Chart Book: Social Security Disability Insurance
March 30, 2015
Disability Insurance (DI) is an integral part of Social Security. It provides modest but vital benefits to workers who can no longer support themselves on account of a serious and long-lasting medical impairment. The Social Security Administration (SSA) administers the DI program.
In December -2014, nearly 9 million people received disabled-worker benefits from Social Security. Payments also went to some of their family members: 150,000 spouses and 1.8 million children.
DI benefits are financed primarily by a portion of the Social Security payroll tax and totaled about $141 billion in2014. That's 4 percent of the federal budget and less than 1 percent of the gross domestic product (GDP). Employers and employees each pay a DI tax of 0.9 percent on earnings up to a specified amount, currently $118,500. Financial transactions are handled through a DI trust fund, which receives payroll tax revenues and pays out benefits and which is legally separate from the much larger Social Security retirement fund. Under current projections, the DI trust fund will need replenishment in 2016.
The following charts provide important background information about Social Security Disability Insurance.
Social Security is much more than just a retirement program. A young person starting a career today has a one-third chance of dying or qualifying for Social Security Disability Insurance (DI) before reaching Social Security's full retirement age.
DI is an earned benefit that offers vital protection to millions of workers. Through their payroll tax contributions, more than 150 million workers have earned DI protection in case of a severe, long-lasting medical impairment. Nearly 9 million of them receive disabled-worker benefits from DI.
The risk of disability rises with age. People are twice as likely to collect DI at age 50 as at 40 -- and twice as likely at age 60 as at age 50.
Disability can have devastating economic consequences. Not only can disability happen to anyone -- especially with advancing age -- but it greatly harms people's economic circumstances. Reductions in the worker's earnings, in total family income, and in purchases of essentials like food and housing are deep.
Recent growth in the DI rolls stems mostly from well-understood demographic factors. The number of DI beneficiaries has grown significantly in recent decades, but that growth chiefly reflects four factors:
- Population growth
- Aging of the baby boom
- Growth in women's labor force participation
- Rise in Social Security's full retirement age from 65 to 66
When adjusted for these factors, the share of insured workers receiving DI benefits has grown only modestly.
Not only has the population grown, but the DI-insured population has grown even faster, especially in the 50-64 age group. Population growth, aging, and women's labor-force participation have boosted the eligibility pool for DI. Baby boomers -- born between 1946 and 1964 -- have aged into their 50s and 60s, years of peak risk for disability. And female boomers, unlike earlier generations of women, are overwhelmingly likely to have worked enough to be insured for DI.
Those demographic pressures have already begun to subside, as later charts show.
Women DI recipients have caught up with men. In DI's early years, male beneficiaries vastly outnumbered women. As late as 1990, that ratio was almost 2 to 1. Now, with the growth of women's participation in the labor force, nearly equal numbers of men and women collect DI.
The Great Recession, like previous recessions, swelled DI applications much more than awards. Higher unemployment leads more workers to apply for DI, but that doesn't translate into a proportionate rise in awards; approval rates fall when unemployment is high. News stories that focus on "soaring applications" for DI omit that crucial fact.
Growth in the DI rolls has slowed. In recent months, growth in the number of DI beneficiaries has slowed to its lowest rate in 25 years. Both demographic and economic pressures on the program are easing.
Eligibility criteria are strict, and most DI applicants are rejected. Applicants for DI benefits must be --
- Insured for disability benefits (essentially, they must have worked for at least one-fourth of their adult life and five of the last ten years).
- Suffering from a severe, medically determinable physical or mental impairment that is expected to last 12 months or result in death, based on clinical findings from acceptable medical sources.
- Unable to perform "substantial gainful activity" (-any job that generates earnings of $1,090 per month for most people, $1,820 for blind people) anywhere in the national economy -- regardless of whether such work exists in the area where the applicant lives, whether a specific job vacancy exists, or whether he'd be hired.
Lack of education and low skills are considered for older, severely impaired applicants who can't realistically change careers.
The Social Security Administration (SSA) weeds out applicants who are technically disqualified (chiefly because they haven't worked long enough) and sends the rest to state disability determination services for medical evaluation. Applicants denied at that stage may ask for a reconsideration by the same state agency, and then appeal to an administrative law judge at the SSA. Ultimately, fewer than half of applicants are awarded benefits.
There is a five-month waiting period for DI, but Supplemental Security Income may be available during that period for very poor claimants with little or no income and assets.
DI beneficiaries are mostly older and have severe physical or mental impairments. The typical DI beneficiary is in his or her late 50s -- 70 percent are over age 50, and 30 percent are 60 or older -- and suffers from a severe mental, musculoskeletal, or other debilitating impairment. Mental disorders -- including intellectual disability (formerly called mental retardation), mood disorders such as bipolar disease and crippling depression, organic mental disorders associated with brain disease or damage, psychotic disorders such as schizophrenia, and other mental impairments -- account for almost half of beneficiaries under age 50. Physical disorders dominate among the far greater number of beneficiaries who are 50 or older.
DI recipients experience high death rates. Mortality among older DI recipients -- who dominate the program's rolls -- is three to six times the average for their age group. Many die within a few years of qualifying for DI.
People with limited education are much likelier to collect DI. Those with limited education and skills generally have to do arduous work and can't switch to something sedentary. Thus, people without a college degree are far more likely to collect DI.
Disability recipients exhibit a distinct geographic pattern. States with low high-school completion rates, high median age, few immigrants, and a blue-collar industry mix tend to have more DI recipients. Isolated pockets with unusually high rates of receipt are extreme outliers.
Many DI beneficiaries are poor. Poverty rates are about twice as high for DI recipients -- even after taking their DI benefits into account -- as for others. Overall, about one-fifth of all disabled-worker families are poor; without DI, nearly half would be.
DI beneficiaries have limited work capacity. DI applicants typically suffer a sharp drop in earnings before turning to the program. The most severely impaired -- who are awarded benefits -- seldom work afterward. Even rejected applicants fare poorly in the labor market afterward, more evidence that the program's eligibility criteria are strict.
Although DI allows recipients to supplement their benefits through work, few are able to do so. Program rules allow and encourage DI recipients to earn up to the "substantial gainful activity" level ($1,090 a month in2015, about 40 percent of average earnings for a high-school graduate with no college). Recipients may earn unlimited amounts for a nine-month trial work period and a subsequent three-month grace period before benefits are suspended. Even then, they may return to the DI rolls if their earnings fall. And former beneficiaries who've returned to work may keep their Medicare (which is available to DI beneficiaries after two years on the rolls) for seven and a half years after their cash benefits stop.
But most DI recipients can't work. Only about 28 percent ever work after starting to receive benefits, 7 percent have benefits suspended for at least one month because of work, and 4 percent have benefits terminated because of sustained work.
In contrast, workers of the same age who don't seek DI benefits are likely to work and have substantial earnings.
DI costs will level off, but the program faces a long-run funding gap. DI costs will subside in coming years and then level off as the economy continues to mend and baby boomers who receive DI move from Social Security's disability rolls to its retirement rolls. (Disabled workers are converted to retired workers at the full retirement age -- currently 66 and scheduled to rise to 67 -- and the oldest baby boomers are fast reaching that milestone.)
But DI costs will still exceed revenues. For both the DI and retirement programs, the shortfall over the next 75 years is about one-fifth of income or one-sixth of costs.
The disability and retirement programs have financial challenges but don't face "bankruptcy." The DI trust fund is expected to be exhausted in 2016, the much larger Old-Age and Survivors Insurance (OASI) trust fund in 2034, and the combined funds in 2033 (if legislators shifted money from the retirement fund to the DI fund as needed to keep it solvent). Even after those dates, the programs could pay 75 to 80 percent of scheduled benefits; they would not go "bankrupt." DI's 2016 depletion date is no surprise -- the trustees projected it back in 1995.
Most beneficiaries -- especially unmarried ones -- rely on DI for most of their income.
DI benefits replace about half of past earnings for a median beneficiary.
Most other advanced countries spend more than the United States on disability benefits. U.S. eligibility rules are strict, and benefit levels are modest. The Organisation for Economic Co-operation and Development (OECD) reports that the United States has some of the most stringent eligibility criteria for disability benefits among advanced economies. OECD statistics confirm that, as a corollary, the United States spends less on disability benefits (as a share of the economy) than most other advanced countries.
Social Security's administrative funding is inadequate. The Social Security Administration's administrative funding (which, unlike retirement and DI benefits, is subject to annual appropriation) has declined in real terms since 2010, even as caseloads have climbed. That has not only reduced the agency's ability to keep up with vital program-integrity activities to weed out improper payments, but has also impaired customer service.
Reallocating taxes from the OASI trust fund to the DI trust fund -- by raising the DI tax rate and lowering the OASI tax rate -- is necessary to avoid a 20 percent cut in DI benefits after 2016. Under current law, workers and employers each pay 6.2 percent of taxable wages -- consisting of 0.9 percent for DI and 5.3 percent for OASI -- to Social Security. Raising the share of that 6.2 percent tax that goes to the DI trust fund for a few years would enable both the DI and OASI trust funds to pay scheduled benefits until 2033 while policymakers craft a balanced and comprehensive solvency package for all of Social Security.
Such reallocations have often occurred in the past -- in either direction -- and have not been controversial. Modifying the last two reallocations, enacted in 1983 and 1994, would replenish the DI fund while aiding seniors and barely affecting the larger OASI fund. Coordination between retirement and disability reforms is essential, since the two programs are closely linked.