Politics & Policy

Containing the Disability Explosion

A new book proposes reforms that could save a bankrupt system.

As recent news stories explain, the Social Security Disability Insurance Program (SSDI), which gives money to workers who become disabled, will be insolvent in six years. While the causes of this trend are various, a new book suggests that the solution might be simple: Encourage people with disabilities to work, rather than encouraging them not to.

#ad#The explosion in disability is easy enough to document. Over the last ten years alone, the number of disability recipients has grown by about 50 percent. The average award has grown faster than inflation.

A large portion of this has to do with the simple fact that our population is aging. As you can see on this spreadsheet, which I created with federal data, the increase in disability beneficiaries occurred overwhelmingly among those 50 and older — a demographic that is growing as the Baby Boomers join its ranks. For example, between 2000 and 2010, the number of Americans in the 55–59 age bracket rose by 42 percent.

But at the same time, the number of disability beneficiaries in this demographic grew by 73 percent — meaning that while the ranks of the middle-aged and elderly have swelled, individuals in these ranks have become more likely to claim disability. If Americans in each age bracket still went on disability at the rate they did in 2000, there would be 22 percent fewer beneficiaries.

An obvious explanation is that disabled people have had a hard time finding jobs over the last few years thanks to the rough economy, and have responded by convincing the government that they are incapable of work. However, according to data collected in The Declining Work and Welfare of People with Disabilities — a new book by Cornell economics professor Richard V. Burkhauser and Federal Reserve Bank of San Francisco economist Mary C. Daly — the disability rolls grew only slightly faster than normal during the recession. If the previous trend had held, the program would still be in trouble.

The problem, Burkhauser and Daly report, is that people with disabilities have chosen government payments over work, not because of short-term economic trends, but because public policy encourages them to. And while recent reports have tended to focus on the last ten years, the problem has been growing for much, much longer.

In 1981, a government survey found that 7.3 percent of American had disabilities that affected their ability to work; of these, 35 percent held jobs anyway, and 32.6 percent collected payments from the government. In 2010, a similar proportion reported work-relevant disabilities — 7.8 percent — but 51.4 percent said they received government payments, and only 22.6 percent said they worked.

Changes in government policy between the two surveys explain the difference. By 1983, various policy changes had eliminated the program’s regular reevaluations of its beneficiaries, making it much harder to remove people from the rolls. In 1986, the standards for mental illness loosened. And throughout SSDI’s history, Social Security’s bureaucrats have become progressively more lenient when they make judgment calls about conditions that don’t necessarily prevent people from working: In 1967, about 20 percent of those on disability had mental illnesses or musculoskeletal problems; by 2009, more than half did.

Burkhauser and Daly, drawing on the lessons of the Netherlands’ disability reforms, as well as America’s own welfare reforms, say the solution isn’t just to tighten the standards, but rather to change the incentives the system creates. Right now, the system encourages workers to take government handouts, and it encourages their employers to help them.

Like welfare before reform, SSDI benefits are eliminated whenever beneficiaries start making their own money. Today, the cap is about $1,000 a month; once a disabled worker’s earnings cross that threshold, he loses all benefits. In the short run, therefore, it’s best for an SSDI recipient not to work too much.

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One solution would be to make benefits taper off as earnings increase rather than cutting off abruptly. This would increase the work effort of SSDI beneficiaries, but, as Burkhauser and Daly note, it would make the program open to people with higher incomes. It’s a good reform, but it’s unlikely to fix the program’s financial problems.

#ad#A more promising idea is to attack the problem from the employer’s side. Today, if an employee stays on the job despite developing a health problem, the employer has to spend money accommodating him (especially since the 1990 passage of the Americans with Disabilities Act, or ADA). But if the employee leaves and goes on SSDI, the federal government takes on the burden of paying for the disability.

Burkhauser and Daly say that SSDI should work basically the way worker’s compensation does today: Rather than paying a flat payroll tax into SSDI, employers should pay a tax based on how many of their employees have left work to join SSDI in the past. This way, employers would choose to accommodate disabled employees far more often, because they’d bear the cost if the worker went on the dole. Such a system could also give employers a break for buying their workers private disability insurance.

These changes would probably save the system, as they reflect changes to the Dutch system that worked well, but they create their own set of problems. One, worker’s compensation and SSDI are different for a reason: Worker’s comp covers treatment for injuries sustained at work, so it’s fair to make employers pay when workers need it; SSDI covers non-job-related disabilities, so it’s unfair to charge employers for it. (Then again, under the ADA, it’s already employers’ responsibility to bear some of the costs of disability.) And two, as Burkhauser and Daly note, some employers might try to avoid SSDI tax hikes by discriminating against job applicants who are more likely to need SSDI in the future, such as those who are already disabled.

Other suggestions of Burkhauser and Daly’s are self-evident, but crucial. The government needs to develop clear guidelines for conditions such as mental illness, so that bureaucrats cannot simply dole out taxpayer dollars on a whim. When a denied applicant appeals, the federal government should be able to present expert witnesses. (Absurdly, in the current system, the applicant can, but the government cannot.)

The goal of our disability policy should be to ensure that to the greatest degree possible, the disabled are fully integrated into our society — and that includes the workplace. Rather than pushing workers onto the disability rolls, we should encourage employers to accommodate them, and Burkhauser and Daly’s suggestions for doing so are an excellent starting point.

— Robert VerBruggen is an associate editor of National Review.

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