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Limiting the Disability Insurance-Unemployment Insurance Overlap

Senate Majority Leader Harry Reid (D-NV) has proposed curtailing the joint receipt of Social Security disability insurance (DI) and unemployment insurance (UI) to help pay for extending federal UI benefits.  Reid’s DI proposal — which is identical to a proposal in President Obama’s fiscal year 2014 budget — is far preferable to a harsher one by Senator Rob Portman (R-OH), although it raises concerns about some DI recipients who would lose UI.  Nonetheless, the Reid package is a step forward in the effort to continue vital benefits for the long-term unemployed.

The Reid proposal (S. Amdt. 2631) would reduce DI benefits dollar-for-dollar by the amount that a person receives in UI benefits.

Under the Portman proposal (S. Amdt. 2613), by contrast, any month that a person receives UI benefits would be considered a month in which he or she is engaged in “substantial gainful activity” (as explained below).  That would delay the eligibility for both DI and Medicare for some people with disabilities and hasten the loss of benefits for others.

DI beneficiaries are not only permitted, but encouraged to work.  The criterion for DI eligibility is not the complete inability to work, but rather the inability to perform “substantial gainful activity” (SGA).  SGA is now defined as earning no more than $1,070 a month, which is less than 40 percent of median earnings of a full-time worker with only a high-school diploma.  Recipients may earn up to the SGA level while collecting DI benefits.

The DI program also includes several other work incentives, including a nine-month trial work period during which recipients may earn larger amounts without jeopardizing their benefits.  The Portman proposal — unlike the Obama/Reid proposal — would undercut DI’s work incentives by effectively shortening the trial work period for some beneficiaries.

To receive DI benefits, an applicant must have a severe impairment that has prevented him or her from earning more than the SGA level for at least five months.  Counting receipt of UI as a month of SGA, as Portman proposes, would therefore bar many disabled applicants from receiving DI until they endure a five-month wait without benefits from either program.  The Obama/Reid proposal would neither change DI eligibility nor take away anyone’s benefits entirely; it would simply eliminate the DI-UI overlap.

The Social Security Administration’s actuary estimates that only 0.4 percent of DI beneficiaries also receive UI.  Receiving both DI and UI at the same time is sometimes appropriate.  Here’s why:

Studies show that a small, but significant, number of DI beneficiaries have earnings.  About 28 percent of beneficiaries who were tracked for ten years worked at some point after qualifying for DI, though generally episodically and at low earnings.  About 12 percent of DI recipients were employed in 2007, when the labor market was still strong.  Beneficiaries who work to supplement their modest DI benefits — which average $1,146 a month — may become eligible for UI if they lose that job.  Taking away those unemployment benefits, as the Obama/Reid proposal would do, would deprive them of that small cushion that other jobless workers have.