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Disability is the New Welfare

By P.J. Austin
​WasteWatcher, April 2013

The two primary federal disability insurance programs, Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI), provide assistance to individuals with disabilities.  SSDI is funded through payroll taxes and can be supplied on a permanent or temporary basis.  SSI is a means-tested program for low-income individuals and is funded through general revenues.  While tested enrollment in both programs has increased, the precipitous rise of SSDI beneficiaries is a more expensive proposition.

SSDI was created in 1956 and was expanded further during the 1960s by President Lyndon Johnson.  Responding to the rapid growth in disability insurance enrollment during the 1970s, the Reagan administration tightened the eligibility criteria during the 1980s in order to reduce spending.  The 1996 Welfare Reform Act implemented several reforms to move people off of welfare and back into jobs.  The reforms were largely hailed as successful, as the number of people receiving welfare benefits has declined substantially since 1996. 

However, during the same 17-year time period, the number of individuals receiving disability has risen substantially, meaning that many individuals who were previously receiving aid through welfare were switched to disability programs.  According to data from the Social Security Administration, more than 10.9 million individuals are currently receiving SSDI payments, compared to 7.3 million at the end of 1996.  In other words, during a period when US population grew by 19.6 percent, the number of SSDI recipients increased by 49 percent.  Combined with SSI recipients, the number of people receiving some form of disability compensation each month from the federal government increases to 14 million, which amounts to an annual expenditure of $260 billion.

There are many factors, both at the state and individual levels, driving the rise in disability program enrollment.  Unlike welfare programs, whose costs are shared by state governments, payments from disability programs are completely covered by the federal government.  State governments therefore have a financial incentive to reduce the number of people receiving benefits from welfare programs and move them into SSDI and SSI.

A March 22, 2013 National Public Radio (NPR) article describes how states hire outside companies to help them transition workers from welfare programs to disability programs: “[Public Consulting Group] is a private company that states pay to comb their welfare rolls and move as many people as possible onto disability.  ‘What we're offering is to work to identify those folks who have the highest likelihood of meeting disability criteria,’ Pat Coakley, who runs PCG's Social Security Advocacy Management team, told me.” 

The NPR article provides details of just how far these private consultants go to move individuals onto disability insurance: “The [Public Consulting Group] agents help the potentially disabled fill out the Social Security disability application over the phone.  And by help, I mean the agents actually do the filling out.  When the potentially disabled don’t have the right medical documentation to prove a disability, the agents at PCG help them get it.  They call doctors’ offices; they get records faxed.  If the right medical records do not exist, PCG sets up doctors’ appointments and calls applicants the day before to remind them of those appointments.”  While the action by state governments to shift costs from their budgets to federal taxpayers is expensive, it is perfectly legal.

The incentives at the individual level are equally powerful.  Although there is a time limit for receiving unemployment benefits, no such limit exists for long-term disability compensation.  According to NPR, “People who leave the workforce and go on disability qualify for Medicare, the government health care program that also covers the elderly.  They also get disability payments from the government of about $13,000 a year.  This isn't great.  But if your alternative is a minimum wage job that will pay you at most $15,000 a year, and probably does not include health insurance, disability may be a better option.” 

The financial implications of this shift to disability insurance are unsettling.  The $260 billion that the federal government spends annually on disability programs and health care for disabled workers is greater than the cost of food stamps and welfare combined.  According to Social Security trustees and the Congressional Budget Office, this unsustainable annual expense will drain the reserves of the disability insurance program by 2016.  However, Congress will likely fund disability payments through withdrawals from the Social Security retirement fund, another unstable funding source that is projected to run out of money by 2035.

A March 29, 2013 Washington Post article identified five potential reforms to disability insurance, ranging from giving tax breaks to employers with low rates of disability insurance use to expanding the waiting period before receiving benefits from five months to 12 months.  These proposals are part of a growing chorus of voices urging Congress to act on reforming disability insurance.  The looming bankruptcy of the disability insurance trust fund adds to the urgent need for entitlement program reform.

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