By Scott B. Elkind, Esq.

More than 80% of all nonelderly adults are insured against disability by the Social Security Administration Insurance (DI) program. The number of persons receiving these benefits has increased substantially (from 2.4% of the population receiving benefits in 1985 to 4.1% in 2005) in the past two decades. In 2005 alone, 832,000 new persons were awarded disability benefits which, assuming continued disability of claimants and current economic trends, will cost taxpayers over the course of the average claim duration a total of $125 billion in present day dollars. Once Medicare payments begin, there is an additional present day value claim cost per disability recipient of $245,000.00. The annual spending for disability benefits is 8.1% of the federal budget in 2005. Given the expected increases in the aging population, the increased number of disability claims poses a significant financial risk to the solvency of the Social Security system.

The increase in the disability rolls has been attributed to a combination of several factors. The first factor is the growth in recipients suffering from back pain and mental illness. The comparatively low mortality rate and high claim duration period resulting from these conditions has increased the size of the disabled population. The second concern is the increase of payable disability benefits to increasing recipient earnings. A third factor is the rapid increase in the female labor force. Surprising, the aging of the baby boom generation has only contributed modestly to the increase in disability claim filings due to improvements in population health. Lastly, and perhaps, most importantly, the number of persons exiting the disability has decreased substantially. In 1983, 16.4% of people receiving disability benefits exited the system because of death, entering retirement, or no longer being disabled. Persons exiting the system decreased to 7.2% by 2005.

A similar funding “crisis” occurred in the 1970s leading to the tightening of medical eligibility criteria and increasing continuing disability reviews. By 1980, this process yielded both a significant decline in applications, award and enrollment, but generated a public backlash. This led to 1984 legislation enlarging the disability determination focus from objectively verifiable diagnostic criteria to consideration of an individual’s ability to function in a work setting. Prior to 1984, 93% of initial awards were based on medical factors only. This fell to 58% by 2003. The 1984 legislation also placed controlling evidentiary weight on the treating physician findings rather than findings made by SSA’s consultative physician.

There are several schools of thought as to what can be done to reform the system under the guise of whether claimants are “misusing” these benefits. First, the assumption that people are “cheating” the system has been belied by a 1989 study which revealed that 30% or less of persons initially denied benefits would return to work. Given changes in the labor market, newly disabled persons would be even less capable of finding employment. There is also a noted incongruity that during an economic recovery, many people who have been out of work for extended periods find it difficult to return to work.

Another consideration for controlling claims are changes in the screening process for disability benefits. Despite repeated efforts at improving the efficiency, accuracy, and consistency of this process, the disability determination process has evolved from a bureaucratic function to an adversarial process which relies heavily on appeals and adjudication. This change has resulted in records numbers of backlogged cases as they await adjudication. This is made worse by the projected increase in claim applications (with a 4% in claims disability claims from 2008 to 2009 alone).

Another avenue for slowing growth of the disabled population is to reduce inflows to the Disability Insurance Program. The first method of stemming such flow is to adopt more rigorous eligibility criteria which again emphasizes medical rather than vocational factors as done previously. This would have the unintended consequence of resulting in a increase denial rate for deserving claimants suffering from conditions which are difficult to verify (such as those causing pain or mental disorders). A suggested counterbalance would be by the commissioning of “independent” medical and vocational evaluations of claimants during the initial disability determination.

Alternatively, disability claims allowances could be decreased at the hearing level via instituting attorney representation on behalf of the Social Security Administration. Such an effort “would ameliorate this almost comically lopsided setting, in which the Social Security Administration currently loses nearly three-quarters of all appeals.”

Another approach being considered is to increase the availability of Medicare as a stopgap form of health insurance to assist in treatment of applicants and allow for a faster return to work.

Increasing the number of continuing disability reviews is also possible. The cost of performing such reviews is significantly lower than the savings associated with the reduction of benefits achieved. Currently, the DI program is unable to perform the targeted number of these reviews due to limited resources.

There is another, more controversial proposed method for limiting the expense of disability claims. The current system is geared to an all-or-nothing cash award which could be reformed to a graduated disability scale. Such a change would allow workers to remain in their jobs in a more limited capacity while receiving partial disability benefit payments. Although this would initially result in a rise in disability applicants, the payments would be lowered. With the additional of tougher screening requirements, payments could be reduced substantially.

An even more potentially contentious alternative would be to consider nonwage income and assets of disabled persons with an eye to reducing benefits payable to persons with greater ability to finance their own existence.

Of course, increasing the payroll tax with dedication of the proceeds to the Social Security Administration would alleviate the funding problem, but the political consequences of raising taxes remain challenging.

In the end, despite the known challenges to the Disability Insurance program, there has been no concerted effort to address the problem. The “kick the can down the road” mentality remains pervasive due to potential political fallback as no one seems wishes to touch the proverbial “third rail” of politics and tackle this issue.