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Backgrounder #2937 on Retirement Security

August 1, 2014

Social Security Disability Insurance Trust Fund Will Be Exhausted in Just Two Years: Beneficiaries Facing Nearly 20 Percent Cut in Benefits

By

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[1] Social Security Administration, The 2014 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, July 28, 2014, http://www.socialsecurity.gov/OACT/TR/2014/index.html (accessed July 28, 2014).

[2] Social Security Administration, “Monthly Statistical Snapshot: April 2014,” May 2014, Table 2, http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/ (accessed May 21, 2014).

[3] U.S. Department of Health and Human Services, “2014 Poverty Guidelines,” January 22, 2014, http://aspe.hhs.gov/poverty/14poverty.cfm (accessed June 2, 2014).

[4] Author’s calculations using data from the U.S. Census Bureau Population Estimates and Social Security Administration. The recipiency rate refers to the percent of the population ages 16–64 that receives worker, widower, or adult children disability insurance benefits.

[5] Tad DeHaven, “The Rising Cost of Social Security Disability Insurance,” Cato Institute Policy Analysis No. 733, August 6, 2013, http://object.cato.org/sites/cato.org/files/pubs/pdf/pa733_web.pdf (accessed June 5, 2014).

[6] Mark Duggan and Scott A. Imberman, “Why Are the Disability Rolls Skyrocketing? The Contribution of Population Characteristics, Economic Conditions, and Program Generosity,” in David M. Cutler and David A. Wise, eds., Health at Older Ages: The Causes and Consequences of Declining Disability Among the Elderly (Chicago: University of Chicago Press, 2009), pp. 337–379.

[7] Mary C. Daly, Brian Lucking, and Jonathan A. Schwabish, “The Future of Social Security Disability Insurance,” Federal Reserve Bank of San Francisco Economic Letter, June 24, 2013, http://www.frbsf.org/economic-research/publications/economic-letter/2013/june/future-social-security-disability-insurance-ssdi/ (accessed June 2, 2014). The authors’ estimates include a range for the contribution of women’s increased labor force participation. Increased participation alone accounts for 16 percent of the rise in DI beneficiaries. The effect of women’s increased prevalence (likelihood) of claims explains up to 13 percent of the rise, depending on the degree to which the authors assume women’s prevalence has caught up to that of men since 1980.

[8] Author’s estimate of 3 million beneficiaries is calculated by adjusting the current total number of beneficiaries to that which would exist if the recipiency rate today were equal to that of 1980. The difference between this figure and actual DI recipients is the growth in beneficiaries. Multiplying this growth by the average of the Federal Reserve Bank study’s 44 percent to 57 percent range (50.5 percent) yields to 3.01 million DI recipients.

[9] Michael A. Fletcher, “Disability Rolls Swell in a Rough Economy,” The Washington Post, September 20, 2013, http://www.washingtonpost.com/business/economy/us-disability-rolls-swell-in-a-rough-economy/2013/09/20/a791915c-1575-11e3-804b-d3a1a3a18f2c_story.html (accessed June 2, 2014).

[10] Author’s calculations using data from the U.S. Bureau of Labor Statistics on median usual weekly earnings by education level and the Social Security Administration’s national average wage index.

[11] Daly et al., “The Future of Social Security Disability Insurance.”

[12] James Sherk, “Not Looking for Work: Why Labor Force Participation Has Fallen During the Recession,” Heritage Foundation Backgrounder No. 2722, September 5, 2013, http://www.heritage.org/research/reports/2013/09/not-looking-for-work-why-labor-force-participation-has-fallen-during-the-recession.

[13] Ibid.

[14] Daly et al., “The Future of Social Security Disability Insurance.”

[15] In 1994, with the DI program facing immediate insolvency, the Social Security Domestic Employment Reform Act of 1994 was signed into law. This act immediately increased the DI payroll tax rate from 0.6 percent to 0.94 percent through 1996, dropping to 0.85 percent for 1997–1999 and then rising to 0.9 percent beginning in 2000. Prior to the act, a reallocation from OASI to DI of 0.11 percentage point (from 0.6 to 0.71) beginning in 2000 had already been planned.

[16] Nonelderly people diagnosed with end-stage renal disease or amyotrophic lateral sclerosis automatically are not subject to the two-year waiting period for Medicare.

[17] Henry J. Kaiser Family Foundation, “Medicare Fact Sheet: Medicare and Nonelderly People with Disabilities,” Fact Sheet, September 2010, http://kaiserfamilyfoundation.files.wordpress.com/2013/01/8100.pdf (accessed June 2, 2014).

[18] Henry J. Kaiser Family Foundation, “Distribution of Medicare Beneficiaries by Eligibility Category,” http://kff.org/medicare/state-indicator/distribution-of-medicare-beneficiaries-by-eligibility-category-2/ (accessed June 2, 2014).

[19] Fletcher, “Disability Rolls Swell in a Rough Economy.”

[20] Su Liu and David Stapleton, “How Many SSDI Beneficiaries Leave the Rolls for Work? More Than You Might Think,” Center for Studying Disability Policy Disability Policy Research Brief No. 10-01, April 2010, http://www.mathematica-mpr.com/publications/PDFs/disability/ssdi_benef_ib.pdf (accessed June 2, 2014).

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