Tag: social security disability insurance

Social Security Disability Fraud in Puerto Rico

In 2011, the Wall Street Journal’s Daniel Paletta reported on the rapid growth in individuals applying for and receiving Social Security disability benefits. Paletta found that Puerto Rico had become a particularly easy place to obtain benefits. Officials with the Social Security Administration (SSA) absurdly claimed that nothing was amiss. 

It looks like the SSA is about to get some egg on its face. 

Yesterday, Paletta reported that federal investigators, including the FBI, raided doctors’ offices in Puerto Rico as part of a widening probe into disability fraud on the island. A doctor’s opinion that an individual is suffering from a disability is naturally quite helpful in convincing examiners and judges that benefits are warranted. Investigators are apparently looking into whether Puerto Rican doctors are being paid to document that applicants are disabled. From the article: 

In 2006, just 36% of initial applicants in Puerto Rico were awarded benefits. In December 2010, the award rate had jumped to 69%. By 2010, nine of the top 10 U.S. ZIP Codes for workers receiving disability benefits were on the island. 

At the time, SSA officials said the high number of recipients and the high award rate was due to the island’s weak economy and a lack of adequate health care for workers. 

The program is overseen by the Social Security Administration in Baltimore, but each state and territory is responsible for performing an initial screening to determine eligibility. Social Security officials said in 2011 that Puerto Rico had rigorous standards and a virtually nonexistent error rate. 

The characteristics of Puerto Rico’s beneficiaries differed from other areas. In addition to the large clusters in certain zip codes, federal data showed that 33.3% of Puerto Rican beneficiaries qualified because of “mood disorders,” a rate that is at least 10 percentage points higher than any U.S. state. 

Disability examiners and federal judges say mental disorders are harder to measure and often rely on medical opinions issued by doctors to make a determination. 

SSDI was designed as a way to provide benefits for people who can’t work because of mental or physical health problems, and Americans can qualify for benefits because of ailments ranging from severe back pain to terminal cancer. 

A lifetime of benefits, including access to Medicare, can cost the government about $300,000 a person. 

As I noted in my recent paper on the growing cost of Social Security Disability Insurance, the SSA’s inspector general says that “fraud is an inherent risk in SSA’s disability programs.” But as my paper explains, the problems with the program go way beyond outright fraud: 

Given the subjective and convoluted nature of determining SSDI eligibility, it’s likely that erroneous and unjustified payments are far larger in volume than just outright fraud. The huge, complex, and difficult-to-audit system is a perfect breeding ground for awarding and continuing benefits to people who shouldn’t be on the disability rolls.

Downsize the Social Security Administration

A new section on the Social Security Administration (SSA) has been added to Cato’s Downsizing Government website. The SSA operates three large programs that provide benefits to millions of Americans: Old-Age and Survivors Insurance, Disability Insurance, and Supplemental Security Income. Total SSA spending will be $873 billion in 2013, which works out to an average of about $7,300 for every household in the nation. 

Essays: 

Social Security Retirement: Social Security faces a huge financing gap because of its pay-as-you-go structure and the aging of the U.S. population. It should be transitioned to a system of personal savings accounts, which would increase individual financial security and help to avert future tax increases.   

Social Security Disability Insurance: Growing numbers of Americans are receiving disability benefits, and the system is subject to major abuses. Policymakers should tighten eligibility for the program and explore ways to move it to the private sector.   

Supplemental Security Income: This program for low-income and disabled individuals suffers from similar abuses and overspending problems as Social Security Disability Insurance. The financing and administration of Supplemental Security Income should be devolved to the states. 

Social Security Disability Benefits Unsustainable

The disability insurance component of Social Security was created in 1956 to provide income support to individuals aged 50 to 64 who were permanently disabled. As is typical with government programs, eligibility and benefits were greatly expanded over the subsequent decades.

SSDI, which is funded through a 1.8 percent payroll tax on all workers, was recently described by the Congressional Budget Office as “not financially sustainable.” The following chart shows that SSDI benefit payments have soared 119 percent since 1995 in real or inflation-adjusted terms:

What was supposed to be a narrowly tailored program to help individuals who could no longer work has blossomed into a gigantic budgetary burden that acts more like an unemployment program. Indeed, the number of individuals receiving SSDI benefits has jumped more than 10 percent in the last two recessionary years. So a large number of people seem to be abusing the system by claiming disability in order to get government handouts. What makes the problem worse is that, unlike standard unemployment insurance, there’s no time limit for how long an individual can receive SSDI.

The long-term upward trend in real benefit payments also suggests abuse because fewer people should be having career-ending injuries.

From a 2006 paper on SSDI by economists David Autor and Mark Duggan:

Adding to the complexity of an expanding program mission, five decades of advances in medical treatments and rehabilitative technologies, combined with a secular trend away from physically exertive work, have arguably blurred any sharp divide that may have once existed between those who are “totally and permanently disabled” and those who are disabled but retain some work capacity. While one might have expected these medical and labor market changes to reduce the incidence of disabling medical conditions and hence lower the relative size of the DI program, this has not occurred.

According to the Washington Post, Autor and Duggan will release a new paper this week that proposes changes to SSDI:

Their proposal would require workers and employers to share the cost of a modest private disability insurance package, which is between $150 and $250 a year, according to the report, which is to be officially unveiled at a Dec. 3 event in Washington.

Workers seeking to go onto the federal disability program would first have to be approved for benefits from the private policy. Those benefits would go toward rehabilitation services, partial income support and other related services, the researchers said.

After receiving private payments for two years, workers would be eligible to apply for Social Security Disability Insurance (SSDI) benefits if they believe their disabilities are too severe for them to remain in the workplace, the report says.

Instead of creating a program on top of a program, why not just completely transition SSDI to the private sector? Workers should be allowed to divert the disability insurance portion of the payroll tax to a private account, the proceeds from which could then be used to purchase private disability insurance. Workers would have an incentive to spend their money prudently, while private insurers would have a financial incentive to make sure they weren’t being gamed.