one-fifth of SSDI's long-term funding gap. The policies would also generate modest savings outside of Social Security, for example for Supplemental Security Income (SSI) and UI.
Social Security Disability Insurance Reforms in the President's Budget
|Ten-Year SS Savings
|75-Year Solvency Impact (% of Payroll)
|% of 75-Year Shortfall Closed
|Limit Retroactive SSDI Benefits to Six Months
|Offset Overlapping UI/SSDI Payments
|Reinstate Reconsideration in All States
|Increase Overpayment Collection, Improve WC Offset, and Other Reforms
|Test New Approaches to Encourage Labor Force Participation
|$30 billion (claimed)
|0.01 to 0.10
|4% to 38%
|0.06 to 0.15
|23% to 57%
|Memo: Current Law SSDI Deficit
Sources: Office of Management and Budget, Social Security Administration, Congressional Budget Office, CRFB calculations.
Note: Numbers may not sum due to rounding. Ten-year savings include savings to Social Security only and do not include the impact on UI, SSI, or revenue.
Work Incentives and Supports
In addition to these modest improvements, the President's budget assumes a large amount of savings—about $50 billion over five years—from testing and implementing new approaches to encourage labor force participation among potential SSDI and SSI recipients. In other words, the budget proposes to reduce SSDI enrollment by increasing the number of Americans with disabilities who work. The savings estimate in the budget comes from assuming these tests are able to reduce both SSDI and SSI spending by 5 percent after a decade, which implies about $30 billion in SSDI savings and is likely a huge overestimate of what is possible in only a decade's time.
While the estimated savings are likely far too high, the approach put forward by the Administration is a sensible one and consistent with many of the ideas presented in SSDI Solutions. First, the Administration proposes creating an expert panel to recommend changes to disability programs to boost labor force participation based on evidence from demonstration projects. This recommendation is in line with one from McCrery and Pomeroy to "Begin Testing and Advancing Programmatic Improvements" by creating a special office, panel, center, or task force to pilot and expand various ideas if they prove successful. And, as recommended by McCrery and Pomeroy, the tests would aim to "Promote Work, Especially Through Early Intervention."
Specifically, the Administration suggests six different experiments, half of which would offer assistance to potential SSDI applicants wanting to work and the other half of which encourage or mandate certain activities in an effort to improve work outcomes. In the assistance category, the Administration's proposed tests would:
- Through the Office of Disability Employment Policy (ODEP), expand Centers of Occupational Health and Education (COHE) programs. The budget proposes having the Labor Department's ODEP test a broader implementation of Washington state's successful COHE programs, which provide a number of coordinated health and job services to workers with disabilities. This follows the recommendation of an SSDI Solutions proposal by Jennifer Christian, Thomas Wickizer, and A. Kim Burton for a nationwide health and work service that used COHE as a model.
- Promote early intervention from state vocational rehabilitation (VR) offices. State VR agencies currently provide work supports to many SSDI beneficiaries, but these services often come too late after the onset of a disability to make a major difference. Pushing state VR agencies to intervene earlier with individuals likely to end up on SSDI could prove more effective in helping such workers reenter or maintain attachment to the labor force. Reps. McCrery and Pomeroy suggest improving state VR services as part promoting early intervention in their SSDI Solutions chapter.
- Provide wellness care and vocational services to those who cannot work due to health conditions. A third approach would try to replicate successful strategies in state Temporary Assistance to Needy Families (TANF) offices to provide applicants with wellness and vocational services to improve the likelihood of returning to work. An SSDI Solutions proposal by David Stapleton, Yonatan Ben-Shalom, and David Mann called for similar changes to provide employment supports earlier in the SSDI application process, and another proposal by Julie Kerksick, David Riemer, and Conor Williams suggested offering SSDI applicants and beneficiaries transitional jobs, which are currently used by many state TANF offices.
In addition, the Administration proposes tests to:
- Time-limit benefits for beneficiaries for a period when they would be more likely to return to work. This proposal appears similar to an SSDI Solutions proposal from Kim Hildred, Pam Mazerski, Harold Krent, and Jennifer Christian to provide beneficiaries who have medical conditions that are likely to improve with temporary benefits limited to two to three years, after which they would be reevaluated.
- Require certain applicants to engage in job-seeking activities before their application is considered. SSDI applicants generally face a five-month waiting period in which they cannot be substantially employed before their claim is considered. This test would presumably require some applicants to engage in certain job-seeking activities during this time. Similarly, the SSDI Solutions proposal by Stapleton, Ben-Shalom, and Mann suggested incorporating a "supported work test" for certain applicants early on in the determination process to see if they could reenter or stay in the labor force after receiving certain work supports.
- Require applicants with lower back pain or arthritis to first try physical/occupational therapy. Over one-third of SSDI awards are for individuals with musculoskeletal conditions like lower back pain or arthritis. Research suggests that individuals with these impairments may have some of the greatest remaining work capacity and could benefit greatly from early intervention efforts that help them manage their conditions.
These tests would apply to both SSDI and SSI, and in order to maximize their scientific usefulness and ultimate success, potential SSDI beneficiaries could be mandated to participate in them.
The impact these pro-work reforms would have on solvency is highly uncertain. The proposal to time-limit benefits for beneficiaries appears similar to the SSDI Solutions proposal from Hildred, Mazerski, Krent, and Christian, which the Social Security actuaries determined would improve solvency by about 0.01 percent of payroll. Since this change has the most direct effect on benefits, it is possible it is the only successful test, and thus 0.01 percent of payroll or 4 percent of the solvency gap is a reasonable lower bound for possible savings.
Assuming each test was as successful as time liming benefits, savings could total 0.05 or 0.06 percent of payroll. A possible upper bound for total savings might be 0.10 percent of payroll—or nearly 40 percent of the solvency gap—if the tests were ultimately able to achieve the Administration's targeted 5 percent reduction in SSDI outlays starting in 2027.
Importantly, even if these changes do little to improve solvency, to the extent they can improve health outcomes and/or increase work ability, they could represent important improvements to people's lives.
More Must Be Done to Reform SSDI
While the Administration's proposed SSDI changes represent a good start, they would most likely close only about one-quarter to one-half of SSDI's solvency gap and leave a number of possible improvements on the table. For example, other SSDI Solutions Initiative authors have proposed improving the Continuing Disability Review process, expanding private disability insurance coverage, reforming the disability adjudication process, introducing partial disability benefits, increasing access to long-term services and supports, or changing SSDI's definition of disability.
Outside of these broader programmatic reforms, individual options to improve SSDI's finances could include raising or experience-rating the SSDI payroll tax, reducing incentives for older workers to apply for SSDI instead of early retirement benefits, and changing nonmedical eligibility criteria. And besides SSDI's solvency issues, policymakers could also consider changes to improve decision times, reduce the large hearings backlog, or increase uniformity in state-level decision-making.
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We are very encouraged that the President's budget includes measures to improve SSDI's finances and invests time and resources to test several smart approaches to help workers with disabilities return to the labor force, even though it projects the payoff to these approaches will materialize much faster than we think is likely. Still, the reforms in the President's budget represent a welcome start to the conversation over strengthening the SSDI program's finances and making it better improve the lives of people with disabilities and support work. We hope other policymakers will take a look at these and other reforms put forward by the McCrery-Pomeroy SSDI Solutions Initiative well in advance of SSDI's next funding crisis, projected to occur in 2023. Ideally, policymakers would pursue comprehensive Social Security reform that strengthens both SSDI and the Old-Age and Survivors' Insurance program and puts them on a sustainable path.
- McCrery-Pomeroy SSDI Solutions Initiative
- SSDI Solutions: Ideas to Strengthen the Social Security Disability Insurance Program
- Options to Address SSDI's Financial Shortfall
- A Community-Focused Health & Work Service (HWS)
- The Reformer