Federal Disability Insurance's Looming Implosion

July 17, 2013

The ticking time bomb of entitlement reform is Social Security's Disability Insurance Fund. According to the Social Security trustees, the bomb is due to go off (when the fund, running out of money, will need to make steep cuts in benefits) just in time for the 2016 election, says Michael J. Boskin, a professor of economics at Stanford University and senior fellow at the Hoover Institution.

  • The primary driver of surging costs in every entitlement program is not demography but rising real benefits per beneficiary.
  • If entitlement cost growth isn't slowed soon, standard estimates imply that taxes to pay for them will eventually rise to crushing levels, sharply lowering incomes within a generation.

Hopefully, the looming implosion of the Disability Insurance Fund will focus attention on other entitlements (and may dampen some of the happy talk now heard in Washington about the health of Social Security and Medicare). Coming to grips with the disability program may also provide a guide to reform of the larger programs.

  • The number of people collecting disability benefits has soared, especially in recent years, to almost 11 million in June, up from 2.7 million in 1970.
  • The 2012 price tag was $140 billion, up eightfold (adjusted for inflation) from 1970.
  • The quadrupling of beneficiaries over a few decades is far beyond what would be expected from demographic trends and elevated unemployment.

In the past, the Government Accountability Office routinely criticized the Disability Insurance Fund for not reviewing claims more often to make sure its beneficiaries were still eligible. In 1984 Congress actually broadened eligibility, based on subjective criteria such as back pain and arthritis. The range of mental illnesses covered was also widened. Disability insurance has clearly become, in part, a form of extended unemployment insurance and early retirement, with Medicare benefits.

More than 20 states today try to shift people from their welfare and Medicaid rolls onto Disability Insurance and Medicare, which are fully paid for by the federal government.

Whether triggered by a disability insurance blowup in 2016 or not, entitlement reform can't wait. It will determine whether the United States can resume its path as a flexible, dynamic market society, or slide further into an economically stagnant European-style social welfare state.

Source: Michael J. Boskin, "The 2016 Disability Insurance Time Bomb," Wall Street Journal, July 14, 2013.

 

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