Disability Insurance Causes Pain
Published: New York Times
April 24, 2012
Every year, when the trustees of Social Security and Medicare publish their report on the programs’ finances they set off a round of partisan bickering about the solvency of the twin programs covering pensions and health care for retired Americans.
Every year, a vitally important issue gets lost in the din: disability insurance payments, which account for almost $1 out of every $5 spent by Social Security, are growing out of control.
Disability insurance takes too many workers out of the job market prematurely. It reduces their lifetime income and, to top it off, slows economic growth. Yet in contrast to the heated arguments about Social Security and Medicare, fixing the disability problem inspires hardly any discussion.
The trustees reported Monday that the government made $128.9 billion in insurance payments to 10.6 million disabled workers and their family members last year, 25 percent more than it received from payroll taxes.
On top of that, five million adults received $33 billion worth of disability benefits from the Supplemental Security Income program for poor Americans. Medicare spent more than $90 billion on benefits for disabled workers, who are eligible for the government health insurance after two years on disability, regardless of their age. And Medicaid spent $110 billion more on the poor disabled.
The disability program offers essential support for disabled workers — many of whom have no chance of holding another job. Some of its growth reflects changes in the population: we are growing older and becoming fragile with age. Similarly, disability rates among women should be expected to rise because more of them entered the work force.
But these factors account for only a small share of the growing cost. They fail to explain why the rolls of the disabled are expanding rapidly for men of all ages, even though Americans are generally in better health.
“The health of nonelderly Americans is improving consistently, and we have more technology to help people at work,” observed Mark Duggan, an economist at the Wharton School of the University of Pennsylvania who has advised Social Security on the assumptions underpinning the trustees’ forecasts. “Yet every year the fraction of people on this program is growing.”
The breakneck growth in the disability program is not simply about demography. Rather, it is driven by two other factors: a job market that has become tough to navigate for workers with low skills, especially men, whose jobs have gone abroad or been taken by machines; and a basic flaw in the disability program that discourages people from ever working again.
In hard times, disability becomes an attractive alternative for unemployed people who might have toiled through back pain or depression if the job market were strong. A study of coal miners in Appalachia found that disability applications spiked when energy prices fell, underscoring how workers turn to the program as a response to layoffs. In 2009, when the unemployment rate rose to 10 percent, applications for disability jumped by a fifth.
The problem is that once someone goes on disability, it is extremely unlikely that that person will ever go back to work, regardless of job opportunities or medical condition. So disability can help turn a temporary stint of unemployment into a permanent condition.
The disability insurance program was meant for another era, in the late 1950s when working conditions were tougher and disabilities were expected to put an end to someone’s working life. It was hard to get into the program — for starters, it required applicants to be out of the labor force. Once a worker was accepted, nobody worried about trying to help him back into the work force. He was, after all, disabled.
In the mid-1980s, however, Congress softened the criteria. The Social Security Administration, which usually required medical diagnoses as proof of disability, was required to give more weight to subjective factors like pain. This opened the door for applicants who reported mental ailments like anxiety, or back pain and other muscular problems, claims more difficult to verify.
Collecting disability became even easier as rejected applicants were allowed to appeal before an administrative judge without anyone from Social Security present to defend its decision. So even though two-thirds of applicants were initially rejected, 50 to 60 percent ultimately joined the program.
And the rolls soared, outstripping population growth. There are 1.5 times more people on disability than there were in 1990. Almost one in 20 Americans from the ages of 25 to 64 now collects benefits, more than twice the share of two decades ago. And the cost has risen in tandem. Disability outlays have grown about 5.6 percent a year after inflation in the last two decades, compared with just 2.2 percent for other Social Security spending.