"Nine Facts That Prove Disability Insurance Isn’t A Giant Boondoggle"
On October 6, 60 Minutes ran a report called “Disability, USA” that relied on anecdotes and misinformation to paint Social Security’s disability programs as wasteful and full of abuse. This comes just a few months after a report on NPR’s Planet Money created a similar picture. Both stories were quickly denounced by fact-checkers and disability advocates as not only misleading and inaccurate, but missing essential facts about the disability programs – they have high standards, low fraud rates, and the benefits are far from cushy. Here are the key facts to understand the Social Security disability programs:
1. The Social Security disability standard is the strictest in the developed world – and most applications are denied. According to the OECD, the U.S. disability benefit system is the most restrictive and least generous of all member countries, except for Korea. Fewer than four in ten applicants are approved, even after all stages of appeal. Beneficiaries have severe impairments and illnesses like cancers, congestive heart failure, kidney failure, multiple sclerosis, emphysema, and severe mental illness. Medical evidence is the cornerstone of the disability determination process, and in most cases, medical evidence from multiple medical professionals is required to establish eligibility.
2. Social Security’s disability programs are highly efficient and experience little fraud. The Social Security Administration’s administrative budget is equal to just about 1.4 percent of benefits paid out each year. The agency’s payment accuracy rates are incredibly high. After making program integrity a top mission, former Social Security Commissioner Michael Astrue, a George W. Bush appointee, estimated that fraud amounts to less than one percent of the disability programs. The agency’s watchdog agrees that fraud is extremely rare.
3. Growth in Disability Insurance was expected and is primarily due to demographics. The program’s growth was projected as far back as the mid 1990s. According to Social Security’s actuaries, most of the growth is due to demographics and other common-sense factors: the baby boomers aging into their high disability years; women’s entrance into the workforce in greater numbers in the 1970s and ‘80s, making them eligible for Disability Insurance based on their prior contributions; and the rise in the Social Security retirement age, which means Disability Insurance beneficiaries continue to receive benefits for longer before converting over to retirement benefits.
4. Growth in the program has little to do with the recession. Experts at the Center on Budget and Policy Priorities caution against overstating the role that the recent economic downturn has played in contributing to growth in Disability Insurance, and Social Security’s actuaries estimate that the recession accounts for just five percent of the program’s growth. While application rates tend to rise in down economies, they have a much smaller effect on award rates (the share of applicants who are found eligible to receive benefits). Reflecting that trend, award rates have declined significantly during the recent economic downturn, from 39 percent in FY 2007 to just 33 percent in FY 2011, suggesting that applicants for benefits who did not meet Social Security’s strict disability standard were screened out. A recent study by the agency’s watchdog looked at the 11 highest-unemployment states and found that while application rates had increased, award rates had dropped in all of them.
5. Few beneficiaries are able to work. According to data from just before the onset of the recent economic downturn, some 16.9 percent of disability beneficiaries worked at some point during the year. Of those who worked, fewer than 3 percent earned more than $10,000 during the year – hardly enough to live on. This comes as no surprise given that many beneficiaries are very sick, or even terminally ill – one in five male and one in six female Disability Insurance beneficiaries die within five years of receiving benefits, and beneficiaries are fully three to five times more likely to die than others their age. Further underscoring the strictness of the Social Security disability standard, even workers who have been denied Disability Insurance fare extremely poorly in the labor market. A recent study found that among people whose Disability Insurance applications were denied, the vast majority—70 percent to 80 percent—went on to earn less than $1,000 per month. But for those who are able or want to try to return to work, Social Security’s disability programs are designed to encourage work.
6. Disability benefits are incredibly modest. Disability Insurance benefits average $1,130 a month, just over the austere federal poverty level for a single person, or about $35 per day. Disability Insurance typically replaces less than half of an individual’s previous earnings. Supplemental Security Income benefits average just over $500 per month, about half the federal poverty level and less than $17 per day. For most beneficiaries, disability benefits make up most or all of their income.
7. Social Security’s disability programs keep millions of Americans out of poverty and deep poverty. While Social Security disability benefits are modest, they have a powerful impact. Poverty rates are significantly higher for individuals with significant disabilities but who do not receive Disability Insurance, compared with individuals who have been receiving benefits for at least five years. Likewise, Supplemental Security income makes it possible for 3.4 million Americans to avoid poverty, and lifts millions more out of deep poverty (defined as half the federal poverty level).
8. Social Security’s disability programs are all most Americans have to rely on when illness or injury strikes. According to the Bureau of Labor Statistics, just one in three private sector workers have access to employer-provided long-term disability insurance, and plans are often less adequate than Social Security. Access is especially limited for low-wage workers—only 7 percent of workers making under $12 an hour have employer-provided plans. For the vast majority of Disability Insurance beneficiaries—about 71 percent—half or more of their income comes from Disability Insurance, and for nearly half of beneficiaries, 90 percent or more of their income comes from Disability Insurance. Most beneficiaries of Supplemental Security Income have no other source of income.
9. We can ensure Social Security’s long-term solvency without cutting benefits. As the baby boomers age into retirement, growth in Disability Insurance has already begun to level off and is projected to decline further in the coming years. The fact that the Disability Insurance Trust Fund will need to be replenished by 2016 is not a new development or an unprecedented one. Congress has “reallocated” payroll tax revenues across the Old Age and Disability trust funds nearly a dozen times, about equally in both directions, to account for demographic shifts – and the last time reallocation was performed (in 1994), actuaries accurately projected that reallocation would again be necessary in 2016. As it has in the past, Congress could reallocate payroll taxes across the two trust funds to ensure that both funds would remain solvent until 2033. Thereafter, several policy options exist for increasing revenue to ensure long-term solvency without cutting already modest benefits. Either modestly increasing the payroll tax rate or eliminating the cap on earnings that are taxed for Social Security, so that the highest five percent of earners pay into Social Security all year long like the bottom 95 percent, would ensure 75-year solvency for the entire Social Security system.
Rebecca Vallas is Deputy Director of Government Affairs at the National Organization of Social Security Claimants’ Representatives and Co-chair of the Consortium for Citizens with Disabilities’ Social Security Task Force. Shawn Fremstad is a consultant on social policy and a senior research associate at the Center for Economic and Policy Research.