November 30, 2015

Crisis in Social Security Disability Insurance Averted, but Not Gone

Jason J. Fichtner

Former Senior Research Fellow
Summary

The recently approved payroll-tax reallocation and advancements in program integrity and operations will not solve the long-term financing problems of SSDI. Furthermore, the pilot programs contained in the deal do not go far enough in supporting those with disabilities seeking to work. But together, these changes did provide the funds necessary to pay full benefits through 2022 and also some breathing room for pilots to be designed, implemented, and analyzed for lessons that could potentially inform long-term improvements to the SSDI program. The passage of the Bipartisan Budget Act of 2015 is just the beginning, not the end, of the work to be done on SSDI.

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President Obama recently signed into law the Bipartisan Budget Act of 2015, which along with suspending the debt limit and setting the framework for federal spending over the next two years, also contained provisions that removed a Social Security retirement-claiming strategy and extended the solvency of the Social Security Disability Insurance (SSDI) Trust Fund. (For two articles on the claiming strategy changes, see contributors Robert Klein and Robert Powell.)

Along with other adjustments to improve the SSDI program integrity and pilot innovative program changes, these actions prevented the possibility of a 20% cut in benefits near the end of 2016 for all SSDI beneficiaries. This was done through a reallocation of the payroll-tax rate — directing slightly more of Americans' payroll taxes to SSDI — which will allow for full payment of benefits through 2022.

For the SSDI program, the agreement was a step in the right direction. Make no mistake, allowing the SSDI Trust Fund to become insolvent would not only be irresponsible, but also unconscionable for individuals with disabilities who rely upon this program. But now, further legislation will be required to once again prevent a cut in SSDI benefits, and that action is better taken sooner rather than later.

As things stand now, the SSDI Trust Fund will almost certainly need additional revenue past 2022. Even with major changes to program eligibility or substantial modifications to the benefit formula, it will be almost prohibitively difficult to close the financing gap in such a short time. And the longer meaningful reforms are put off, the more additional revenue the program will need.

Financing aside, the SSDI program also needs significant improvement. Though the new law provides for additional demonstration authority to help beneficiaries who seek to return to work and remain attached to the workforce, more still needs to be done.

While SSDI program rules contain an array of work incentives and supports, other provisions serve as barriers to those whose conditions improve and who wish to test their capacity to work.

For example, if an SSDI beneficiary earns even one dollar above the substantial-gainful-activity level (currently set at $1,090 per month), they risk losing their entire benefit. The new law allows for program changes and pilots that would explore ways to smooth this "cash cliff" so beneficiaries can attempt to work without fear of steep financial penalties.

The Social Security Administration (SSA) should fully utilize this expanded demonstration authority to test innovative approaches to facilitate return-to-work efforts so that, by 2022, policymakers will have strong evidence of what works and what does not.

A number of changes that would improve the effectiveness of the procedures by which SSA evaluates applications to the program and periodically reviews benefits were also a part of the new law. However, adequate funding, along with efficient use of resources by SSA, will be necessary to achieve these results and now Congress must follow through and appropriate those funds next month.

The recently approved payroll-tax reallocation and advancements in program integrity and operations will not solve the long-term financing problems of SSDI. Furthermore, the pilot programs contained in the deal do not go far enough in supporting those with disabilities seeking to work. But together, these changes did provide the funds necessary to pay full benefits through 2022 and also some breathing room for pilots to be designed, implemented, and analyzed for lessons that could potentially inform long-term improvements to the SSDI program. The passage of the Bipartisan Budget Act of 2015 is just the beginning, not the end, of the work to be done on SSDI.