REFORMING A DISABILITY BENEFITS/SUPPORT SYSTEM

1. REFORMING A DISABILITY BENEFITS/SUPPORT SYSTEM Forum on the Definition of Disability Social Security Advisory Board Dirksen Senate Office Building April 14, 2004 C. Eugene Steuerle The Urban Institute

2. Background: Continually Rising Prevalence & Dependency Rates • An indicator that something is out of sorts • Either we are denying too many people today • Or we will be including too many people tomorrow

3. Background: Continually Rising Prevalence & Dependency Rates • Social Security predictions of DI prevalence unrelated to actual prevalence of disability

4. Background: Continually Rising Prevalence & Dependency Rates • Adult dependence rate on government programs rising with aging • May approach ½ of entire population mainly dependent upon government • Not necessarily progressive • Will lead to cutbacks simply because of declining revenue support

5. The Incentive Structure: Administrators, ALJs, Plaintiffs’ Lawyers • Incentives generally in direction of greater prevalence • A test: put yourself in the role of an ALJ • The analogy to welfare reform (David Stapleton) • Perhaps the crucial step: • Governors’ decisions to rate welfare departments by how many people they got off of welfare rather than onto it

6. The Incentive Structure: Administrators, ALJs, Plaintiffs’ Lawyers • SUGGESTIONS • Hold sessions for retired ALJs & others involved in administrative system • Make examination of incentives for all parties part of EI & other experiments • Consider revamping reward structure for all administrators, ALJs and lawyers

7. The Incentive Structure: Participants • DI analogy to Ticket-to-Work and EITC/welfare reform • Common Conclusions • Wedge between working & not working crucial • Small incentive changes not enough to move many people over hurdle • Untested Differences • Carrots and sticks used in EITC/welfare reform • Cash system turned on its head: cash benefits (EITC) mainly for workers

8. The Incentive Structure: Participants • SUGGESTIONS: • Measure replacement rates relative to potential, not just prior, employment • Consider experiments with larger differentials (e.g., grant a small group option of permanent, perhaps smaller, DI benefit regardless of work response) • Consider alternative benefit mixes

9. Reformulating the Public Finance Question • Researchers too much like politicians: never wanting to identify “losers” • Good public finance research would offer expenditure-neutral alternatives, even when impractical politically • Otherwise always mixing positive and normative analysis

10. Reformulating the Public Finance Question • SUGGESTIONS: • Require researchers to report results and make policy recommendations first on an expenditure-neutral basis • Later they can suggest higher spending if worthwhile on a marginal basis • All experiments should be based upon some possibility of bringing to scale

11. Early Intervention • Lessons from the private sector: private disability compensation programs • Early intervention important • “Manage cases against risk” • Psychology of “dropping out” • The formation of habits & friendships • All costs, including administrative, calculated in overall benefit-cost analysis (in private insurance, insures expenses do not exceed available premiums)

12. Early Intervention • SUGGESTIONS: • Measure approaches & abilities of counselors in EI programs • Psychological factors are often more important than economic • Count all administrative costs when performing cost/benefit analysis • Count all (including non-SSA) economic and psychological gains