While looking into the reasons for the drop in labor-force participation, I stumbled upon this report by Senator Coburn called “Social Security Disability Programs: Improving the Quality of Benefit Award Decisions.” There he notes that “economists estimate that Americans added to disability rolls could account for as much as a quarter of the two percent drop in the labor force participation rate since 2007.” As I have mentioned before, many labor economists have been trying to explain the large drop in labor-force participation, especially since the reduction isn’t solely a result of the boomers’ retiring. In fact, if anything, some seniors are postponing their retirements.
That report then led me to take a closer look at the disability-insurance program. Back in April, the Trustees’ Report data showed that the DI’ s trust fund will be insolvent by 2016 — two years earlier than was predicted last year. For years it has been clear that this program is highly dysfunctional and isn’t financially sound. I have a few charts up over at Mercatus, including this one:
According to the data, since January 2009, nearly 5.9 million Americans have been added to the Social Security Disability Insurance (SSDI) program. Some of that increase is due to the bad economy, but also to increases in the scope of eligibility. The program provided $119 billion in benefits to 8.3 million disabled workers in fiscal year 2011 — that’s a six-fold increase from 1.4 million in 1970. Adding the dependent spouses and children of those workers increases the number of people receiving support in 2011 to 10.3 million. Disabled workers received an average monthly benefit of $1,111, as of August 2012.
A couple observations about the data:
In the past decade, roughly 50,000 awards to beneficiaries were paid per year on average. Total benefits peaked at 1.7 million awards during the depths of the recession, when many Americans turned to disability programs to make ends meet.
The data also show that termination rate of beneficiaries continues to fall dramatically as more and more people stay on SSDI for longer periods of time. It was 163 per 1,000 beneficiaries in 1982, compared with 74 per 1,000 beneficiaries in 2011.
What are the consequences of this increase in beneficiaries and decrease in termination rate? According to Senator Coburn’s report, one of the main consequences is that it puts tremendous stress on the agency’s resources and personnel. As a result, disabled Americans are waiting longer and longer before receiving the benefits they deserve. Many now wait as long as two years before having their application finalized. Also troubling is the fact that the program’s process for deciding who is disabled or not is so bad it could be that as many as 25 percent of the decisions made are the wrong ones.
The program needs to be reformed, and such measures have worked in the past. In 1980, Congress enacted legislation to quell the 1970s’ similar surge in applications and drop in termination rates. Such legislation limited disability-benefit levels by instituting stringent reviews of claims decisions and a number of changes affecting the disability criteria. The results can be seen in the data, between 1980 and 1983, as the number of benefits awarded decline and terminations increased, a stark contrast compared with other years.
You can find more charts and data here.