One year ago Congress decided to prop up the Disability Insurance (DI) program by siphoning off about $150 billion from Social Security’s retirement fund. But since Social Security’s retirement program is even more broke than its DI program, continued revenue transfers are not a long-run solution.
When Congress passed the short-term DI “fix,” lawmakers knew they would have to do more — much more — to make the program solvent over the long run.
But 12 months later, it’s been nothing but radio silence from Congress on DI reform. Not that this should be surprising. Politicians notoriously use crises to cut deals, promising they will undertake serious and thoughtful action in the future. Then they sit back and wait until the next crisis.
That’s exactly what happened in 1994 after Congress used Social Security’s retirement program to shore up the DI program. The Social Security trustees warned Congress that it needed to reform the DI program or it would run out of funds again in 2016. Reform did not happen, and the DI program avoided running out of money in 2016 by poaching money from Social Security.
Even with the DI program’s most recent raid on Social Security, it still fails the trustees’ test of short-term financial adequacy. Under current projections, the DI program’s trust fund will run dry in 2023, forcing an automatic 11 percent benefits cut across the board.
This could cause serious financial hardship for many DI beneficiaries. One of every three already lives below the poverty level, and DI benefits make up more than 75 percent of the typical beneficiary’s income.
Apart from the political difficulties, DI reform is actually relatively easy. There are so many inefficiencies, adverse incentives and outdated standards — not to mention widespread fraud and abuse — that even grabbing the low-hanging fruit would have a significant impact.
The best evidence of the DI program’s need for reform is its massive growth. The percentage of working-age adults receiving DI benefits has more than doubled since 1990. With more than one in 20 working-age adults on the rolls, DI has become an early-retirement and long-term-unemployment program.
Eliminating the “grid” rules, which allow workers to qualify for benefits based on nonmedical factors — such as being 45, limited to sedentary work or allegedly unable to speak English — would preserve benefits for people who are physically or mentally unable to work.
A needs-based period of disability would help address the program’s dismally low percentage of beneficiaries who leave the rolls for work. The DI program is supposed to conduct regularly scheduled disability reviews to confirm continued disability status, but in addition to a massive backlog, those reviews often consist of nothing more than check-the-box postcards.
An optional, private disability insurance component within the DI program could cut down on unintended growth in the rolls and offer potentially disabled workers a far greater chance at improved health, work capacity and economic well-being. Private DI is far more effective at weeding out fraud and abuse and helping workers get back to work after an injury or disability. And it costs about half as much as the government program. An optional private DI component would provide a payroll tax credit to employers who choose to provide qualified private disability insurance.
Finally, the DI program was intended to keep the disabled from sinking into poverty. But its perverse benefits structure sends the most money to those with the highest incomes. A flat, anti-poverty benefit for all new DI recipients would more than solve DI’s shortfalls; it would also allow for a payroll tax cut that workers could use to purchase private disability insurance.
Policymakers who fail to address the DI program’s multitude of problems harm taxpayers who finance the program and beneficiaries who are often stigmatized as a result of its widespread fraud and abuse. Congress must act now to reform the DI program, instead of waiting until it runs out of money again.
This commentary first appeared in The Washington Times.