Reagan Expanded the Disability-Industrial Complex

by Avik Roy

Jonah has been doing some excellent work on the substantial growth in Social Security disability spending. (Here’s his syndicated column; his initial Corner post; two letters from readers; and his link to a solid story yesterday from the WSJ.)

This is a story that I’ve been wanting to write about for some time, and so I was glad to see Jonah — and NPR, in a must-read report — take up the topic.

A key point to consider is that the growth in disability spending is not driven by anything that President Obama has done directly (other than any way in which the underperformance of the economy is his fault). Indeed, as I write about for my Forbes blog, the key expansion in disability benefits was signed into law by Ronald Reagan.

In 1984, Congress unanimously passed, and Reagan signed, the Social Security Disability Benefits Reform Act, which required the administration to give more weight to claims of disability based on subjective medical diagnoses, among other things:

In 1980, Jimmy Carter had signed the Disability Amendments Act of 1980, which encouraged tighter oversight of Social Security disability benefits. Early in Reagan’s first term, the Gipper asked the Social Security Administration to step up enforcement of the new law, leading to the revocation of benefits for over one million people. There was a substantial political backlash to these efforts; as a result, in 1984, Congress unanimously passed the Social Security Disability Benefits Reform Act. “It maintains our commitment to treat disabled American citizens fairly and humanely while fulfilling our obligation to the Congress and the American taxpayers to administer the disability program effectively,” said Reagan upon signing the bill into law.

The SSDBRA instructed the government to place greater weight on applicants’ own assessments of their disability, especially when it came to pain and discomfort; to replace the government’s medical assessments with those of the applicants’ own doctors; and to loosen the screening criteria for mental illness, among other things. The overall effect was to create a giant loophole, by which an applicant’s subjective claim that he was in pain, or mentally incapacitated, would be enough to claim disability.

Economists from the National Bureau of Economic Research have found that the vast majority of the growth in disability spending does not come from aging of the population, but rather from two factors: (1) this 1984 law, which relaxed the medical eligibility criteria for disability benefits; and (2) a substantial increase in the economic value of disability benefits, driven by quirks in the formula used to pay them, and by the increasing value of the Medicare health insurance benefit for which the disabled qualify. Here’s a chart I composed, using their data, that depicts the factors driving growth in disability spending since the passage of the 1984 law:

I was on All In With Chris Hayes on MSNBC on Friday discussing these issues, in a segment where Jonah’s original column played a significant role (in my own arguments and in those of my opposing co-panelists). Michael Astrue, who recently stepped down as commissioner of the Social Security Administration, vigorously contested the notion that there were problems with the disability program, calling Jonah’s analogy to Britain “crazy talk” and arguing that the proportion of waste, fraud, and abuse in the program was “less than 1 percent.” Video is below.

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