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Perspectives on Disability Program Costs

Author: Thomas C. Weiss

Published: 2013-04-11

Synopsis and Key Points:

SSDI and SSI programs currently under a certain amount of scrutiny related to the costs of the programs.

Main Digest

The SSDI and SSI programs are currently under a certain amount of scrutiny related to the costs of the programs. Depending upon how the numbers associated with these programs are perceived there are approximately 14 million people receiving disability checks at a sum of around $175 billion dollars each year in America. If these numbers sound large it is because they are.

The federal government currently spends more money per year on disability payments for disabled former workers than it does on welfare and food stamps. Some are claiming the disability system in America is out of control, yet it is an utterly crucial safety net for so many people. The SSDI and SSI programs are there for people who have legitimate claims, even though the statement is that the Disability Trust Fund will run out of money by the year 2016.

Senator Tom Coburn stated, 'The growth is horrendous,' in relation to the 1 in 19 Americans who receives disability payments. Senator Coburn serves on a Senate investigations subcommittee that spent 18 months investigating the disability system in America. The numbers of people receiving disability benefits is increasing at an incredible rate while delays in benefits are also increasing. Almost 800,000 people are appealing denial of benefits. The Social Security Administration is supposed to perform reviews on a regular basis to make sure that people who are collecting benefits still deserve them, yet the Administration has admitted to being 1.5 million reviews behind.

Senators Coburn and Hatch stated, "Given the looming collapse of the program, it is imperative that disability claims are properly examined to ensure that only those who are lawfully entitled to benefits receive them. Individuals cannot be allowed to exploit SSDI, transforming it into a supplemental source of unemployment income with enormous and crippling costs to taxpayers."

SSDI is funded by Social Security taxes that are paid by employers, workers, and people who are self-employed. Workers have to earn enough credits as a worker paying into the program. Commonly, a worker will receive disability benefits of around $13,000 a year if they become blind or experience a form of disability, or if a deceased spouse earned SSDI. The payments are based upon the insured worker's Social Security earnings record. The program will pay out more than $125 billion dollars this year.

SSI is funded through general revenues instead of taxes paid into Social Security. SSI benefits are paid to children or adults who experience forms of disabilities or are blind, have limited incomes or meet certain other requirements. The monthly payments vary up to the maximum federal benefit rate and might be supplemented by state payments, or decreased due to other types of income. Congress will appropriate approximately $50 million for SSI benefits this year.

Financial crisis in America has increased the numbers of people pursuing disability claims through the SSDI and SSI programs. Due to the loss of jobs and health benefits, increasing numbers of people have been seeking relief through these programs. Senator Coburn claims the SSDI and SSI programs are being used by many Americans as unemployment benefits and are creating a, 'culture of dependence.'

Almost 6 million people in America have been awarded SSDI benefits since January of 2009. The numbers of claims has added to what was already happening prior to the recession. During the past 40 years, the numbers of people on disability programs has increased six fold while the costs related to the programs have increased tenfold. Greater than 3 million people will seek benefits this year and many of them will have to wait for up to two years before their case is finalized.

Perspective Two

The cost of Social Security disability benefits in dollars has increased over time, although not consistently. The cost of benefits rapidly grew during the 1970's, peaking in the year 1978. A decline in those costs happened in the early 1980's due to changes in the program administration which reduced the numbers of applications and awards, as well as the numbers of beneficiaries with disabilities. By the late 1980's, the costs related to benefits had started to increase once more and continue to rise. The greatest increase in cost is among workers with disabilities who accounted for almost $65 billion out of $77 billion dollars in the year 2003. A great portion of the increase in costs for Social Security disability benefits is due to increases in the numbers of beneficiaries. Since the year 1990:

Every category of beneficiary has steadily increased with little exception. One of the exceptions is the period of the early 1980's when the numbers of workers with disabilities declined due to changes in the structure of benefits in the 1977 and 1980 Amendments, as well as an increase in adjudication of claims and the conducting of continuing disability reviews. While the numbers of workers with disabilities has been increasing since the year 1983, their growth as a percentage of the population has been notably slower.

When considered relative to the numbers of workers who are insured in the event they experience a form of disability, the growth of the population of workers with disabilities has been more moderate than what is suggested simply by the numbers. After a period of stability in terms of the numbers of beneficiaries relative to the numbers who are insured in the event they experience a form of disability between 1982 and 1989, the program is once again growing. Several factors are contributing to the increase, to include the aging of the baby boom population.

The average cost per beneficiary of all Social Security disability cash benefits has increased 33% since the year 1970. However, the average costs for workers with disabilities and widow(er)s with disabilities remained fairly stable from the mid-1980's until recently. What this means is increased benefit costs are not entirely due to an increase in the numbers of beneficiaries with disabilities.

The average cash benefit cost per beneficiary with disabilities has risen in general during the period between 1970 and 2003, although it declined somewhat in the early 1980's. The increase in average benefits in the early to mid-1970's was most likely related to benefit increases of 15%, 10%, and 20% that became effective in January of 1970, January of 1971, and September of 1972. Another benefit increase of 11% happened in two steps in March and June of 1974. Legislation in the year 1972 resulted in an automatic benefit adjustment for yearly increases in the consumer price index starting in June of 1975. While the adjustment was intended to stabilize benefits, the way the adjustment was made resulted in overcompensation for inflation because it did not factor in inflation related wage increases.

During the late 1970's and early 1980's there were minor reductions in the average costs of benefits, most likely because of the changes in the benefit computation that applied to beneficiaries in the future. The changes, enacted in the years 1977, 1980, and 1981, 'decoupled,' the benefit formula from wages in order to end the, 'double indexing,' from the legislation of 1972 - as well as capping family benefits and reducing dropout years while eliminating the minimum benefit. Delaying scheduled cost of living adjustments in 1983 might have also contributed to this result. From the late 1980's to the late 1990's, the average cost remained relatively stable for workers with disabilities and disabled widow(er)s, yet benefits for adult children with disabilities rose.

Stability of the average cost over a 20 year period of time is surprising since benefit calculations are wage indexed and would tend to increase benefits over time. A suggestion has been made that lower wage workers have been increasingly attracted to disability rolls due to implicit increases in replacement rates for low earners resulting from increasing disparity in the wage distribution. It could assist in helping to explain the stability of costs per beneficiary during this period of time. In the same way, increases in the numbers of women insured for disability, whose numbers are an increasing portion of the total number of people with disabilities, could also account for the result since women on average have lower earning than men do. Additional research is needed to completely understand the underlying patterns affecting average benefit costs.

The costs per beneficiary for adult children with disabilities, on the other hand, have increased the most at 67% during this period of time. Since the year 2000 the average cost of benefits for workers and widow(er)s has started to increase. One potential reason for the increase in the cost per beneficiary is that wage increases exceeded price increases in the mid to late 1990's, yielding higher real benefits. The average expenditure on all disability benefits, to include benefits to dependents, increased by one-third during the period from 1970 to 2003 - yet more slowly at 10% during the period between 1990 and 2003.

The rates of people who receive both SSDI and SSI reached a peak for workers with disabilities and adult children with disabilities during the mid-1990's and since decreased somewhat. The rate of those who receive benefits from both programs for disabled widow(er)s abruptly declined in 1983 due to a change in the benefit calculation and has generally continued to decline.

What is SSDI

Social Security Disability Insurance (SSDI) is a payroll tax-funded, federal insurance program. A portion of the FICA taxes you pay are set aside for SSDI.

Cost-of-Living Adjustments

Social Security and Supplemental Security Income (SSI) benefits are adjusted to reflect the increase, if any, in the cost of living as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) prepared by the Bureau of Labor Statistics (BLS).

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