The federal government’s main disability programs, Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI), will cost taxpayers almost $200 billion combined this year. These programs have grown enormously over the last decade, despite the fact that the actual incidence of disability in the population has not increased.
The rapid growth in SSDI is particularly troublesome. With an estimated price tag of $144 billion in 2013, SSDI expenditures will have roughly doubled in real (inflation‐adjusted) dollars since 2000. Disability insurance benefits are funded by a 1.8 percent tax on workers’ wages as part of the broader Social Security tax, but because payments are outpacing tax revenues the system is running deficits and the SSDI trust fund will be exhausted by 2016.
The number of people enrolled in SSDI has expanded rapidly in recent years, even as the share of the U.S. working‐age population reporting a severe disability has remained stable. In addition, medical advances have aided people with disabilities and fewer workers are engaged in hard physical labor. However, the ratio of SSDI beneficiaries to all working‐age people has doubled in the last two decades.
The problem is that policymakers have liberalized eligibility standards for disability benefits, with the result that many people who are capable of working are choosing to seek a government check. And once people get on SSDI, they rarely leave the program. In 2011, only 3.6 percent of workers on SSDI had their benefits terminated because of medical improvement. Almost 90 percent of people had their benefits stopped because they either died or reached retirement age.
The story is similar for Supplemental Security Income, which is funded with general revenues and will cost an estimated $57 billion in 2013. Although SSI was created with the elderly poor in mind, today the program mainly benefits non‐elderly disabled adults and children. In 2011, less than one percent of disabled adult SSI recipients left the program because their disability had improved. About seven percent left the program because their financial situation improved. But most of the time, once someone goes on SSI, they stay on SSI.
Originally, the idea was that people would only be eligible for disability benefits if they could not work at all, but today the standards for ability to work are much looser. For example, after Congress relaxed eligibility standards in 1984, awards based on “nonexertional restrictions” — a mental condition such as depression or physical pain stemming from a musculoskeletal condition — jumped 323 percent in the subsequent 20 years.
A complex, subjective, and outdated disability determination process for SSDI and SSI has created a breeding ground for awarding and continuing benefits to people who shouldn’t be on the disability rolls. A major reason why SSI and SSDI are on the Government Accounting Office’s (GAO) “High Risk” list for possible wasteful spending is because “these disability programs emphasize medical conditions in assessing an individual’s work incapacity without adequate consideration of the work opportunities afforded by advances in medicine, technology, and job demands.”
While the majority of applicants for disability benefits are denied (often for technical reasons), the opposite is the case for those who appeal to their claim to an administrative law judge (ALJ). Judges 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.
The complicated process for seeking disability benefits has become a boon to legal firms that specialize in disability claims. Legal firms are aware of which judges are more likely to award benefits and try to steer their clients accordingly. The vast majority of applicants who appeal a denial of benefits to the ALJ level have legal representation. For some impairments — back disorders, for example — representation can exceed 90 percent. The lawyer typically receives 25 percent or up to $6,000 of this “back pay.” While that amount may not be enticing to general law firms, firms specializing in disability claims can make millions of dollars based on a high volume of cases and knowing how to work the system. That’s why television screens are now filled with advertisements from these specialty law firms.
At the very least, the legal process should include a “taxpayer advocate” to challenge claims made by applicants and their lawyers. However, a fuller overhaul of federal disability programs is needed. The federal government has proven incapable of running so‐called “social safety net” programs in a frugal manner and with due regard to taxpayer interests. In the short‐term, eligibility standards should be tightened to reduce the disability rolls. In the long‐term, policymakers should pursue devolution of responsibility for these programs to the states or, preferably, allow private insurance companies and charities to handle the responsibility.