The voices of Urban Institute's researchers and staff
July 9, 2017

Efforts to reform the Disability Insurance program should start now

July 10, 2017

The Social Security disability benefits program, which millions of Americans rely on, is under considerable fiscal strain. The smart path to reform involves in-depth research and analysis to understand how changes will affect beneficiaries, but that work has to start now to be effective. The program’s trust fund is projected to be exhausted in 2023, so policymakers are wasting valuable time.

More than 12 million Americans received benefits from the Social Security Disability Insurance (DI) program in 2015. The program pays out more in benefits than it collects in revenue, so it draws funds from the DI trust fund, an account that records the balance between money coming in and money going out. When that fund is exhausted, benefits will have to be reduced, taxes will have to be increased, or Congress will have to shift funds from another source. 

To address the program’s financial unsustainability, policymakers can pursue three types of reforms.

  1. Adjust benefit and revenue formulas by, for example, making benefits less generous and/or increasing tax rates. The Social Security tax rates could be increased, the maximum amount to which workers are taxed ($127,200 in 2017) could be increased, or the benefit formula could be changed to lower benefit amounts.
  2. Move money from the Old-Age and Survivors Insurance (OASI) trust fund to the DI trust fund, as Congress did with the Bipartisan Budget Act of 2015, or reallocate the different Social Security tax rates. Such a reallocation would not address the program’s structural issues, though, and would make the OASI program worse off.
  3. A third approach would be to fundamentally reform the program. The first two approaches could put the program in balance in the short run, but they do not address DI’s fundamental issues or necessarily make it sustainable in the long term. Fundamental reform could mean changing the definition of disability, adjusting eligibility criteria, modifying application and review processes, or creating a model of transitional benefits.

Such reforms could put DI on a financially sustainable path for the long run and provide the financial and health care support people with disabilities need. Such reforms can also promote and encourage work among disabled people who might be able to work but who might be discouraged from doing so under current program rules.

But long-term, structural changes require in-depth research and analysis. Enacting a policy that, say, changes the definition of disability requires demonstration or pilot programs to show how that reform would affect people’s behavior, benefits, and outcomes.

President Trump’s 2018 budget proposal includes $500 million over the first five years to “expand demonstration authority to allow the administration to test new program rules and processes and require mandatory participation by program applicants and beneficiaries.” But questions remain as to what type of and how many demonstrations will be put in place, whether the funding level is correct, and whether the demonstrations will yield results that can be expanded to the entire program.

As an example of such a project, the Benefit Offset National Demonstration (BOND) tests what would happen if a DI beneficiary is allowed to work more than under the traditional rules. Under BOND, a DI participant’s benefits are reduced if he or she earns above a threshold known as the “substantial gainful activity” amount (in 2017, this amount is $14,040 for a beneficiary who is not blind).

The BOND experiment was a major undertaking and took years to design, implement, and evaluate. From the original contract award to final report, the BOND program will take nearly nine years, and that does not include time to draft and vote on legislation.

Another way to encourage work among people with disabilities is to urge employers to support these workers, especially at the early stages in their disability when interventions might be most effective. The Centers of Occupational Health and Education (COHE) program in Washington State is a model for that approach and appears to be one that will be tested under the president’s budget.

COHE pulls together service providers, health care providers, employers, and labor organizations to help workers with disabilities stay employed. But adopting a similar model for the rest of the nation would not necessarily result in the same successes and cost savings as in Washington. That’s why it is important to get these experiments going now. Doing so will give policymakers the information and analysis they need to ensure a stable, long-term future for a program that millions rely on.

In this Monday, Dec. 19, 2016, photo, Donna Dye, who is unemployed and whose husband is disabled, plays with her two granddaughters, Lilly, left, and Chloe, at her home where she cares for them, in Minnie, Ky. Dye and her husband have been fighting the federal government to keep his Social Security disability checks. Photo by David Stephenson/AP.

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