Generalized Benefit Offset: A Fix for Social Security Disability Insurance

October 1, 2013

The Social Security Disability Insurance (SSDI) program is rapidly approaching insolvency. According to the Social Security Trustees, the program's trust fund will be exhausted some time in early 2016, forcing a reduction in financial support for individuals with a disability. Although many lawmakers in Congress appreciate this problem, most of them appear unwilling to propose reforms to the program, says Jagadeesh Gokhale, a senior fellow with the Cato Institute and a member of the Social Security Advisory Board.

  • One explanation for this inaction is the availability of an easy short-term fix: temporarily transferring funds from SSDI's larger companion trust fund, the Social Security Old Age and Survivors Insurance (OASI) program. According to the Trustees, the OASI trust fund will not be exhausted until 2034.
  • Another explanation for congressional inaction is that the two major political parties are so far apart on how to reform SSDI that there is little chance of developing a workable coalition.

Gokhale proposes a different approach to providing work incentives to SSDI beneficiaries, one that involves benefit offsets but provides greater flexibility to beneficiaries in selecting their level of work activity. The Generalized Benefit Offset (GBO) program that Gokhale proposes would eliminate the cash cliff (the loss of benefits and valuable health care coverage), but it conditions the change on observed earnings. GBO allows reversion to beneficiary status when labor force attachments cease, at the full discretion of SSDI beneficiaries.

  • Under GBO, one would expect beneficiaries to sort themselves according to their work abilities along the GBO schedule rather than park at the Substantial Gainful Activity earnings level.
  • The distribution of resulting work and earning choices by SSDI beneficiaries would generate direct benefits to the economy and to SSDI beneficiaries themselves.
  • GBO should receive broad support from disability advocates, policy practitioners, and (most importantly) lawmakers from both sides of the aisle because it combines key elements that their constituents are demanding: better support for individuals with disabilities but also opportunities to work whenever their health impairments permit market participation.
  • GBO eliminates the cash cliff and would, if adopted, introduce stronger and more effective work incentives for work-capable beneficiaries while retaining SSDI insurance for individuals with disabilities.

Source: Jagadeesh Gokhale, "A New Approach to SSDI Reform," Regulation, Fall 2013.

 

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