Social Security Disability

1. Social Security Disability October 18, 2006 Thanks to Mark Duggan for making several graphical slides available from his presentation “Aching to Retire? The Rise in the Full Retirement Age and its Impact on the Social Security Disability Rolls

2. Should you Care? • DI is a large part of Social Security expenditures • Rapidly growing • What is the probability that you will become disabled at some point in your career?

3. Disability in SS Reform Debate • It is important to keep in mind that workers and retirees are not the only ones affected by reform debate • Another key aspect of Social Security program is disability insurance (DI) • How will disabled workers be affected by reform?

4. Growth on DI System • SSDI was not originally part of the Social Security program – it was added in 1956 • Started as a narrow program – limited primarily to those age 50-64 who were totally and permanently disabled • Has expanded over time • 1960 – extended to workers under age 60 • 1965 – extended to impairments of 1 year + • 1973 – recipients became eligible for Medicare after 2 years of disability • 1984 – Congress liberalized screening process

5. SSDI Today • More than 80 percent of non-elderly U.S. adults are insured against the risk of disabling physical or mental illness by Social Security Disability Insurance (SSDI) • Over past several decades, aggregate population health has improved • But SSDI rolls have grown rapidly • Rate of SSDI receipt has doubled since 1984 • Expected to continue to rise

6. 1984 legislation liberalizing benefit determinations Tightened medical criteria Increased denial rates Benefit terminations Led to political backlash

7. Why Such Growth? • 1984 Congressional reforms that enabled workers with low mortality disorders (e.g., back pain, arthritis, mental illness) to qualify for benefits • A rise in the after-tax replacement rate from SSDI – more incentive to apply • Rapid increase in female labor force participation that expanded the pool of insured workers

8. Increased DI Participation among Women Data Source: Social Security Administration Annual Statistical Supplement, 2004

9. Less Important Factors? • Aging population / baby boomers – had only modest impact • Fix age-specific rates and “age” the population • Health status • If anything, it has helped reduce the problem • Mortality rates have declined over this period • Improvement in self-reported health status • Share of population age 65+ with chronic disability fell from 26% to 20% from 1982 to 1999

10. Eligibility for DI today • Must have worked long enough – and recently enough – under Social Security • At age 62, you need 40 credits, 20 of which were earned in the 10 years preceding the onset of disability • Younger workers qualify with fewer credits • Must meet the definition of disability

11. Eligibility Based on Work Credits • Before age 24: You must have 6 credits in the 3-year period before disability • Age 24 – 31: You must have worked half the time between age 21 and onset of disability. Ex: If become disabled at 27, you would need 3 years / 12 quarters of credit • Ages 31 – 42: Need 20 quarters over 10 years • 42 – 62: # quarters increases gradually to 40 at age 62+

12. Definition of Disability • Inability to engage in “substantial gainful activity” • SGA = $830 / month • Only pays for total disability • Unable to do the work you did before and SSA decides you cannot adjust to other work because of your medical condition • Disability must last, or be expected to last, at least one year or result in your death

13. How SSA Decides if you are Disabled • Are you working and earning > $830 / month? • If yes, you are not disabled. If no, go to 2. • Is your condition severe? • Must interfere with work related activities • Is your condition on list of disabling activities? • If so, and if severe, then disabled. If not, go to 4 • Can you do work you did previously? • If yes, then denied. If no, then go to 5. • Can you do any other type of work? • Consider medical conditions, age, education, work experience and skills. If yes, then denied

14. Continuing Eligibility • Can receive benefits for as long as disabled • If health improves, may lose benefits • If you go back to work, you may lose benefits • Periodic reviews • If improvement is expected, you will be reviewed 6 – 18 months after benefits start • If improvement is possible, you will be reviewed no sooner than three years • If improvement is not expected, then you will be reviewed no sooner than seven years

15. Out of every 100 Applications • About 57% of claims eventually approved • 40 allowed upon initial claim / 60 denied • Of the 60, 25 will appeal for reconsideration, and 4 of these accepted • Of the 21 denied again, 19 appeal to a hearing, and 12 are approved • Of the 7 denied at hearing, 5 appeal to appeals council review, and 1 is approved • Fewer than 1 case in 100 enter Federal court

16. Thanks to Mark Duggan for making this slide available from his presentation “Aching to Retire? The Rise in the Full Retirement Age and its Impact on the Social Security Disability Rolls

17. Prevalence of DI Receipt by Age Data Sources: Social Security Annual Statistical Supplement 2004 and Population Division US Census Bureau NC-EST 2004-01

18. Further Discussion of DI • Balancing Act • Want to help those who are truly disabled • But do not want to inefficiently subsidize those who are able to work (moral hazard) • Disability determination is a time consuming and resource intensive process • If reform Social Security, how will DI beneficiaries be affected? • Reducing replacement rates may make more sense for retirement than for disability • How integrate a system of personal accounts with DI?