The Menu of Disability Reform Options

Sen. Tom Coburn (R-OK) has been drawing attention to the challenges facing Social Security disability insurance, most recently on 60 Minutes. There are many theories as to why federal disability spending has been soaring, a subject Chana Joffe-Walt addressed at length earlier this year in an ambitious report for NPR. CBS observes that the budget for federal disability ($135 billion) is greater than the combined budgets of Homeland Security, the Justice Department and the Labor Department. Joffe-Walt makes an even more arresting comparion — “the federal government spends more money each year on cash payments for disabled former workers than it spends on food stamps and welfare combined.” Coburn warns that “we got a system that’s being gamed pretty big now” by unscrupulous lawyers taking an advantage of an inundated system. Harold Pollack, a social policy scholar at the University of Chicago, has defended federal disability programs, noting that the vast majority of applicants are denied benefits, and that the employment rates of those who are denied tend to be quite low (below 50 percent). 

There have been a number of proposal to reform federal disability programs in recent years. David Autor and Mark Duggan have proposed extending private disability insurance (PDI) to the vast majority of workers, and using PDI coverage as a front-end:

The proposed policy would support workers from 90 days to 2.25 years following onset of disability, providing partial income replacement and supports geared toward helping individuals maximize work readiness and self-sufficiency. After receiving PDI benefits for twenty-four months, individuals who are unable to engage in substantial gainful employment would transition into the SSDI system. The screening criteria for SSDI would be unchanged.

There would be a strong financial incentive for firms to find ways to keep workers from claiming federal disability benefits, as employers that do a better job of keeping disabled workers employed would cost substantially less for PDI coverage than those that do not.

Richard Burkhauser has offered a different approach to achieve the same basic goal:

Mary Daly and I (Burkhauser & Daly 2011) argue that like the Dutch, the United States should impose some form of experience rating on firms paying into the SSDI system. Raising the SSDI payroll tax of firms whose workers enroll in the system at above- average rates and lowering the SSDI payroll taxes on firms whose workers enroll at below- average rates via experience rating would more directly link the costs to the firm of one of its workers moving onto the SSDI program. Employers who bore the costs for both options would be more incentivized to make the investments in accommodation and rehabilitation that could prolong the employment tenure of a worker with a disability. This is currently the system used to fund state workers’ compensation benefits, and the best practices from these state programs could be considered for SSDI as well. Alternatively, employers who provide short-term private disability insurance for employees and whose private insurance agents cooperate with SSDI gatekeepers in managing their cases could be granted a reduction in SSDI tax rates, while firms that did not offer such private insurance could be charged higher SSDI tax rates. Either of these reforms would bend the cost curve of projected SSDI program expenditures by reducing incentives for employers and employees to overuse the system.

And most recently, Jagadeesh Gokhale of the Cato Institute has called for a “Generalized Benefit Offset,” the goal of which would be to improve work incentives by reducing the extent to which disability payments fall as beneficiaries start to earn modest amounts of income. 

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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