shawn fremstad is a senior fellow at the Center for American Progress, a liberal think tank in Washington.
Published June 30, 2017.
One of the key strands of America’s social safety net is a federal program that few Americans even know exists until they need it. It should not be surprising, then, that the Trump administration’s proposed cuts in Social Security Disability Insurance (SSDI) have, to date, generated little pushback. Here, I offer a primer on what’s at stake.
SSDI insures workers against the risk of a total, long-term work disability. People earn SSDI coverage in the same way they earn “old-age insurance” (i.e., Social Security pensions), through their work history and payroll tax contributions. Among other eligibility requirements, workers must have paid into the system for at least 5 of the 10 years before they became disabled; moreover benefits only kick in 5 months after disability onset. Currently, about 8.8 million disabled workers receive SSDI. The average benefit is modest, a bit less than $1,200 a month, and typically replaces about half of a worker’s previous earnings. Most beneficiaries are 55 to 64, the ages of greatest vulnerability to injury before old age pension coverage kicks in. About 1.7 million children and 137,000 spouses also receive SSDI benefits because the program also insures the families of SSDI-eligible workers.
In his proposed 2018 budget, President Trump called for cutting expenditures on SSDI by $64 billion over the next decade. The justification offered: the need for tighter eligibility requirements in order to increase labor force participation among people with disabilities. Note, by the way, that the proposal didn’t come out of thin air. SSDI reform along these lines is one of the few issues on which one can find common ground between the Washington Post editorial board and the Cato Institute.
The long-term wane in prime-age men’s labor force participation in the American economy is a legitimate concern. However, SSDI has played a negligible role in this decline
But the linkage between SSDI and labor force decline isn’t as straightforward as some think. The long-term wane in prime-age men’s labor force participation in the American economy is a legitimate concern. However, SSDI has played a negligible role in this decline.
Between 1967 and 2015, labor force participation for this group fell by a stunning 8.4 percentage points. The portion of prime-age men receiving SSDI edged up over this same period, but only by 1.5 percentage points. Moreover, any cause and effect here is hard to pin down.
Jason Furman, former chair of President Obama’s Council of Economic Advisors and now a fellow at the Peterson Institute, estimates that 0.1 to 0.4 percentage point of the 8.4 percentage-point decline is due to SSDI. The 0.1 percentage point estimate assumes that, in the absence of SSDI, beneficiaries would be as likely to participate in the labor force as disabled men not receiving SSDI. The 0.4 estimate is based on recent econometric research that aims to measure the impact directly.
More recent SSDI and labor force trends for men in their 30s and 40s suggest the relationship is yet more tenuous. Between 1996 and 2015, the number of men age 30-49 who were not in the labor force increased by one million. But as Katherine Gallagher Robbins (the former director of research and policy analysis at the National Women’s Law Center) and I have documented, the number of men in this age range receiving SSDI was practically unchanged over this period. In addition, the number receiving Supplemental Security Income (SSI), the means-tested disability program for those who don’t qualify for SSDI, declined slightly.
The bottom line: there is little reason to believe SSDI has been a major driver of the decline in prime-age men’s labor force participation over the past half-century.
Does Tough Love Work?
But what if we narrow the focus? Are the disabled working and earning less because of the availability of SSDI on the current terms of eligibility? Findings from recent, rigorous research suggest that a modest share of SSDI applicants – those with disabilities that place them on the margins of eligibility for payouts – would be more likely to work in the absence of SSDI. However, this same research also makes clear they would typically have extremely low earnings and very marginal attachments to the labor force.
For example, Nicole Maestas and her colleagues use variation in the SSDI allowance rates of disability examiners to isolate the impact of SSDI on the labor supply of “marginal program entrants.” These are SSDI applicants who have a severe impairment and are plausibly eligible for SSDI, but whose probability of being found eligible varies by the relative strictness of the disability examiner deciding their case.
They conclude that about 23 percent of SSDI applicants are on this margin of program entry. Among them, those who end up being approved for SSDI are on average 28 percentage points less likely to be employed two years later than those who are denied benefits. But this additional employment doesn’t amount to much when it comes to meeting basic living needs. In the absence of SSDI, the average annual earnings of marginal entrants would only be about $3,800 to $4,600 more than the earnings of marginal entrants who do receive SSDI. This is far below both the earnings level an SSDI beneficiary can have without losing eligibility (currently $1,170 a month for a non-blind beneficiary) and the federal poverty guidelines ($12,060 for a household of one).
Maestas and company aren’t out on a limb here, by the way. Other recent research – including von Wachter, Song and Manchester (2011), Bound, Lindner and Waidmann (2014), French and Song (2014) and Hemmeter and Bailey (2016) – reaches conclusions that are generally consistent with these findings.
This doesn’t rule out the possibility that some changes in SSDI policies would increase the earnings and overall living standards of SSDI applicants and beneficiaries. Currently, the Social Security Administration is conducting four major SSDI-related demonstration projects, including two that further increase SSDI’s financial incentives for work. At the same time, past experience suggests we should not be sanguine about the potential for substantial increases in earnings among SSDI beneficiaries. As analyst Kathleen Romig notes in a careful review of SSDI-related demonstration projects conducted since the early 1990s, “in none of the experiments did a significant number of beneficiaries earn enough to support themselves” and to leave the disability insurance program.
Consider, too, that, as affluent countries go, the United States hardly shines in terms of generosity to the disabled. In comparison to most other OECD countries, Rebecca Vallas and I note, SSDI has among the “most stringent eligibility criteria for a full disability benefits,” a low income replacement rate, and spends little as a share of GDP on disability benefits. Many other countries – including France, Germany, Sweden and the United Kingdom – have higher prime-age employment rates than the United States, despite spending much more on disability benefits (not to mention unemployment and other income replacement programs).
Policymakers and the media should focus less on SSDI and its alleged incentives to indolence, and much more on what is missing in our current work support system for less educated workers under age 50.
A Kindler Gentler Approach
In light of this evidence, I think policymakers and the media should focus less on SSDI and its alleged incentives to indolence, and much more on what is missing in our current work support system for less educated workers under age 50. These workers are typically many years away from being likely to qualify for SSDI, but have little to no protection against health-related impairment that reduces their work capacity on a temporary or partial basis. The Social Security Administration’s Supported Employment Demonstration, which offers integrated vocational, medical and mental health services to recently denied SSDI applicants under age 50 with a mental illness, is one small step in this direction.
On a much larger scale, the United States should establish a short-term disability insurance (STDI) system that protects interruptions of wage income that are expected to last less than 12 months. Currently, only five U.S. states have such programs. In addition to providing some protection against lost wages during temporary disability, STDI may increase the likelihood that workers with impairments remain attached to the labor force, and reduce the likelihood that disabled workers, especially younger ones, apply for long-term (SSDI) benefits.
Similarly, expanding the Earned Income Tax Credit, particularly for workers without dependents, could increase both the employment and income of individuals with disabilities. The maximum credit for a worker with no children in 2017 is only $510, compared to $5,616 for a worker with two children. Of the nearly 15 million adults age 25-64 who report a disability in the Current Population Survey, only about 14 percent are living with a minor child of their own. By contrast, among non-disabled adults in the same age range, about 31 percent are living with a minor child. Thus, disabled adults are much less likely to benefit from the larger EITC available to adults caring for children.
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It’s hard not to conclude that Washington is moving in the wrong direction when it comes to minimizing the economic and social impact of disability. While hardly anyone wants to hear it, getting unemployed people with severe disabilities back into the workforce without causing great collateral damage is expensive. And there is little in the President’s budget – or, probably more important, in the rollbacks in subsidies to health insurance now being contemplated by Congress – to suggest that those in authority are listening.