Social Security Reform: Time to Go Big
Among the rules adopted by the House of Representatives is a new provision that bars the transfer of money between the Social Security old age and survivors insurance (OASI) trust fund and the disability insurance (DI) trust fund. Congress has authorized 11 transfers from OASI to DI in order to temporarily patch the DI trust fund. In 1994, the last time that DI was on the verge of going broke, Congress reallocated 0.6 percentage points of the payroll tax from OASI to the DI program. The rule change prevents another temporary fix from occurring and provides a significant opportunity for Congress to adopt reforms in order to help ensure the future solvency of both programs.
According to the 2014 Social Security Trustees annual report, “[DI] satisfies neither the Trustees’ long-range test of close actuarial balance nor their short-range test of financial adequacy and faces the most immediate financing shortfall of any of the separate trust funds … the Trustees project trust fund depletion late in 2016.” If the trust fund reaches that point, benefits could be cut by as much as 19 percent.
The main cause of the dire fiscal outlook facing DI is the sharp increase over the past three decades in the number of program beneficiaries. This growth is the result of both an aging population and expanded eligibility criteria.
DI was created in 1956 to deliver cash benefits to workers whose physical impairments rendered them unable to work. At the program’s outset, benefits were primarily delivered to disabled individuals above the age of 50 employed in low-wage, low-skill professions. In 1984, Congress passed the Social Security Disability Benefits Reform Act, which liberalized eligibility criteria for mental illnesses and musculoskeletal disorders. These changes to the law made authenticating an individual’s disability claim much more difficult. While diseases such as schizophrenia are instantly recognizable, certain mood disorders (such as anger management or depression) and conditions like back pain are not as easy to diagnose.
A March 22, 2013 National Public Radio (NPR) story on the DI noted that “Part of the rise in the number of people on disability is simply driven by the fact that the workforce is getting older, and older people tend to have more health problems. But disability has also become a de facto welfare program for people without a lot of education or job skills. But it wasn’t supposed to serve this purpose; it’s not a retraining program designed to get people back onto their feet. Once people go onto disability, they almost never go back to work. Less than 1 percent of those who were on the federal program for disabled workers at the beginning of 2011 have returned to the workforce since then, one economist told me.”
Improper payments and fraud within the DI program have also contributed to increasing costs. An October 10, 2013 60 Minutes story cited a staff report from the office of former Sen. Tom Coburn (R-Okla.) that “randomly selected hundreds of disability files and found that 25 percent of them should never have been approved” and “another 20 percent … [that] were highly questionable.” A September, 2013 Government Accountability Office report estimated that as of January 2013, the Social Security Administration (SSA) made $1.29 billion in overpayments to about 36,000 individuals. Using a different methodology, SSA estimated that in fiscal year 2011, it made $1.62 billion in overpayments. Any way you slice it, the DI program is highly vulnerable to errors and fraud.
On top of these overpayments, the benefit approval process is convoluted. Applicants for Social Security disability benefits must initially seek authorization from state officials, but any applicants who are twice denied can later appeal to one of the SSA’s 1,500 Administrative Law Judges (ALJs). Although ALJs on average grant benefits in slightly more than half of appeal cases, the criteria used to determine rulings is not objective. The 1946 Administrative Procedures Act grants ALJs “decisional independence” in approving or disapproving cases, resulting in decisions that are often the product of individual guesswork.
Furthermore, there are no consequences for SSA ALJs who disproportionately grant or reject benefits, regardless of how random and subjective the process through which they made their decision. According to an August 9, 2013 article by Todd DeHaven of the Cato Institute, “[ALJs] are largely independent and possess broad discretion to award or deny benefits. For example, one judge approved 97 percent of his cases that involved back disorders, while another judge only allowed 15 percent of his cases with that health problem.”
Although DI insolvency poses the most immediate fiscal challenge, lawmakers should take steps to shore up both trust funds by enacting comprehensive, long-term entitlement reform. Given the existence of several potential reform plans, Congress has no excuse not to make an effort. Failure to do so would represent another example of Washington’s brinksmanship and partisan bickering. The House rule is a good first step in the right direction.
— PJ Austin
