Chart Book: Social Security Disability Insurance
August 23, 2016
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 2015, nearly 9 million people received disabled-worker benefits from Social Security. Payments also went to some of their family members: 140,000 spouses and 1.8 million children.
DI benefits are financed primarily by a portion of the Social Security payroll tax and totaled about $143 billion in 2015. 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 1.185 percent on earnings up to a specified amount, currently $118,500. (The tax rate will revert to 0.9 percent after 2018.) 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 2023.
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, total family income, and 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:
Aging of the baby boom
Growth in women’s labor force participation
Rise in Social Security’s full retirement age from 65 to 66
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 beneficiaries 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. Growth in the number of DI beneficiaries has slowed to its lowest rate in 25 years — in fact, recent enrollments have been virtually flat. 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 $1,130 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.
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.
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 (DDS) 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 (ALJ) at SSA. Roughly half of people who get an initial denial pursue an appeal.
Ultimately — if we follow a cohort of applicants to the end of their application and appeal process — only about four of ten are awarded benefits. Among applicants who meet the program’s technical requirements, slightly more than half are found medically eligible for DI.
SSA monitors disability decisions at all stages of the process. SSA conducts ongoing quality reviews at all stages of the application and appeal process. Many reviews occur before any benefits are paid, thus reducing errors.
Over the last decade, allowance rates have fallen slightly at the initial application and reconsideration stages and have dropped noticeably at the ALJ stage. (These allowance rates reflect decisions made in a particular year, on applications filed in different years, so they aren’t directly comparable to those derived from following a cohort of applicants through their entire process.)
Allowance rates remain higher at the ALJ stage than at the initial stage, however. This is partly because ALJs often see claimants whose condition has deteriorated in the 18 months or so since their application was turned down and whose application is better documented (typically with the help of an attorney) than at the DDS stage.
DI beneficiaries are mostly older and have severe physical or mental impairments. The typical DI beneficiary is in his or her late 50s — 75 percent are over age 50, and nearly 35 percent are 60 or older — and suffers from a severe mental, musculoskeletal, or other debilitating impairment. Physical disorders dominate among beneficiaries age 50 or older. 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.
DI beneficiaries experience high death rates. Mortality among older DI beneficiaries — 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 beneficiaries 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 beneficiaries. 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 beneficiaries — 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 beneficiaries to supplement their benefits through work, few are able to do so. Program rules allow and encourage DI beneficiaries to earn up to the “substantial gainful activity” level ($1,130 a month in 2015, about 40 percent of average earnings for a high-school graduate with no college). Beneficiaries 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 beneficiaries can’t work. Of beneficiaries who were tracked for ten years after qualifying, only about 28 percent did any paid work, 7 percent had benefits suspended for at least one month because of work, and 4 percent had benefits terminated because of sustained work.
It’s useful, too, to compare DI beneficiaries with rejected applicants and with people who’ve never applied for benefits. One careful study found that only one-fifth of beneficiaries aged 45 to 64 — and only about half of rejected applicants — had any earnings two years after application, and even fewer had significant earnings. In contrast, healthy workers of the same age (who didn’t seek DI benefits) were likely to work and had 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’s costs will still exceed its revenues. Over the next 75 years, its shortfall is projected to be about one-seventh of income or one-eighth of costs. For the DI and retirement programs combined, the shortfall is similar: 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 2023, the much larger Old-Age and Survivors Insurance (OASI) trust fund in 2035, and the combined funds in 2034 (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.”
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 reduced the agency’s ability to keep up with vital program integrity work to identify beneficiaries who have recovered and weed out improper payments. It has also impaired customer service.
Policymakers will need to boost DI’s tax revenue by 2023 — ideally as part of a comprehensive Social Security solvency package. Workers and employers each pay 6.2 percent of taxable wages to Social Security, consisting of 1.185 percent for DI and 5.015 percent for OASI. Those rates reflect a temporary increase, enacted in 2015, in DI’s share of payroll taxes. The necessity of such a reallocation was long anticipated.
That reallocation, however, expires after 2018. DI’s portion of the payroll tax will then revert to 0.9 percent, well below the rate scheduled before the 1983 reallocation, which benefited the retirement fund. That means policymakers must revisit DI’s financing by 2023 (under current estimates).