Why fewer jobless Americans are counting on disability

As government funding for disability insurance is expected to run out next year, Congress should re-evaluate the costs of the program.

Nine million people in America today are receiving Social Security Disability Insurance, double the number in 1995 and six times the number in 1970. With statistics like that, it’s hardly surprising to see some in Congress worry that more will enroll in the program and costs would continue to rise, especially since government funding for disability insurance is expected to run out by the end of next year. If Congress does nothing, benefits would fall by 19% immediately following next year’s presidential election. So, Congress will likely do something. But what exactly should it do?

Funding for disability insurance has nearly run out of money before. Each time, Congress has simply increased the share of the Social Security payroll tax that goes for disability insurance. This time, however, many members of Congress oppose such a shift unless it is linked to changes that curb eligibility and promote return to work. They fear that rolls will keep growing and costs would keep rising, but findings from a report by a government panel conclude that disability insurance rolls have stopped rising and will likely shrink. The report, authored by a panel of the Social Security Advisory Board, is important in that many of the factors that caused disability insurance to rise, particularly during the Great Recession, have ended.

  • Baby-boomers, who added to the rolls as they reached the disability-prone middle age years, are aging out of disability benefits and into retirement benefits. 
  • The decades-long flood of women increased the pool of people with the work histories needed to be eligible for disability insurance. But women’s labor force participation has fallen a bit from pre-Great Recession peaks, and is not expected again to rise materially. 
  • The Great Recession, which led many who lost jobs and couldn’t find work to apply for disability insurance, is over and applications are down. A recession as large as that of 2008 is improbable any time soon. 
  • Approval rates by administrative law judges, who for many years were suspected of being too ready to approve applications, have been falling. Whatever the cause, this stringency augurs a fall in the disability insurance rolls.

Nonetheless, the Disability Insurance program is not without serious flaws. At the front end, employers, who might help workers with emerging impairments remain on the job by providing therapy or training, have little incentive to do either. Employers often save money if workers leave and apply for benefits. Creating a financial incentive to encourage employers to help workers stay active is something both liberals and conservatives can and should embrace. Unfortunately, figuring out exactly how to do that remains elusive.

At the next stage, applicants who are initially denied benefits confront intolerable delays. They must wait an average of nearly two years to have their cases finally decided and many wait far longer. For the nearly 1 million people now in this situation, the effects can be devastating. As long as their application is pending, applicants risk immediate rejection if they engage in ‘substantial gainful activity,’ which is defined as earning more than $1,090 in any month. This virtual bar on work brings a heightened risk of utter destitution. Work skills erode and the chance of ever reentering the workforce all but vanishes. Speeding eligibility determination is vital but just how to do so is also enormously controversial.

For workers judged eligible for benefits, numerous provisions intended to encourage work are not working. People have advanced ideas on how to help workers regain marketplace skills and to make it worthwhile for them to return to work. But evidence that they will work is scant.

The problems are clear enough. As noted, solutions are not. Analysts have come up with a large number of proposed changes in the program. Two task forces, one organized by The Bipartisan Policy Center and one by the Committee for a Responsible Federal Budget, have come up with lengthy menus of possible modifications to the current program. Many have theoretical appeal. None has been sufficiently tested to allow evidence-based predictions on how they would work in practice.

So, with the need to do something to sustain benefits and to do it fast, Congress confronts a program with many problems for which a wide range of untested solutions have been proposed. Studies and pilots of some of these ideas are essential and should accompany the transfer of payroll tax revenues necessary to prevent a sudden and unjustified cut in benefits for millions of impaired people who currently have little chance of returning to work. Implementing such a research program now will enable Congress to improve a program that is vital, but that is acknowledged to have serious problems.

And the good news, delivered by a group of analysts, is that rapid growth of enrollments will not break the bank before such studies can be carried out.

Editor’s Note: This post originally appeared on Fortune Magazine.