Social Security Disability Insurance Foundationally Flawed

May 28, 2013

The U.S. Social Security Disability Insurance (SSDI) program is a payroll tax program that provides income supplements to people who are physically restricted from working because of a disability. Recently, SSDI rolls reached a high of 8.85 million, which is a 21 percent increase since the beginning of the recession in 2007. The increase in SSDI users is not because of a sudden disability epidemic but because of foundational flaws in how the program works, says Richard Burkhauser, the Sarah Gibson Blanding Professor of Policy Analysis at Cornell University and an adjunct scholar at the American Enterprise Institute.

  • The program's growth has resulted in government SSDI expenditures increasing sevenfold, from $18 billion in 1970 to $128 billion in 2010.
  • The Congressional Budget Office says that these increases will result in program insolvency as soon as 2016.

The major flaws in the program stem from the Obama administration making it a long-term unemployment program, instead of a last choice transfer program for those who cannot work because of their health-based impairments. The problem with the program is exacerbated by economic downturns and will continue until economic prosperity returns.

  • SSDI's most evident structural flaw is its reliance on flat payroll taxes for funding, which does not rise once a worker leaves a business and starts using SSDI.
  • Hence, firms have little incentive to help workers at the most influential point in their recovery, which is right after the worker experiences the health-shock that affects his or her ability to work.
  • Worse, the majority of disabled workers using SSDI are non-severe cases, and if they were helped in the beginning there is a higher probability that they could have kept working.
  • Instead, these workers are being compensated based on difficult-to-determine mental conditions, musculoskeletal conditions, or have conditions that are accepted based on vocational criteria.

SSDI's flaws harm millions of workers because they are forced to demonstrate disability before they are even able to receive benefits. Instead of focusing on removing those already on the SSDI rolls, Congress should consider more fundamental SSDI reforms that would better incentivize employers to provide workers with alternatives to an SSDI application when their impairment first occurs.

Source: Richard Burkhauser, "America's Growing Social Security Disability Problem," Real Clear Markets, May 15, 2013.

 

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