WASHINGTON -- A dramatic change in diagnostic eligibility rules in 1984 and a subsequent lack of adequate staffing and internal controls are among the reasons the Social Security Administration's Disability Insurance (SSDI) program is in such fiscally precarious condition, according to witnesses at a hearing of a U.S. House Subcommittee.
The hearing was triggered in part by the recently released 2013 Social Security Trustees Report that said SSDI's program "satisfies neither the Trustees' long-range test of close actuarial balance nor
Mark Duggan of the Penn-Wharton Public Policy Initiative testifies before a House Ways and Means Subcommittee on Social Security. See brief video excerpt.
their short-range test of financial adequacy and faces the most immediate financial shortfall" of all SSA operations. The agency spends more than $140 billion annually.
Original intent Launched in 1956, the federal insurance program was originally designed to provide income supplements for health-impaired people who were "totally and permanently disabled."
In opening the session of the House Ways and Means Subcommittee on Social Security, Committee Chair Sam Johnson (R-Texas) noted that between 1970 and last year, the number of people paying into SSDI increased by 72% at the same time the number claiming SSDI benefits increased by 300%.
About nine million adults currently receive SSDI disability payments equal to about half their former salaries. For most, under the current system, those payments are permanent, with the average beneficiary collecting $270,000 while on the rolls, according to the University of Pennsylvania's Mark Duggan, who was the hearing's lead witness.
Public Policy Initiative Duggan, the Faculty Director of the Penn-Wharton Public Policy Initiative that recently opened offices in Washington, has researched Social Security Administration operations for nearly a decade. He is also a professor and chair of The Wharton School's Department of Business Economics & Public Policy, and a Senior Fellow at Penn's Leonard Davis Institute of Health Economics (LDI).
His testimony focused on several trends that have converged to create a "perfect storm" for SSDI program.
Duggan pointed out that a major factor driving the dramatic increase in the size and overall costs of SSDI was the 1984 passage of the Social Security Disability Benefits Reform Act that greatly loosened the eligibility rules and began "an evolution of the diagnoses with which individuals have been qualifying."
Among other things, the law required the SSA to deem the existence of multiple non-severe health conditions to be potentially disabling -- even if none of the individual ailments were themselves disabling. It also empowered applicants' doctors to play a larger role in the decision process that determined whether or not a "severe disability" existed.
Loose diagnostic criteria Duggan's data indicated that from the late 1980s until 2012, the SSDI benefit award rate for strokes, heart attacks and cancer changed very little but the award rate for musculoskeletal system ailments like "severe back pain" increased 500%. During this same period of time, the percentage of U.S. adults aged 25 to 64 who received SSDI benefits increased from 2.3% to 5% and only one-half of one percent of the people who were approved for SSDI payments ever went back to work again.
Another section of Duggan's data detailed how SSDI has evolved into a shadow unemployment benefits system. He indicated that because they can more easily use "subjective" disability diagnoses to qualify for SSDI, "workers have become more likely to respond to adverse demand shocks in the economy by applying for SSDI rather than seeking a new job."
The Penn professor, who analyzed SSDI applications during the most recent economic downturn, estimated that more than 2.5 million of those applications were related to economic hardship rather than severe physical disability.
In a study cited to the Committee about this topic, Duggan and his co-author David Autor, an MIT economics professor, wrote:
"Some abuse of a large public insurance system like the Disability Insurance program is inevitable. But has such abuse reached unsustainable levels so that the SSDI screening process is effectively broken? In our assessment, the answer is yes. At an operational level, the Social Security Administration has become progressively less effective at rejecting claims that fail to meet its selection criteria. At a more fundamental level, the definition of disability that Congress adopted in 1984 (and
has since expanded) is so encompassing that the DI program appears in practice to function like a nonemployability insurance program for a subset of beneficiaries, rather than as an insurance program for medical impairment."
Labor market impact Duggan told the Congressional panel that his research suggests that overall, the rapid expansion of the SSDI population has been large enough to have "a large and growing impact on the U.S. labor market."
His data showed the number of people using SSDI to leave the workforce steadily increased at the same time the number of SSDI recipients who eventually return to the workforce steadily declined. On the latter point, he noted that from 1988 to 2008, the employment rate of men in their 40s and 50s with work-limiting disabilities dropped from 28% to 16%.
The comments of Committee members of both parties as well as panel witnesses were in agreement that major reforms were required. These included changing the system to encourage SSDI beneficiaries to return to the workforce if they were able, and overhauling the vetting and enforcement system to better police the SSDI application process and detect fraud.
For instance, Duggan suggested that the SSA intervene sooner with individuals with work-limiting conditions in ways that could enable them to continue to work. He noted that "may people with more subjective disorders, such as back pain, could benefit from such early benefit."
Major budget cutbacks But, underscoring a major barrier to such goals, Xavier Becerra, (D-Calif.) Ranking Member of the Committee, pointed out that "the SSA budget is $800 million lower this year than it was in 2010 due to budget cuts and the sequester. Local SSA offices have lost 10% of their staff, with experienced senior staff constituting a substantial portion of those who are gone."
"We keep cutting the budget of the Social Security Administration at a time when we're talking about investing more money to keep people at work, to intervene early, and do everything we can to keep people from tipping over into a situation where they can't work," Becerrs said. "How does SS manage that if 10% of the staff in your offices have been cut?"
In his own way, witness David Weaver, Associate Commissioner of the Social Security Office of Program Development and Research, seemed to agree. "Staffing is an issue at the agency, particularly where we talk about the complex work incentives and the law," he told the panel. "It's a very work-intensive process; you actually have to put staff on these cases. Our experience with administering the employment supports or work incentives has been difficult."
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Hoag Levins is a journalist and managing editor of LDI digitial publications.
