Social Security Disability Insurance, which provides basic but essential protection from income loss due to life-changing disability or illness for more than nine in 10 American workers and their families, is one of the cornerstones of our Social Security system. But according to projections issued by the Social Security trustees in late July, the Social Security Disability Insurance trust fund will run dry in late 2016.
Unless Congress acts, the modest insurance benefits that Social Security Disability Insurance provides — an average of about $1,140 a month, just over the federal poverty level for an individual — will be cut. Those cuts would slash benefits by 20 percent, across the board.
So Social Security Disability Insurance must be broken, right, and in need of a radical overhaul? That's certainly what some conservative critics crave.
Wrong. The truth is, we've known for 20 years that this was coming. And a one-time, routine action is all that's needed to ensure that Social Security can pay all promised benefits for the next two decades.
To understand why, it's helpful to review the history of Social Security's financing. The Old Age and Survivors' Insurance trust fund, or OASI, is a reserve fund for Social Security benefits paid to retirees and their surviving spouses and children. The Disability Insurance trust fund remains technically separate. However, Congress has typically discussed, shaped, and regulated them together due to the close relationships between Social Security's disability and retirement programs. In particular, the two programs share a benefit formula, and beneficiaries regularly move between the two programs. Thus, changes to one program — such as raising the retirement age — affect both trust funds.
The last round of major changes to Social Security occurred in 1983, and included a deep cut in the share of the payroll tax dedicated to Disability Insurance, which in turn created a long-term financial loss. Action in 1994 only partially offset the loss, and in 1995, the trustees accurately predicted that further action would be needed in 2016. Had the 1983 cut never happened, we wouldn't be where we are today.
Some critics have argued that the number of disabled workers receiving help from Social Security Disability Insurance has grown "too much," and suggest that the increases have been surprising and unsustainable. But in fact, the increase in the number of disabled workers receiving Social Security Disability Insurance in recent decades has long been expected. As far back as 1995, the trustees foresaw that the number of workers receiving Disability Insurance would increase significantly, and even guessed the number of new beneficiaries nearly right on the money.
They were able to do so because the increase in SSDI beneficiaries is chiefly due to a set of well-understood and long anticipated demographic and labor-market shifts. A supersized generation of baby boomers has begun aging into disabilities. The once massive gap in labor-force participation between men and women has narrowed considerably, which means many more women have sufficient work histories to be insured in case of disability. Additional contributing factors include the increase in the Social Security retirement age. Any increase in the retirement age causes SSDI beneficiaries to continue receiving coverage for a longer period of time before they become eligible to switch over to retirement benefits. Then, there's the fallout from good old-fashioned population growth.
When it comes to the disability program's sustainability, the key fact to know is that as boomers age into retirement, growth in disability insurance has leveled off and is now at its lowest level in 25 years.
Critics of Social Security Disability Insurance have also tried to link the program's growth to a decline in labor-force participation, pointing to the rise in applications for SSDI during the recession. But while applications increased, the share of applicants who were awarded benefits has declined, as applicants who didn't meet the program's strict eligibility criteria were screened out. Moreover, between 2007 and 2014, labor-force participation has fallen by about 3 percentage points, from 65.9 percent to 62.8 percent. But in a recent report, the White House Council of Economic Advisers carefully examined the factors at play in the decline in labor-force participation. They found no evidence to support the claim that disability insurance contributed to the decline. The group of economic experts even concluded that since 2009 the increase in workers receiving disability insurance has been lower than one would have predicted.
Looking forward, Congress needs to act by 2016 to avoid an across-the-board cut in benefits for disabled workers and their families — something no previous Congress has ever allowed to happen. Instead, Congress has repeatedly, and on a bipartisan basis, voted to "rebalance" the OASI and disability-insurance trust funds to keep both on sound footing amid changing demographics. Congress has opted to rebalance — meaning it altered the share of payroll-tax contributions that go into each fund — 11 times since the SSDI program was established in 1956. These decisions directed additional funds to the OASI fund about half the time, and to the disability-insurance fund about half the time.
To address the projected 2016 shortfall, Congress need only enact a modest, temporary reallocation of the 6.2 percent payroll tax to equalize the solvency of the two funds. The reallocation plan outlined by Social Security's chief actuary would ensure that both funds remain fully solvent until 2033.
Rebalancing would have essentially no impact on the financial health of the overall Social Security system. The change would also allow each trust fund to pay all scheduled benefits until 2033, with about 77 percent of promised benefits thereafter. Looking past the 2016 Disability Insurance financing gap, there are a number of options for ensuring the long-term solvency of the entire Social Security system without cutting already-modest benefits — something that polls consistently confirm most Americans oppose.
If Congress doesn't take the routine action needed to avoid cutting vital benefits for disabled workers and their families, then it is Congress that is broken — not Social Security Disability Insurance.
Rebecca Vallas is the associate director of the Poverty to Prosperity Program at the Center for American Progress. Shawn Fremstad is a public-voices fellow at The OpEd Project, and senior research associate at the Center on Economic and Policy Research.
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