Disability Trust Fund Exhaustion Calls for Reforms, Not a Bailout
SSDI: State of Play
- Social Security Disability Insurance (DI) is the federal entitlement program that provides monthly cash benefits to eligible disabled individuals and their families.
- In 2014, nearly 11 million disabled workers and their eligible spouses and children received DI benefits. Disabled workers receive an average of about $1,150 per month from the program.
- Disability Insurance has expanded rapidly. Since 1990, the share of the working-age population receiving disability benefits has more than doubled—from 2.3 percent to 5.0 percent. Spending on the DI program has doubled in real terms since 2000.
- Some of the increase in DI spending was predicted due to aging baby boomers requiring increasing assistance with disability needs coupled with a greater number of working women becoming insured under the program. Still, at least half of SSDI’s expansion cannot be explained by these demographic factors or changes in the labor force.
- Rather, as DI benefits have become more accessible and more valuable, individuals have increasingly turned to DI as an early retirement and long-term unemployment program.
The Shortfall in SSDI’s Trust Fund
- DI is unsustainable in its current form and its trust fund is projected to be exhausted next year, in 2016. Without congressional action, benefits will be cut nearly 20 percent across the board, lowering the average benefit to below the federal poverty level.
- Although Social Security’s 75-year shortfall in the retirement program (OAS) is nearly 10 times as large as that of the DI program, the DI Trust Fund is projected to be exhausted much sooner, leading some, including the Obama Administration, to suggest that a portion of the Social Security payroll tax should be “reallocated” to the DI program.
- Raiding the payroll tax from the troubled Social Security retirement program would not only evade necessary DI program reforms, but also risks putting off comprehensive Social Security reform. This risks significant benefit cuts for millions of current and future retirees, or substantial tax increases for current and future workers.
- President Obama’s proposal would raid more than $300 billion from Social Security’s retirement program to DI between 2016 and 2021. DI’s funding shortfall represents an immediately pressing entitlement spending issue before this Congress.
Recommendations: Reforms, Not a Bailout
- Congress should address the DI Trust Fund’s impending shortfall by making eligibility and benefit changes that preserve benefits for those who truly need them, while encouraging those who are able to return to work to do so.
- Congress should consider replacing permanent benefits and continuing disability reviews (CDRs) with a needs-based period of disability for individuals for whom medical improvement is expected or possible.
- Congress should also consider phasing in a maximum flat benefit that protects beneficiaries from poverty due to disability or old age and that is focused on those most vulnerable individuals.
- Congress should explore ways of enabling greater private-sector disability insurance coverage with its important focus on work accommodations and recovery.