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2012 Policy Options for the Social Security Disability Insurance Program

The independent Congressional Budget Office (CBO) issues its Policy Options for the Social Security Disability Insurance Program in July, 2012. The CBO pointed out several challenges facing the Disability (DI) Program including:

The number of recipients has grown sixfold since 1970 and now provides benefits to 8.3 million disabled workers. Dependent benefits paid to spouses and children raise this number to 10.3 million persons

The average benefit has grown by more than nine times over the past 40 years with average amount paid of $1111.00/month

As of 2010 the DI Program took in revenues of 0.63% of Gross Domestic Product (GDP) while paying out 0.86% of GDP. This is not expected to decline until 2037 when the proportion of workers age 50 and older declines substantially

Due to the increasing disability rolls, an increasing share of Social Security Administration spending has been directed to the DI program with budget expenditures increasing from 10% in 1970 to 18% in 2011 and will shrink to 15% in 2022

Total DI expenditures in 2011 were $128B and will be $204B in 2022

Medicare spending for DI recipients will increase from $80B in 2011 to $120B in 2022

The DI trust fund is expected to reach insolvency by 2016

The increases have been attributed to an aging workforce comprised of baby boomers and changes in federal policy allowing from only consideration of specific impairments to a more general consideration of a person’s medical condition(s) in addition to pain and mental illness, rise in the federal retirement age, reduced employment opportunities due to economic downturn (although some assistance may be provided by Affordable Care Act)

To deal with this protracted and severe budget shortfall, the CBO is considering a series of policy options that would either increase taxes and/or cut spending in order to ensure the solvency of the DI program and restore it to a sound budgetary position. Some of the specific proposals include:

Change DI program eligibility factors (no eligibility starting at age 62, require more years of work to qualify, increase age at which disability requirements become less restrictive)

Change return to work program factors to ensure people will leave program

Changes in length of time for people to become eligible for benefits from 5 to 12 months

Increase payroll tax from current 1.8%

Increase maximum taxable earnings limit from $113K to $173K

Reduce program spending

Change the DI benefit formula by reducing all benefits or benefits for persons 53 and older

Remove cost of living adjustments (COLAs)

Program administrative changes including modifying appeals process, increase frequency of continuing disability reviews

Develop programs to assist disabled persons to return to work

Move to a partial disability system

Work with employers to encourage accommodations to workers with disabilities

Obviously, there are some proposals which are more expedient (raising taxes, reducing benefits/spending, remove COLAs, changing eligibility rules/waiting period) and those which are worthwhile, but require efforts not made by SSA before (Assisting disabled people with finding work with accommodations), and more creative efforts (changing to a partial disability system).

Given the impending fiscal crisis in the DI program, it is clear that something must be done and quite soon. Unfortunately, this will require a divided Congress to act in making fundamental changes to the Social Security Program which typically is referred to as the “third rail of politics.” Inaction has been Congress’ approach for years. The incoming Congress’ efforts should change little as the crisis is still a few years away.

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