AARP Public Policy Institute INSIGHT on the Issues Social Security Disability Insurance: A Primer For most U.S. workers and their families, Social Security Disability Insurance (SSDI or DI) provides protection against a key source of economic insecurity—the loss of earnings due to disability. Today, 9.3 million Americans—disabled workers, their spouses, and dependent children—rely on SSDI to replace lost wages. This primer provides an overview of the SSDI program, including who is covered, what benefits they receive, how the program is administered, and how it is financed. Social Security pays benefits to the vast all, U.S. workers will be eligible for the majority of elderly Americans. It also benefits SSDI provides should they pays benefits to millions of disabled become disabled. workers and their dependent family members, providing a crucial source of At the end of 2008, 7.4 million disabled financial security for people who are workers were receiving Social Security severely limited in their ability to work Disability Insurance payments, as were because of a disabling illness or injury. 1.85 million children and spouses of those Social Security Disability Insurance workers, with total benefit payments of (SSDI) was added to Social Security in $106 billion, representing 17 percent of 1956. At first, SSDI was limited to total spending in Social Security. (See workers age 50 and above, providing a Table 1 on page 2.) This brief provides an pathway to early retirement for workers overview of the SSDI program, including in poor health. In short order (in 1960), how it works, who it serves, how it is benefits were extended to younger administered, and how it is financed. workers, and in 1972, SSDI beneficiaries became entitled (after a 24-month waiting period) to health insurance coverage Contents under Medicare. Who Is Insured for Disability Benefits?........................................ 2 SSDI has a very strict disability standard. How Is Disability Defined and Evaluated?................................... 4 Workers are eligible for benefits only if What Is the Application Process? ................................................ 7 they are insured for DI (they have a How Long Does the Application Process Take?......................... 8 significant and recent work history) and What Monthly Benefits Are Paid to Disabled Workers they have long-lasting or permanent and Their Families?.................................................................... 10 disability that makes it impossible for What Health Insurance Benefits Are Available to Disabled them to work and earn more than a very Workers in SSDI?....................................................................... 13 modest amount. A waiting period is How Long Do Beneficiaries Receive Disability Insurance imposed; cash benefits can begin Benefits?..................................................................................... 14 five months after the onset of a disability What Supports Are Available for Beneficiaries Who Want to that prevents work.1 Benefits are limited Return to Work? ......................................................................... 15 (disabled workers received $1,063 per Who Applies for and Receives Benefits? .................................. 17 month, on average, in 2008),2 but they are What Are the Enrollment and Expenditure Trends in SSDI?.... 18 reliable and coverage is widespread— How Is SSDI Financed? ............................................................. 18 meaning that most, though by no means Social Security Disability Insurance: A Primer Table 1 Social Security Beneficiaries and Benefit Payments, 2008 Benefit Percent Payments Percent Beneficiaries of Total (in millions) of Total Retired Workers and Dependents, Survivors of Deceased Workers (OASI) 41.6 million 82 $509,336 83 Disabled Workers and Family Members (DI) 9.3 million 18 $106,007 17 Total OASDI Benefit Payments 50.9 million 100 $615,344 100 Source: Social Security Administration, Office of the Actuary, Trust Fund Tables (calendar year data) at www.ssa.gov/OACT/ProgData/funds.html; beneficiary data at www.ssa.gov/OACT/STATS/OASDIbenies.html. Who Is Insured for Disability out of the paid workforce, women are Benefits? much less likely than men to be DI- insured throughout their lives. Among As of December 31, 2008, 154.5 million 62-year-olds, 96 percent of men, but only workers—over three-fourths of the U.S. 77 percent of women, are DI-insured workforce—are insured for disability (Figure 1). The gender gap is even wider benefits through SSDI should they at younger ages. At age 32, for example, become permanently disabled and unable 88 percent of men are DI-insured, to work and support themselves and their compared to just 34 percent of women families.3 By comparison, only [not shown]. Hispanics are less likely 28 percent of all private sector workers than whites or African Americans to be are covered by employer-sponsored long- DI-insured, and older workers who are in term disability policies.4 (The majority of poor health or who have work disabilities U.S. workers—roughly 88 percent—are are less likely than workers in good covered by Workers’ Compensation, health to be covered—despite their which provides cash benefits and medical greater need for SSDI benefits.6 care to people who suffer workplace injuries or illnesses.)5 Figure 1 Workers earn coverage for themselves, Percent of Men and Women OASI- their dependents, and their survivors just and DI-Insured at Age 62 as they do for Social Security retirement DI-Insured OASI-Insured benefits, by paying Social Security taxes 96% during their working years. To qualify for 85% 77% DI, workers must have significant and 64% recent work histories. In general, a person must have worked five out of the last ten years ending in disability. Special rules make it possible for very young workers (those in their 20s) to be covered by SSDI (Box 1). Men age 62 Women age 62 Though widespread, SSDI coverage is by Source: Mitchell and Phillips, 2001. no means universal. A significant proportion of men and women are not insured at midlife and beyond. Because women are more likely to move in and 2 Social Security Disability Insurance: A Primer Box 1 Who Is Eligible to Receive Social Security Benefits? Social Security benefits are paid to workers (and their dependents or survivors) only if an individual has worked long enough in covered employment to be insured for those benefits. Insured status is measured in terms of “credits,” and different numbers of credits are needed for different kinds of benefits. Social Security examines the worker’s lifetime earnings record to determine the number of credits.7 The amount of earnings required for a credit are increased each year in proportion to increases in average wages. In 2009, a worker who earns “covered wages” of $1,090 earns a credit. Workers can earn up to four credits per year. Annual earnings of $4,360 in 2009, earned at any time during the year, give a worker the maximum of four credits. There are two types of insured status for Social Security’s Old-Age and Survivors Insurance (OASI): “fully insured” and “currently insured.” Workers are fully insured for benefits if they have total credits equaling one credit for each calendar year after the year they reached age 21 up to the year they reach age 62, become disabled, or die, whichever comes first. To be fully insured for Social Security’s old-age benefits, a worker must have earned credits equal to the difference between his current age and 22. Workers who earn 40 credits by age 62 are fully insured for life. Survivors of a worker who was not fully insured may still be eligible for benefit if the worker was “currently insured.” Workers are currently insured if they have six credits during the 13 calendar quarters ending with the quarter in which they died. Workers are insured for disability if they are fully insured (for workers age 31 and above, 20 to 40 credits, depending on age) and have earned at least 20 credits in the 10 years immediately before they become disabled. For example, a worker who becomes disabled at age 50 needs 28 credits. Workers who are disabled before age 31 are insured for DI if they have at least one credit for each calendar year after they turned 21 and the year before they became disabled. For workers who take time off from work, including those with illnesses or work disabilities, any earned credits stay on the Social Security record. When workers return to work, they start earning more credits. However, unemployment and illness may prevent a worker from meeting the recency of work requirement to be insured for SSDI benefits. Because the rules for what workers must true. Workers in their mid-30s and below contribute to be “disability insured” are are more likely to be insured for DI than somewhat different from those which for OASI. 10 determine whether someone is insured for old-age benefits, an individual could, at People who are not insured for SSDI and any given time, be insured for both become disabled may be eligible for other retirement and disability benefits, insured public benefits, including Supplemental for retirement but not for disability, or not Security Income benefits (SSI) and OASI insured for either.8 For example, a worker (Box 2). could be insured for retirement benefits but not insured for DI if she had at least ten years of work but lost her DI status due to periods of illness or unemployment.9 In general, older workers are more likely to be insured for OASI than for DI. Women and men are less likely to be insured for DI at age 62 than for Social Security’s retirement benefits (OASI). (See Figure 1 on page 2). For younger workers, the reverse is 3 Social Security Disability Insurance: A Primer Box 2 SSI and OASI Help Fill SSDI Coverage Gaps Disabled workers who do not have a sufficient employment history to be covered by SSDI may qualify for assistance from SSI. In contrast to SSDI, which is a universal, non-means-tested entitlement program, SSI is a means-tested entitlement. The same standards and administrative process are used to determine disability in SSI as are used in SSDI, but SSI provides a very limited cash benefit to people with disabilities of all ages who are very poor and who have very limited assets (a maximum benefit of $674 per month for an eligible individual in 2009, and $1,011 per month for an eligible couple).11 Some states supplement these federal SSI benefits. According to one recent estimate, when both SSI and SSDI are considered, roughly 90 percent of working Americans are eligible for federal income support should they become disabled.12 In addition, OASI functions as an “unofficial” disability program, helping to fill in gaps for older workers who are insured for Social Security’s old age benefits but who do not satisfy the insured-status requirement for SSDI.13 People who are insured for OASI can claim a reduced Social Security benefit beginning at age 62. In fact, among severely disabled people age 62 to 64, as many receive OASI as receive DI, in part because many older workers in poor health are not DI-insured. Women who have disabilities that severely limit their ability to work are far more likely to claim early benefits because they are far less likely than men to have DI-insured status.14 How Is Disability Defined and Disability is evaluated using a five-step, Evaluated? sequential process (Box 3). In the first step, the Social Security Administration SSDI has a very strict definition of (SSA) determines whether an individual disability. Workers must demonstrate “an applicant meets the requirements for inability to engage in any substantial insured status and is not engaged in gainful activity by reason of any substantial work. The term “substantial medically determinable physical or gainful activity” (SGA) is used to describe mental impairment which can be a level of work activity and earnings. expected to result in death or which has Work is “substantial” if it involves doing lasted or can be expected to last for a significant physical or mental activities, or continuous period of not less than a combination of both. In most cases, if a 12 months.”15 The law states that an person who is not blind is working and individual’s physical and mental earning more than $980 a month (net of impairment(s) must be “. . . of such “impairment-related work expenses”) in severity that he is not only unable to do 2009, he or she is considered to be his previous work but cannot, considering engaging in SGA and is not work disabled his age, education, and work experience, or eligible for SSDI. The earnings engage in any other kind of substantial threshold is significantly higher for people gainful work which exists in the national who are blind ($1,640 in 2009).16 economy, regardless of whether such work exists in the immediate area in which he lives, or whether a specific job vacancy exists for him, or whether he would be hired if he applied for work.” 4 Social Security Disability Insurance: A Primer At the second step, the existence, severity, Box 3 and duration of the person’s impairment The Five-Step Disability are explored. All physical and mental Determination Process impairments are explored, singly and in combination. A reviewing medical Step 1: Work Test. Is the individual working consultant determines whether there is and earning over the substantial gainful enough medical evidence to support a activity amount? If yes, the application is finding of a severe disability—one that denied. If no, the application moves to Step results in a “marked” reduction in 2. function. If there is no impairment or the impairment is not severe (does not Step 2: Severity Test. Is the applicant’s significantly limit basic work activities), condition severe enough to limit basic life then the individual is found to be not activities for at least one year? If yes, the disabled. If the impairment is severe, then application moves to Step 3. If not, the the claim moves to a third step where a application is denied. determination is made as to whether the impairment meets or equals the criteria of Step 3: Medical Listings Test. Does the one of the medical listings published in condition meet the Social Security regulations by SSA. Administration’s medical listings, or is the condition equal in severity to one found on At the third step, the presence of an the listings? If yes, benefits are awarded. If impairment that meets the criteria in the no, the application moves to Step 4. Listing of Impairments (or that is of equal severity) is usually sufficient to establish Step 4: Previous Work Test. Can the that an individual who is not working is applicant do the work he or she has done in disabled, without the need to consider the the past? If yes, the application is denied. If individual’s age, education, or work not, the application moves to Step 5. experience. The Listing of Impairments Step 5: Any Work Test. Does the applicant’s describes, for each major body system, condition prevent him or her from impairments that are considered severe performing any of the work that exists in the enough to prevent a person from doing national economy? If yes, benefits are any gainful activity (a stricter standard awarded. If no, the application is denied. than any substantial gainful activity). The Listings serve as a screening tool to Source: Scott Syzmendera, April 24, 2006, “SSDI and identify individuals who clearly meet the SSI: Proposed Changes to the Disability Determination definition of disability in the Social and Appeals Processes,” Congressional Research Service, RL33179, p. 5. Security Act.17 (Box 4) However, the absence of a Listing-level impairment does not mean the individual is not whether the person has the residual disabled. Rather, it merely requires the functional capacity to meet the physical examiner to move on to the next step of and mental demands of past relevant the process. work. If the impairment does not prevent If a “severe” impairment neither “meets” the individual from meeting the demands nor “equals” a listing but meets the 12- of past relevant work, the person is found month duration rule, SSA assesses the not disabled. individual’s residual functional Finally, if the impairment prevents the capacity—what an individual can still do individual from performing past relevant despite his or her impairments. At step work, it must be determined whether the four, a state Disability Determination impairment prevents the person making Services (DDS) examiner considers 5 Social Security Disability Insurance: A Primer Box 4 The Listing of Impairments The Listing of Impairments describes, for each major body system, impairments that are considered severe enough to prevent a person from doing any gainful activity.19 The Listings are organized by 14 major body systems (e.g., musculoskeletal impairments, respiratory impairments, neurological impairments). Altogether, there are more than 100 listed impairments. Each Listing describes a degree of severity such that an individual who is not working, and has such an impairment, is considered unable to work by reason of medical impairment.20 Medical documentation of these criteria can result in an allowance without consideration of the individual’s limitations (except for mental impairments). The Listings are not required by statute, “but SSA has been using them in one form or another since it first started evaluating disability claims, updating them as needed, to screen the most obviously disabled applicants.”21 The Listing includes a discussion of the kinds of medical evidence that should be reviewed and how DDS examiners evaluate signs, symptoms, laboratory findings, responses to prescribed treatment, and functional limitations to establish the severity of impairments. A few listings (e.g., certain cancers, amyotrophic lateral sclerosis) are evaluated based on diagnosis alone, but most require a diagnosis and an assessment of severity. If the evidence in a case establishes the presence of all the criteria required by one of the impairment listings, then the individual “meets” the Listings. an adjustment to other work during the mowing lawns and landscaping may not fifth, and final, step of the sequential be able to move very easily into less evaluation. To be found disabled, the physically demanding work. SSA has individual must be “not only unable to do developed a vocational “grid” designed to his previous work but cannot, considering minimize subjectivity and promote his age, education, and work experience, consistency in applying the vocational engage in any other kind of substantial factors. The grid regulations relate age, gainful work which exists in the national education, and past work experience to the economy....”18 The work the person can individual’s residual functional capacity to do does not have to exist in the perform work-related physical and mental immediate area in which he or she lives, activities. (Residual functional capacity is and a specific job vacancy does not have measured in terms of the individual’s to be available to him or her. Work in the ability to do sedentary, light, medium, national economy is defined in statute as heavy, and very heavy work.) The grid work which exists in significant numbers rules are specifically designed to help either in the region where such individual older, less educated individuals by easing lives or in several regions of the country. the standards for certain applicants. For example, under grid rule 201.04, a 55- Although SSDI is available to workers of year-old individual who can perform all ages, the criteria change at age 50, sedentary work, who is a high school when greater consideration is given to graduate with an unskilled work vocational factors—that is, the ability of background, and who does not have the an older, disabled worker to take a desk skills to perform semiskilled or skilled job after decades of more physical work. work, would be found disabled under the The disability determination beginning at grid. age 50 takes into account that an individual with less than a high school education who has worked for 35 years 6 Social Security Disability Insurance: A Primer What Is the Application Process? The first step in the appeals process is called reconsideration. If a claim is Applying for SSDI benefits takes time denied, an applicant has 60 days to file a and effort, and benefits are not always request for reconsideration, which is, in granted. Applicants must send detailed effect, a case review by a different DDS medical information as well as examiner. If an applicant is again denied, information on past employment. Some he or she can request a hearing before an must undergo an exam by an independent Administrative Law Judge (ALJ) in practitioner. Compiling this information Social Security’s Office of Hearings and and keeping it up-to-date can be Appeals—again, provided the request is especially difficult for people who do not filed within 60 days of receiving notice of have a usual source of medical care the denial. This is the first time the (including the uninsured). Some applicant has the opportunity for a face- applicants may go it alone, but many rely to-face interview. The ALJ looks into all on lawyers or other representatives for the issues and receives documentary assistance. evidence as well as the testimony of witnesses. The ALJ will allow the Both federal and state offices are claimant, the claimant’s representative, or involved in the eligibility determination. both to present arguments and examine Disabled workers apply for benefits at a witnesses. local Social Security office, where their application is screened to determine If the applicant is denied, he or she can whether the worker is covered by SSDI request the Appeals Council to review the and not working (or, if working, with case. The Appeals Council is the final earnings less than the SGA threshold). If administrative step in the SSA appeals these nonmedical eligibility criteria are process. An applicant denied benefits by met, the application is sent to a state the Appeals Council may file an action in office of DDS. The state DDS makes the Federal District Court within 60 days of initial disability determination and the Appeals Council action. Those denied processes the reconsideration of claims in District Court can continue with that are denied at the first stage. appellate process to U.S. Circuit Court of Appeals and the United States Supreme At the DDS, a state disability examiner Court.23 assesses the applicant’s medical record to determine whether the applicant meets the medical (or medical-vocational) Box 5 criteria for eligibility. If an applicant’s Five Levels of Appeal application is denied, he or she has the right to appeal that decision. There are 1. Reconsideration several levels of appeal (Box 5). Many 2. Administrative Law Judge (ALJ) hearing people who eventually get disability 3. Appeals Council benefits are required to pursue their 4. Federal District Court claims beyond the initial stage. In recent years, 58 percent of applicants denied at 5. U.S. Circuit Court of Appeals the initial stage went on to file at least one appeal, with half of them eventually awarded benefits.22 7 Social Security Disability Insurance: A Primer How Long Does the Application times have grown significantly in recent Process Take? years. In fiscal year 2008, according to SSA’s measures of processing times, It can take a long time—months and even applicants waited 106 days for an initial years—for a disabled worker applying for disability determination and 514 days benefits to receive a final decision on the (from the hearing request date), on claim. Over the past decade, processing average, for a decision at the hearing level. times for SSDI claims have grown to Processing times have increased steadily in unacceptably high levels. At nearly every recent years; the average processing time phase of the process, but especially at the for a hearing was 415 days in 2005.25 hearings level, claims are backlogged and waiting times are growing. These For applicants who appeal, the entire problems have arisen at different points process can take two years, sometimes in the past, but they are especially acute longer. In fact, when the Inspector General right now. These failures impose severe undertook an effort to determine average hardships on disabled workers and their overall processing times (from the date of families, and they undermine the application to the date of denial or the date program. Adequate staff resources and benefits were paid), the measured waiting stable administration are critical for times for 2008 were far longer: 131 days protecting the rights of individuals and for an initial determination at the DDS for assuring public support for and the (ranging from 16 days to a year), 279 days fiscal integrity of the disability to completely process a reconsidered programs.24 claim, and 811 days to process a claim at the hearing level (from about six months to Just as claims vary in their complexity— just over four years).26 some are simple and well documented, others require more lengthy evaluation— These are averages and many claims and the amount of time it takes to receive a hearings are processed more quickly, but final decision varies widely, and depends many wait times exceed the average by a partly on whether applicants decide to very large margin. In fiscal year 2007, appeal a denial of benefits. Nevertheless, SSA set a goal of hearing the cases of due to personnel shortages, processing people who had been waiting the Box 6 Quality and Consistency of the Decision-making Determination of eligibility for disability benefits is an inherently difficult task. Applicants need to have a “medically determinable” impairment to receive benefits, but many other judgments must also be made before a person is found to be disabled and eligible to receive benefits. Many of the factual determinations are relatively straightforward, but others range from the difficult to the nearly impossible.27 A complex administrative structure is needed to ensure that federal rules are implemented in as standardized a way as possible. Throughout the disability determination process, SSA has put administrative structures and processes in place to reduce subjectivity and increase consistency in decision-making. Nevertheless, there are long-standing concerns about the accuracy, timeliness, and consistency of the decision-making process. The high rate at which claims are approved on appeal suggests to some that decision makers at two levels (DDS and ALJ) are interpreting and applying SSA’s criteria differently. Despite efforts in the mid-1990s to better understand these differences and increase the consistency of decision making, the U.S. Government Accountability Office has concluded that more effort is needed to address consistency.28 8 Social Security Disability Insurance: A Primer longest—more than 1,000 days—and array of other federal programs has cleared those cases. In fiscal year 2008, pushed SSA to the tipping point.”32 SSA reduced the number of hearings for cases waiting 900 days or more from Social Security’s administrative costs are more than 135,000 to fewer than 300.29 paid out of the Social Security Trust Nevertheless, hearings backlogs continue Funds, subject to an annual appropriation. to grow. Because state DDS examiners The discretionary portion of SSA’s budget deny about 86 percent of reconsideration is included in the Labor, Health and requests, a substantial number of Human Services, Education and Related applicants are forced to appeal, adding to Agencies appropriation bill. These the backlogs at the appeals level.30 discretionary funds allow SSA to administer OASI and DI and to provide Backlogs of pending disability claims and administrative support to other programs hearings have increased rapidly since including SSI and Medicare. All of these 2000. Between fiscal year 2001 and fiscal activities are included in the Limitation on 2008, the number of hearings pending Administrative Expenses account in the nearly doubled, rising from 392,387 to president’s budget.33 In every fiscal year 760,813 (Figure 2). As of December since 1998, the Congress has appropriated 2008, a new high-watermark had been administrative funding for SSA that falls set, with 768,540 Americans waiting to short of what the commissioner of Social receive a decision. Security and (with the exception of 2008) the president have requested. The result is a shortfall in appropriations for SSA of Figure 2 Growing Backlogs at the Hearings Level, more than $5 billion (Table 2). FY 2001–FY 2008 SSA projects it can significantly reduce the 746,744 760,813 708,164 715,568 hearings backlog—by 10 percent in a 635,601 556,369 year—from 752,000 (the FY 2008 target) 463,052 to 683,000 (the FY 2009 target) if the 392,387 Congress appropriates the amount requested in the President’s budget.34 In a piece of good news, in March of this year, the President signed an appropriations 2001 2002 2003 2004 2005 2006 2007 2008 bill that provides $10.6 billion in Source: Social Security Administration, Performance and administrative funding for SSA for fiscal Accountability Report, FY 2008, FY 2007, and FY 2006. 2009, a roughly 7 percent increase over the fiscal 2008 funding level and the largest annual increase since fiscal 2001. In A number of factors contribute to the addition, the President’s 2010 budget backlog, including a large and growing request includes $11.6 billion in funding for workload (SSDI applications increased SSA, a 10 percent increase over the fiscal by 78 percent between fiscal year 1999 2009 appropriation.35 These funding and fiscal 2008), a lack of personnel and increases should help the Agency reduce the management expertise, and chronic long waits experienced by applicants and underfunding of SSA’s administrative assure that disability benefits are available costs.31 According to the chairman of the on a timely basis to people who truly need Social Security Advisory Board, them. “[c]hronic underfunding of core mission workloads couple with more and more unfunded mandates to support a broad 9 Social Security Disability Insurance: A Primer Table 2 SSA Limitation on Administrative Expenses (LAE) Account, FY 2000–FY 2009 (Amount in $ Millions) Commissioner’s President’s Final Fiscal Year Request Budget Appropriation Shortfall* 2009 10,395 10,327 10,453 -58 2008 10,420 9,597 9,747 673 2007 10,230 9,496 9,296 934 2006 10,106 9,403 9,109 997 2005 9,310 8,878 8,733 577 2004 8,895 8,530 8,313 582 2003 7,974 7,937 7,885 89 2002 7,982 7,574 7,562 420 2001 7,356 7,134 7,124 232 2000 6,908 6,706 6,572 336 1999 6,640 6,541 6,426 214 1998 6,654 6,522 6,409 245 Total Shortfall FY 1998–FY 2009 5,241 Source: Kathleen Romig, “Social Security Administration, Administrative Budget Issues,” Congressional Research Service, May 27, 2008; *Difference between the commissioner’s request and the final appropriation. What Monthly Benefits Are Paid to and earn higher wages.36 Older workers Disabled Workers and Their tend to receive higher monthly benefits Families? than younger workers. Beneficiaries age 25 to 29 received an average monthly DI provides monthly cash benefits that replace a portion of the earnings that are Figure 3 lost when a person can no longer work Average Monthly Benefits for Disabled because of a disability. Benefits are based Workers, by Sex and Age, 2007 on an individual’s past earnings (up to an $1,126 $1,123 annual maximum), with higher $1,004 $866 $871 replacement rates for lower wage workers $655 (box 7). Disability payments are payable after an application is filed, and beginning five months after the onset of a work disability. Beneficiaries may receive up to 12 months of retroactive All Men Women Age 25-29 Age 40-44 Age 60-64 payments. Source: Social Security Administration, 2008. Annual Statistical In 2007, disabled worker beneficiaries Report on the Social Security Disability Insurance Program, 2007, Table 4, Page 22. Disabled worker beneficiaries in current-payment received an average monthly benefit of status, December 2007. $1,004. [Note: This includes all disabled workers in current payment status, not just those awarded benefits in 2006.] benefit of $654 in 2007, compared to an Men’s benefits were higher, on average, average benefit of $1,123 received by than women’s—$1,125 per month beneficiaries age 60 to 64)37 (Figure 3). compared to $865—because men typically work more years than women 10 Social Security Disability Insurance: A Primer Box 7 The Benefit Formula The basic benefit formula for SSDI benefits is similar to the benefit formula for OASI. The SSDI monthly payment amount is based on the worker’s lifetime average earnings covered by Social Security. SSDI benefits are based on the worker’s past average monthly earnings indexed to reflect changes in national wage levels (up to five years of a worker’s lowest earnings are excluded in arriving at the average). A formula which provides a higher replacement rate for low earners is then applied to these averaged earnings. The formula calculates a primary insurance amount (PIA) (i.e., the worker’s monthly benefit) from the measure of average earnings (AIME). This is done by “bend points” in the formula which create three earnings brackets. Earnings up to the first bend point are replaced at 90 percent; earnings between the first and second bend points, at 32 percent; and earnings above the second bend point (up to the taxable maximum), at 15 percent. For a disabled worker newly eligible for benefits in 2008, the benefit was 90 percent of the first $711 of his/her average indexed monthly earnings, plus 32 percent of his/her average indexed monthly earnings over $711 and through $4,288, plus 15 percent of his/her average indexed monthly earnings over $4,288. Thus, a worker with relatively low AIME of $1,000 would have a primary insurance amount of $732 ((.90)*$711 + (.32)*($1000-$711)), and a replacement rate of 73 percent. A worker with AIME of $4,500 would have a PIA of $1,816 (a 40 percent replacement rate). Supplements and Offsets Benefits for Family Members For some disabled workers, SSDI can be In addition to monthly benefits paid to a supplemented by SSI if the SSDI monthly disabled worker, SSDI benefits are also benefit is less than the amount a disabled provided to dependents, subject to certain worker would receive under SSI ($623 maximum family benefit limits. Benefits per month in 2008). At the end of 2007, are paid to the disabled worker and his or about 14 percent of SSDI disabled worker her children under age 18, a spouse age beneficiaries had incomes low enough to 62 or older, or a spouse of any age who is qualify for SSI. These SSDI-SSI caring for an eligible child (a child under concurrent beneficiaries received an age 16 or a child of any age who is average SSI benefit of $205 per month disabled). Benefits also extend to and an average total benefit of $715.38 survivors—widows and widowers, minor children, and disabled adult children. In SSDI payments can be reduced if a 2008, the average monthly benefit for beneficiary is also receiving Workers’ spouses of disabled workers was $285 Compensation payments or other publicly and the average benefit for children of financed disability benefits, such as state disabled workers was $318 (table 3). and civil service disability benefits.39 Family benefit amounts depend on family Other income or resources do not affect composition and cannot exceed the SSDI payment amount. However, 150 percent of the worker’s monthly private employer group long-term benefit. For example, a family with a disability insurance plans typically are disabled worker, a spouse under age 65, designed to coordinate with SSDI, and and one or more children received an SSDI benefits reduce the amount paid by average monthly benefit of $1,745 in the private plan.40 2008.41 11 Social Security Disability Insurance: A Primer Table 3 SSDI Beneficiaries and Average Monthly Benefit, 2008 Beneficiaries Average Number Percent of total Monthly Benefit Disabled workers 7,427,000 80% $1,063 Children 1,692,000 18% $318 Spouses 155,000 2% $285 Total 9,274,000 100% --* Source: Beneficiaries and Average Monthly Benefit, December 31, 2008 from “Fact Sheet on the Old-Age, Survivors, and Disability Insurance Program,” January 2, 2009, at www.socialsecurity.gov/OACT/FACTS/fs2008_12.pdf. *Note: An average amount for all disabled workers and their family members is not meaningful—the benefit depends on family composition. SSDI benefits, though fairly modest for for more than half of all beneficiaries) (Figure many workers, are reliable and secure. For 5). Beneficiaries with low levels of education a disabled worker with medium earnings rely even more heavily on SSDI. 42 A small (career-average earnings at roughly proportion of DI beneficiaries (14 percent) are 100 percent of the national average wage also enrolled in SSI, and a similarly small index, or $37,222 in 2007), SSDI benefits proportion have income from earnings (i.e., replace about 43 percent of earnings. For a earnings below the SGA threshold).43 disabled worker with low average lifetime earnings ($16,750 in 2007), benefits Figure 5 replace a higher share of past earnings, Distribution of Disabled Worker about 54 percent. When benefits for Beneficiaries by SSDI Benefits as a Share dependents are included, roughly of Personal Income 60 percent of earnings are replaced for Under 25 percent medium earners, 80 percent for low 16% earners. Benefits are higher, but 90 percent or 25-49 percent more 13% replacement rates are lower, for high 44% earners (Figure 4). 19% Figure 4 9% 50-74 percent Disabled Workers’ Earnings Replaced 75-89 percent (Workers age 45 entitled in January 2007) Source: DeCesaro and Hemmeter, 2008, “Characteristics of Worker Worker and Dependent 81% Noninstitutionalized DI and SSI Program Participants,” SSA 65% Office of Policy, Research and Statistics Note, No, 2008-02, 59% January 2008. Based on the Survey of Income and Program Participation, waves 6 and 7, December 2002, and SIPP- 42% 43% based interviews of SSDI beneficiaries. 28% About a quarter of SSDI beneficiaries (23 percent) live in poor families, and more Maximum Earnings ($94,687) Medium Earnings ($37,222) Low Earnings ($16,750) than half (52 percent) live in low-income Source: SSA FY 2007 Performance and Accountability families (with income below 200 percent of Report, p. 9. the federal poverty level).44 Social Security Note: Earnings amount represents the average of the has a powerful poverty-preventing effect worker’s career earnings wage-indexed through 2006. among nonelderly workers with disabilities. Leaving aside Social Security For most beneficiaries, SSDI is their primary income, the majority of SSDI beneficiaries, source of income (SSDI monthly cash benefits 55 percent according to one estimate, have represent at least three-fourths of total income family income below the poverty line.45 12 Social Security Disability Insurance: A Primer What Health Insurance Benefits are required to offer disabled workers the Are Available to Disabled Workers option to continue their health insurance in SSDI? coverage. Special COBRA provisions were designed to provide a source of To address disabled workers’ needs for coverage to disabled individuals waiting health insurance, Medicare benefits were for Medicare coverage to begin.51 (See extended to SSDI beneficiaries in 1972.46 Box 8 on page 14.) A small proportion People receiving SSDI benefits are may purchase private health insurance eligible for the full range of benefits that coverage on their own. Medicare provides—hospital care, physician services, prescription drugs— but coverage begins only after a two-year Table 4 waiting period. There are a few Health Insurance Coverage exceptions to this waiting period. of SSDI Beneficiaries in the Individuals who receive a diagnosis of Waiting Period for Medicare, 2004 end stage renal disease (ESRD) are Uninsured 23% automatically entitled to Medicare Any Private or Public Health Insurance 77% without having to endure a two-year wait, Coverage as are individuals diagnosed with Medicaid 37% amyotrophic lateral sclerosis (ALS).47 Employer-Sponsored Coverage 50% Approximately 1.8 million SSDI beneficiaries were in the waiting period Source: Robert Weathers and Anne DeCesaro, Health Care as of December 2007.48 Coverage Among SSDI Beneficiaries within 24 months of Entitlement, Presentation to the Society of Government Health insurance coverage in the waiting Economists conference, June 2, 2008. period. Despite their obvious need for Note: Data from the 2004 SIPP linked to SSA administrative health care, a significant share of SSDI data. Since SSDI beneficiaries can have coverage from multiple sources, the estimate for any source of health coverage exceeds beneficiaries in the waiting period— the sum of the share with Medicaid and the share with employer roughly a quarter to a third—are coverage. uninsured.49 (Table 4) Many disabled workers are uninsured when they apply Health insurance coverage after the waiting for SSDI and remain uninsured until period. SSDI beneficiaries who live Medicare begins.50 A sizable share of through the 24-waiting period are entitled disabled workers in the waiting period to Medicare. They are eligible for Part A (over a third) are enrolled in Medicaid, (which covers hospital and post-acute care the federal-state health insurance program services), and have the option to enroll in for poor and low-income Americans. Part B (which covers physician services) SSDI beneficiaries who are also enrolled and Part D (prescription drugs) or in in SSI are, in most states, eligible for Medicare Advantage (a managed care Medicaid. Others may become eligible plan, Part C). (Part A is premium free, but for Medicaid if their medical there is a monthly premium for both Parts expenditures are very high (they qualify B and D of Medicare and, depending on under Medicaid’s “medically needy” the plan, for Part C.) For previously rules). uninsured beneficiaries, and for those A significant share of SSDI beneficiaries paying hefty premiums for COBRA in the waiting period (nearly half) are coverage or individually purchased covered by employer plans (e.g., their insurance, Medicare is a lifeline that own former employer or a spouse’s substantially improves the affordability of employer). Under COBRA rules, care, access to care, and health. However, employers offering health insurance plans because Medicare has significant cost- 13 Social Security Disability Insurance: A Primer Box 8 Employer-Based Health Insurance: Disabled Workers’ COBRA rights Certain employers offering health insurance plans are required to offer workers, including disabled workers, the option to continue their health insurance coverage. The continuation coverage provisions, sections 601 through 608 of title I of the Employee Retirement Income Security Act of 1974 (ERISA), were enacted as part of the Consolidated Omnibus Budget Reconciliation Act of 1985. These provisions are commonly referred to as the COBRA provisions, and the continuation coverage that they mandate as COBRA coverage. Title X of COBRA requires employers that offer group health plans and have 20 or more employees to make available health insurance coverage for employees and their dependents who have lost eligibility for the employer’s coverage because of certain events, including the loss of employment or the loss of eligibility as a dependent on a parent’s plan. Workers who have health insurance through their employer can keep their health insurance benefits for up to 18 months if they leave the employer, for health or other reasons. The COBRA provisions also require group health plans to provide certain qualified beneficiaries an 11- month disability extension of the 18-month period of COBRA coverage (resulting in a total of 29 months of COBRA coverage), provided the qualified beneficiary (or any other qualified beneficiary who is a member of his or her family) is determined by SSA to be disabled. Disabled workers may pay hefty premiums to keep that coverage, however—premiums that are likely to be unaffordable to the large share of SSDI beneficiaries who are poor or who have low income. sharing requirements (premiums, into”) Medicare, but only if he or she deductibles, and cost sharing), most remains medically disabled.53 beneficiaries need supplemental health insurance coverage to fill Medicare’s gaps. Figure 6 Most disabled worker beneficiaries in Supplemental Health Insurance Medicare have public or private coverage Coverage Among SSDI Beneficiaries with Medicare, 2006 that helps to fill Medicare’s gaps. By the Other time they are enrolled in Medicare, a large Employer- public/private proportion of SSDI beneficiaries have Sponsored Medicare Only Medicaid (42 percent), and rates of 20% 22% coverage through employers are low (only 20 percent have health coverage through an employer). A significant proportion Medicare Advantage 13% (22 percent), however, are enrolled in 3% 42% Medicare only—leaving them exposed to Individually high out-of-pocket costs52 (Figure 6). purchased Medigap Medicaid Total = 6.3 million SSDI beneficiaries keep their Medicare coverage for as long as they remain Source: Cubanski, Neuman, Strollo et al., 2008. Examining disabled. In addition, special provisions Sources of Coverage Among Medicare Beneficiaries, Findings allow beneficiaries who return to work from the Medicare Current Beneficiary Survey, 2006. Kaiser Family Foundation. www.kff.org/medicare/upload/7801.pdf. to keep their Medicare coverage for up to 8.5 years. When Medicare entitlement ends because of an individual’s work activity, a worker can purchase (or “buy 14 Social Security Disability Insurance: A Primer How Long Do Beneficiaries Among those whose benefits were Receive Disability Insurance terminated in 2007, most left the DI rolls Benefits? either because they aged into Social Security’s retirement benefits (47 percent Beneficiaries receive inflation-protected in 2007) or died (40 percent). In 2007, benefits as long as they remain disabled. roughly 54,000 beneficiaries (10 percent SSDI ends—and benefits are of those whose SSDI benefits ended) automatically converted to retired-worker were terminated because of medical benefits—when the disabled worker recovery (20,592) or work above the reaches the full retirement age (currently substantial gainful activity level (33,381) 66 years). When a disabled worker dies, (Figure 7). eligible family members become eligible for Social Security’s survivor benefits. Figure 7 To determine whether an individual Disabled Worker Beneficiaries Who remains disabled, the Social Security Had Their Benefits Terminated in 2007, Administration conducts periodic by Reason for Exit “continuing disability reviews” (CDRs). 522,308 18,421 Other (4%) SSA collects information from 54,011 Does Not Meet Medical Standards (10%) beneficiaries which is sent to the state 243,814 Beneficiary Reaches Full DDS for review. How often a Retirement Age (47%) beneficiary’s medical condition or disability is reviewed depends on how 206,032 Death of Beneficiary (39%) severe it is and the likelihood that it will improve. (If medical improvement is expected, a review is scheduled every 6 Source: Social Security Administration, 2008. Annual Statistical Report on the Social Security Disability to 18 months, if medical improvement is Insurance Program, 2007. Table 50, p. 120. “Other” possible, a review is scheduled every includes people whose benefits were terminated for three years, and if medical improvement various reasons (e.g., because of an unknown address, because they were incarcerated, because they opted for a is not expected, a review is set every reduced retirement benefit). seven years.) Evidence of significant work activity can also trigger a review. Beneficiaries who have had a medical What Supports Are Available for recovery or who have successfully Beneficiaries Who Want to Return returned to work after a period of to Work? disability are removed from the disability rolls, though beneficiaries have a right to In addition to providing reliable benefits appeal a determination that would cause to people who cannot work, SSDI them to lose their SSDI benefit. provides incentives and assistance for beneficiaries who may be able to return Relatively few people leave the DI to work (Box 9). In SSDI, benefits program because they return to work or continue as long as a person remains because of a determination of medical disabled and has earnings, net of improvement. Historically, less than impairment-related work expenses, below 3 percent of any enrollment cohort leaves the SGA level. (Work expenses related to the rolls because of work, and less than a beneficiary’s impairment can be 0.5 percent of all beneficiaries on the subtracted from earnings.) rolls at a point in time eventually leave because of work.54 15 Social Security Disability Insurance: A Primer beneficiaries who work.55 These Box 9 provisions are designed to encourage work SSDI Work Incentives and Supports for SSDI beneficiaries who may be able to return to work, but need the security and  Trial work period stability Medicare’s coverage provides.  Extended period of eligibility The goal of the Ticket to Work and Self-  Continuation of Medicare coverage Sufficiency Program is to increase the (and subsequent Medicare buy-in option) level and mix of employment support  Ticket to Work and Work Incentives services available to disabled worker Program beneficiaries, enhancing their employment opportunities and leading more beneficiaries to return to work and The law also provides a 45-month period self-sufficiency. Beneficiaries receive for disabled beneficiaries to test their “tickets,” or vouchers, for employment ability to work without losing their services, case management, vocational entitlement to benefits. Disabled workers rehabilitation (VR), and support services can receive full benefits during a “trial under an individual work plan from a work period” of up to nine months. After provider of their choice, including state the trial work period ends, beneficiaries VR agencies. can receive SSDI benefits for an Although research suggests that there is additional 36 months (an “extended potential demand for employment and period of eligibility”), whenever their employment-related services among monthly earnings are below the SGA Social Security disability beneficiaries, level. the response from providers has been Medicare coverage continues for anemic. In the first year of the program 102 months once work activity begins as (2002), there was a slight increase in long as workers remain disabled under beneficiaries’ use of employment SSA’s definition. When Medicare services, but little impact on their entitlement ends because of work employment and earnings and no activity, a worker who is still medically detectable increase in exits from the disabled may purchase Medicare program. SSA revised the program coverage. To buy in to Part A, the regulations in May 2008 with the goal of premium in 2008 is $423.00 per month; improving overall effectiveness of the for Part B, it is $96.40 per month. Some program, “significantly enhancing low-income disabled workers may beneficiary choice and improving the qualify for assistance with these costs. likelihood that beneficiaries would receive the most effective support.”56 The Ticket to Work and Work Incentives Improvement Act of 1999 (P.L. 106-170) SSDI provides incentives and important expanded opportunities for people with supports for people who may be able to disabilities who want to work, in part by return to work, but it does not provide extending Medicare coverage. Before the early intervention or assistance for people act was passed, people with disabilities with what are or could be short-term or who returned to work lost their Medicare partial disabilities. A handful of states do benefits after four years. As of October 1, have mandatory, publicly financed short- 2000, premium-free Part A Medicare term disability programs. coverage is available for an additional 4½ years (54 months) beyond the previous 48 months of extended Medicare for SSDI 16 Social Security Disability Insurance: A Primer Who Applies for and Receives individual’s ability to work with a Benefits? physical or mental disability. Research on older workers, for example, shows that Social Security pays benefits to the vast demographic, social, and health majority (91 percent) of Americans over characteristics are strongly associated age 65.57 However, because there is a with probability of applying for benefits relatively small risk of work disability in in later life. Compared to nonapplicants, the working-age population (and because people with disabilities who apply for of SSDI’s strict eligibility standards), SSDI are in significantly worse health, only a tiny fraction—about one-half of have less education, are poorer, have 1 percent—of the DI-insured population worse labor market prospects, are less is awarded benefits in any given year.58 likely to be married, and are more likely In 2007, 4.7 percent of the DI-insured to be black.61 population (7.1 million out of 152.3 million) was receiving SSDI Figure 8 benefits. SSDI Awards, 2007, by Age In 2007, 804,787 disabled workers were Nearly 60 percent of awards were made to workers age 50+. awarded benefits. Fifty-three percent of those awards were to men, 47 were to 41.7% women. The share of awards made to women has increased steadily over time, 23.8% reflecting the rise in women’s labor force 15.1% participation and DI-insured status. The 7.9% 11.5% average age of disabled workers awarded benefits in 2007 was about 49 (compared under 30 30-39 40-49 50-59 60 + to 55 in 1960). About 42 percent of Total Awards in 2007 = 804,787 awards were made to workers in their Source: Social Security Administration, 2008. Annual Statistical Report on the Social Security Disability Insurance Program, 50s, 15 percent to workers in their 60s, 2007. Table 39, page 95. but a significant proportion of awards (43 percent) were made to younger workers59 (Figure 8). The complexity and length of the disability determination process likely SSDI benefits are awarded to discourages many disabled workers from beneficiaries with a wide range of applying, some of whom are likely to be physical and mental impairments. People eligible for benefits. For those who apply, with diseases of the musculoskeletal the determination process also likely system and connective tissue accounted denies benefits to many people with for 29 percent of awards in 2007, disabilities who have a significant need followed by mental disorders for support.62 Older disabled workers (23 percent), circulatory problems have the option of bypassing the SSDI (11 percent), neoplasms (10 percent), and application process, claiming (at age 62) diseases of the nervous system and sense permanently reduced early retirement organs (8 percent). The remaining benefits in Social Security. The SSA 19 percent of awardees had other generally advises these older disabled impairments.60 workers to take an early retirement benefit—a benefit that is conferred more Not everyone who meets the medical or less automatically—and also apply for criteria for SSDI applies for benefits (or SSDI. appeals an initial denial). Education, occupation, and family factors affect an 17 Social Security Disability Insurance: A Primer What Are the Enrollment and workers have increased (467,977 disabled Expenditure Trends in SSDI? workers were awarded benefits in 1990; 804,787 were awarded benefits in Between 1990 and 2007, real (inflation- 2007).63 At the same time, these workers adjusted) SSDI expenditures more than tend to stay in the program longer doubled, rising from $40.6 billion to (because they are living longer, because $98.8 billion. Despite this growth, there has been a relative increase in spending on SSDI is fairly modest, awards at younger ages, and because the representing about 3.5 percent of the age at which SSDI benefits are converted federal budget and seven-tenths of to retirement benefits is gradually being 1 percent of the nation’s gross domestic increased (to 67)). As a result, the share product (GDP) in 2007. SSDI has of the DI-insured population that is increased as a share of GDP, and the receiving benefits has increased, rising Social Security actuaries project that from 2.5 percent in 1990 to 4.7 percent in SSDI costs will grow over the next two 2007. decades from 0.71 percent of GDP in 2007 to 0.80 percent in 2025 and will Much of the recent growth, however, is decline after that (Figure 9). attributable to population aging. When changes in the age-sex composition of the population are taken into account, Figure 9 disability rates are shown to be SSDI and OASI Costs as a increasing, but at a much more modest Share of GDP, 1975–2030 rate (Figure 10). Historical Data Intermediate Projections 6.0% OASI Costs as a Share of GDP 5.71% DI Costs as a Share of GDP 4.59% Figure 10 4.52% 4.22% 4.30% 4.39% Disabled Workers Receiving Benefits 5.22% as a Share of the SSDI-Insured Population, 4.91% 4.03% 3.62% 1970–2007 3.68% 4.06% 3.58% 5.0% 4.70% 0.54% 0.57% 0.71% 0.76% 0.80% 0.78% 4% 0.46% 1975 1985 1995 2007 2010 2025 2030 Source: Social Security Administration, Office of the 2.5% Actuary, 2008. age-sex adjusted gross Recent and projected increases in program expenditures are mostly due to increases 0.0% 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 in the number of beneficiaries served by Source: The 2008 Annual Report of the Board of Trustees of the program, and, to a much smaller the Federal Old-Age and Survivors’ Insurance and degree, increases in the average benefits Disability Insurance Trust Funds, Table V.C5. paid. Following a period of retrenchment in the 1980s, awards and enrollments grew rapidly in the early to mid-1990s and more How Is SSDI Financed? slowly, but still steadily, over the next Social Security is designed to be self- decade. Between 1990 and 2007, the financing. Benefits are paid out of two number of disabled workers receiving separate trust funds, one for OASI and benefits more than doubled, rising from one for DI, funded primarily by payroll 3 million in 1990 to 7.1 million in 2007. taxes. The separate trust fund for DI, As the insured population has grown which dates from the inception of the larger and older, awards to disabled program, is designed “to ensure fiscal 18 Social Security Disability Insurance: A Primer accountability” of DI separate from OASI.64 Figure 11 Social Security Trustees’ Intermediate The Social Security payroll tax is Forecast of the Combined 12.4 percent on earnings up to a taxable OASDI Trust Fund Balance $6,000 maximum ($102,000 in 2008). Of the 12.4 percent, 10.6 percent is paid to the OASI trust fund, and 1.8 percent is paid Billions of dollars to the DI trust fund. In addition to these $3,000 payroll tax contributions, the DI trust fund receives some revenues from the taxation of Social Security benefits. $0 Upper income Social Security 2005 2010 2015 2020 2025 2030 2035 2040 2045 beneficiaries pay income taxes on part of Source: The 2008 Annual Report of the Board of Trustees of their Social Security benefits, and some the Federal Old-Age and Survivors’ Insurance and Disability Insurance Trust Funds, Table VI.F8. of this income-tax revenue is dedicated to the Social Security trust funds.65 Although income exceeds outlays and DI Interest earned on accumulated trust fund trust fund balances are growing (Figure 12), reserves is a third source of income. The the Social Security actuaries project, under combined revenues are invested in their “intermediate” or best estimate, that nonmarketable government bonds which the costs of the DI program will exceed earned an effective interest rate of income, including interest, in 2012. Then, 5.25 percent in 2007.66 Total income for the DI trust fund begins decreasing steadily the DI trust fund was $109.9 billion in until it reaches its projected exhaustion date, 2007: $95.2 billion from payroll taxes, roughly three decades from now, in 2025.68 $1.4 billion from taxation of benefits, and $13.2 billion from interest income. Total Figure 12 expenditures from the fund were $98.8 Income, Expenditures and billion, including benefit payments of DI Trust Fund Balance, 1957–2007 $95.9 billion and administrative costs of $250 $2.5 billion.67 $200 Trust Fund Balance Currently, Social Security is in surplus. Billions of dollars $150 Income exceeds outlays in the combined Income OASDI funds, and trust fund balances are $100 growing. Growth in OASDI trust fund $50 balance is projected to continue for the Expenditures next 17 years, but the Social Security $0 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 actuaries project that, beginning in 2025, Source: The 2008 Annual Report of the Board of Trustees of revenues will fall somewhat short of what the Federal Old-Age and Survivors’ Insurance and Disability is needed, and the trust fund will be Insurance Trust Funds, Table VI.A3. drawn down to make scheduled benefit payments. The actuaries project that the combined OASDI surplus will be These actuarial projections are subject to a depleted in 2041 (Figure 11). The considerable amount of uncertainty. The projected exhaustion date for the DI trust actuaries’ “low cost” projection paints a fund comes sooner than the exhaustion far rosier picture of the financial condition date for the OASI trust fund (which, of the DI trust fund—with assets under intermediate assumptions, is 2042). exceeding annual expenditures by three- to fourfold over the entire 75-year projection 19 Social Security Disability Insurance: A Primer window. Under the high cost, or most Insight on the Issues I28, April 2009 pessimistic, assumptions, the DI trust fund is exhausted by 2017.69 Written by Ellen O’Brien AARP Public Policy Institute, One option for addressing a near-term 601 E Street, NW, Washington, DC 20049 shortfall in DI (as is projected under the www.aarp.org/ppi “intermediate” assumptions) would be to 202-434-3979, ppi@aarp.org reallocate a portion of OASI taxes to DI. © 2009, AARP. Legislation would be needed to Reprinting with permission only. accomplish that, but, historically, when one of the two programs has near-term financial problems, the Congress has borrowed from or reallocated taxes from NOTES the other program.70 In 1992, the DI trust fund went into negative cash flow and 1 The SSDI waiting period is five consecutive full was projected to become insolvent in calendar months beginning with the earliest full 1995. To alleviate this problem, Congress calendar month throughout which the worker enacted the Social Security Domestic satisfied both the definition of disability and the Employment Reform Act of 1994 (P.L. disability insured requirements. The waiting 103-387), which reallocated a portion of period is waived for individuals who had a prior period of disability, which ended within five years OASI taxes to the DI trust fund, effective of the current period of disability. retroactively.71 www.socialsecurity.gov/OACT/NOTES/ s2000s.html; Tim Zayatz, “SSDI Program Worker Getting to a long-run solution on SSDI Experience,” Actuarial Study No. 188, February financing will be part of the larger 2006. discussion of—and search for solutions 2 Fact Sheet on the Old Age, Survivors, and to—the long-run solvency problem in Disability Insurance Program, Social Security Social Security as a whole. Policymakers Administration, Office of the Actuary, January 2, will need to decide how to close the 2009. www.ssa.gov/OACT/FACTS/fs2008_12.pdf. modest gap between payroll tax revenues 3 The estimated number of disability-insured and benefit payments, but the projected workers (154.5 million) comes from shortfall is not so large that it cannot be www.socialsecurity.gov/OACT/STATS/ closed with relatively modest table4c2DI.html. The estimates of the share of the workforce that is disability insured comes from adjustments. 72 Kalman Rupp, Paul S. Davies, and Alexander Strand, “Disability Benefit Coverage and Program Future revenues may be inadequate to Interactions in the Working Age Population,” Social pay the full amount of scheduled benefits, Security Bulletin, Volume 68, Number 1, 2008. but it is projected that they will be www.socialsecurity.gov/policy/docs/ssb/ adequate to pay most of those benefits— v68n1/68n1p1.pdf. The Social Security actuaries roughly 78 percent in 2042 and beyond. also estimate that 91 percent of people working in Social Security-covered employment are insured for Future Social Security beneficiaries will disability benefits. See “Fact Sheet on the Old Age, receive larger (nominal) benefits than Survivors, and Disability Insurance Program,” current beneficiaries do.73 Whether and Social Security Administration, Office of the how future SSDI beneficiaries are Actuary, January 2, 2009, at www.ssa.gov/OACT/ affected by reforms designed to achieve FACTS/fs2008_12.pdf. long-run solvency will depend on the 4 Private insurance programs also provide cash choices made by policymakers. benefits to replace wages in the event that a worker is disabled and unable to work. Private disability insurance typically fills in short-term gaps in work and wages when workers suffer 20 Social Security Disability Insurance: A Primer from short-term disabilities, and can supplement 2001, at: www.ssa.gov/policy/docs/ssb/v63n4/ SSDI when workers have long-term disabilities. v63n4p1.pdf. However, short-term and long-term disability 14 Leonesio, Vaughan, and Wixon, “Early insurance policies cover just 40 to 50 percent of jobs in medium and large establishments, and Retirees Under Social Security: Health and about 20 to 30 percent of jobs in small Economic Resources.” 15 establishments. See Carl B. Barsky, “Incidence In 1965, the definition was changed, easing the Benefits Measures in the National Compensation strictness of the duration requirement. Survey,” Monthly Labor Review, August 2004, at Impairments were no longer required to “be of www.bls.gov/opub/mlr/2004/08/art3full.pdf. long-continued and indefinite duration.” Rather, 5 In 2000, 87.5 percent of all workers and 93.9 the impairment only had to last or be expected to percent of wage and salary workers were covered. last for 12 months. See page 48 in Improving the Social Security Disability Decision Process, “Worker’s Compensation Coverage by State,” Data Fact Sheet No. 1, National Academy of Social National Academies Press, 2007. Insurance, October 2002. www.nasi.org/ www.nap.edu/catalog.php?record_id=11859#toc. 16 usr_doc/WC_Coverage_by_State.pdf. “Substantial Gainful Activity,” at 6 Olivia S. Mitchell and John W.R. Phillips, www.ssa.gov/OACT/COLA/sga.html. 17 “Eligibility for Social Security Disability See the discussion in Improving the Social Insurance,” Prepared for the Third Annual Security Disability Decision Process. National Conference of the Retirement Research Academies Press, 2007. www.nap.edu/ Consortium, “Making Hard Choices About catalog.php?record_id=11859#toc. Retirement,” May 17–18, 2001, Washington, DC. 18 www.mrrc.isr.umich.edu/publications/ At this stage in the adjudication process, conference/pdf/cp01_mitchell.pdf. because of a court decision and subsequent administrative and legislative ratification of this 7 Much of this information is based on the decision, the burden of proof switches to the discussion in Background Material and Data on government to show that an individual can, Programs Within the Jurisdiction of the House considering her impairment, age, education and Committee on Ways and Means, 2004 (also work experience, engage in some other kind of known as The Green Book), Section 1 “Social SGA that exists in the national economy. See Security: The Old-Age, Survivors, and Disability pages 28–29 in House Committee on Ways and Insurance (OASDI) Programs,” pp. 14 to 24. Means, 2004 Green Book, Section 1, “Social 8 Mitchell and Phillips, “Eligibility for Social Security: the Old-Age, Survivors, and Disability Security Disability Insurance.” Insurance (OASDI) Programs,” pp. 1–27, at http://waysandmeans.house.gov/media/pdf/ 9 Mitchell and Phillips, page 3, note 7. greenbook2003/Section1.pdf. 10 19 Mitchell and Phillips, “Eligibility for Social The adult listings can be found at Security Disability Insurance.” www.ssa.gov/disability/professionals/bluebook/A 11 dultListings.htm. There are separate and $674 is the maximum monthly benefit amount somewhat different listings for children applying for individuals living independently; $1,011 is the for SSI, which can be found at www.ssa.gov/ maximum for an eligible couple. These amounts disability/professionals/bluebook/ are maximum benefits; the benefit is reduced by a ChildhoodListings.htm. A child under age 18 will dollar for each dollar of countable income. “SSI be considered disabled if he or she has a Federal Payment Amounts for 2009.” medically determinable physical or mental www.ssa.gov/OACT/COLA/SSI.html. impairment or combination of impairments that 12 causes marked and severe functional limitations, Kalman Rupp, Paul S. Davies, and Alexander Strand, “Disability Benefit Coverage and Program and that can be expected to cause death or that has Interactions in the Working-Age Population,” lasted or can be expected to last for a continuous Social Security Bulletin, Vol. 68, No. 1, 2008, at: period of not less than 12 months. 20 www.ssa.gov/policy/docs/ssb/ House Committee on Ways and Means, v68n1/68n1p1.pdf. Background Material and Data on Programs 13 Within the Jurisdiction of the House Committee Michael V. Leonesio, Denton R. Vaughan, and on Ways and Means, 2004, Section 1, “Social Bernard Wixon, “Early Retirees Under Social Security: the Old-Age, Survivors, and Disability Security: Health and Economic Resources,” Insurance (OASDI) Programs,” pp. 1–27, at Social Security Bulletin, Volume 63, Number 4, 21 Social Security Disability Insurance: A Primer http://waysandmeans.house.gov/media/pdf/ www.socialsecurity.gov/finance/2008/ greenbook2003/Section1.pdf. Full%20PAR.pdf. 21 30 Recently, SSA asked the Institute of Medicine Sylvester Schieber, Remarks Before the to review and recommend improvements in its Association of Administrative Law Judges, Listing of Impairments. The IOM concluded that August 15, 2008, p. 4. SSA should continue to use the current Listings as 31 Data on the claims workload are from Kathleen a screening test in its disability decision process, but should increase their value and utility. See Romig, “Social Security Administration: Workloads, John D. Stobo, Michael McGeary, and David K. Resources and Service Delivery,” Congressional Research Service, February 6, 2009, at Barnes, eds., Improving the Social Security Decision Process, Committee on Improving the http://assets.opencrs.com/rpts/ Disability Decision Process: SSA’s Listing of R40207_20090206.pdf. 32 Impairments and Agency Access to Medical Sylvester Schieber, Remarks Before the Expertise, Institute of Medicine of the National Association of Administrative Law Judges, August Academy of Sciences, National Academies Press, 15, 2008, p. 4. 2007. 33 www.nap.edu/catalog.php?record_id=11859. Kathleen Romig, “Social Security Administration: Administrative Budget Issues,” 22 David Autor and Mark Duggan, “The Growth CRS Report for Congress, May 2008, at in the Social Security Disability Rolls: A Fiscal http://aging.senate.gov/crs/ss19.pdf. Crisis Unfolding,” Journal of Economic 34 Perspectives, 2006, 20(3): pp. 71–96. Social Security Administration, Justification of Estimates for Appropriations Committees, Fiscal 23 See “Appeals Process,” page 4 in the Year 2009. www.socialsecurity.gov/budget/ Background section of Annual Statistical Report 2009cjapp.pdf. See page 12 of the “Annual on the Social Security Disability Insurance Performance Plan for Fiscal Year 2009 and Program, 2006. SSA. www.ssa.gov/policy/docs/ Revised Final Performance Plan for Fiscal Year statcomps/di_asr/2006/di_asr06.pdf. 2008.” 24 35 Jerry L. Mashaw and Virginia P. Reno, eds., See “Commissioner’s Broadcast, March 11, 2009” The Environment of Disability Income Policy: at ssa.gov/legislation/FY09Appropriation.pdf Programs, People History and Context, 36 Washington, DC: National Academy of Social Annual Statistical Supplement, 2007, data for Insurance, www.nasi.org/usr_doc/ December 2006. Environment_of_Disability_Income_Policy.pdf. 37 Annual Statistical Report on the SSDI Program, 25 SSA’s Fiscal Year 2008 Performance and 2007, p. 22, table 4. Accountability Report, www.socialsecurity.gov/ 38 Annual Statistical Report on the SSDI Program, finance/2008/Full%20PAR.pdf. 2006, pp. 150–151, tables 64 and 65. 26 39 Office of the Inspector General, Social Security Green Book, 2004, section 1, page 1–24. SSDI Administration, Disability Claims Overall payments are reduced by the amount, if any, that Processing Times, December 2008, A-01-08- the total monthly benefits payable under the 18011, www.ssa.gov/oig/ADOBEPDF/ public benefit programs exceed 80 percent of the A-01-08-18011.pdf. average current earnings before the worker 27 Statement of Gooloo S. Wunderlich, became disabled. The combined payments are Subcommittee on Social Security of the House never less than total amount of DI benefits Committee on Ways and Means, July 11, 2002 at payable before the reduction and the original http://waysandmeans.house.gov/ amount of benefits subject to reduction is re- legacy.asp?file=legacy/socsec/107cong/ determined to reflect changes in average wage 7-11-02/7-11wund.htm. levels every three years. 40 28 U.S. Government Accountability Office, Jane Ross, deputy commissioner for policy, “Social Security Administration: More Effort Social Security Administration, “Disability Needed to Assess Consistency in Disability Options in the Private Sector,” Prepared Decisions,” July 2004, at www.gao.gov/ Statement Before the House Budget Committee, new.items/d04656.pdf. Tuesday, June 22, 1999. www.ssa.gov/ legislation/testimony_062299.html. 29 SSA’s Fiscal Year 2008 Performance and Accountability Report, p. 51, at 22 Social Security Disability Insurance: A Primer 41 Social Security, Office of the Chief Actuary, and Costs,” July 2003, Commonwealth Fund. “Fact Sheet on the Old-Age, Survivors, and www.commonwealthfund.org/usr_doc/ Disability Insurance Program,” January 2, 2009, 660_Dale_elimination.pdf?section=4039; and at www.socialsecurity.gov/OACT/FACTS/ Robert Weathers and Anne DeCesaro, “Health fs2008_12.pdf. Care Coverage Among SSDI Beneficiaries within 24 months of Entitlement,” Presentation to the For SSDI, the family maximum benefit payable on Society of Government Economists conference, the wage earner’s Social Security earnings record June 2, 2008. is one and a half times the wage earner’s benefit. 50 The wage earner always receives his or her own Weathers and DeCesaro. benefit, and dependents’ benefits can be no more 51 than 50 percent of the worker’s benefit. Since Julie M. Whittaker, Social Security Disability each eligible dependent is entitled to up to Insurance (SSDI) and Medicare: The 24-Month Waiting Period for SSDI beneficiaries under Age 50 percent of the wage earner’s benefit, the disability benefit family maximum is reached with 65, CRS Report for Congress, July 14, 2005. even one eligible dependent. Whenever one http://digital.library.unt.edu/govdocs/crs/ permalink/meta-crs-7749:1. dependent becomes ineligible, the amount payable 52 is redistributed among the remaining eligible Juliette Cubanski, Patricia Neuman, Michelle dependents. Kitchman Strollo, et al., 2008. Examining Sources 42 of Coverage Among Medicare Beneficiaries, Anne DeCesaro and Jeffrey Hemmeter, “Characteristics of Noninstitutionalized DI and Findings from the Medicare Current Beneficiary SSI Program Participants,” Research and Survey, 2006. Washington, DC: Kaiser Family Foundation. Statistics Note, No. 2008-02, January 2008. www.ssa.gov/policy/docs/rsnotes/ www.kff.org/medicare/upload/7801.pdf. 53 rsn2008-02.pdf. Financial assistance is available through some 43 state Medicaid programs to low-income people DeCesaro and Hemmeter. with disabilities who are required to pay part A 44 DeCesaro and Hemmeter. premiums because they are no longer entitled to 45 free Medicare part A benefits (because they have This estimate is based on data from the 1994 successfully returned to work and exhausted the Survey of Income and Program Participation. Data free Medicare part A benefits available to them are reported in Laurel Beedon and Mitja following the end of their disability benefits). Baumhackl, “Social Security Disability Income: 54 Some Facts,” AARP Public Policy Institute, 2003. Evaluation of the Ticket to Work Program: http://assets.aarp.org/rgcenter/econ/fs92_ssdi.pdf. Assessment of Post-Rollout Implementation and 46 Early Impacts, May 2007, p. 3, at Under Title XVIII of the Social Security Act, www.mathematica-mpr.com/publications/pdfs/ Health Insurance for the Aged and Disabled, TTWpostrolloutvol1.pdf. www.ssa.gov/OP_Home/ssact/title18/1800.htm. 55 47 “Questions and Answers on Extended Medicare People with ESRD or kidney failure are eligible Coverage for Working People with Disabilities,” for Medicare after three months and people with at www.socialsecurity.gov/ ALS are eligible for Medicare in the first month disabilityresearch/wi/extended.htm. they are eligible for SSDI, as are people who have 56 received a kidney transplant. Julie M. Whittaker, “Amendments to the Ticket to Work and Self Social Security Disability Insurance (SSDI) and Sufficiency Program,” Federal Register, Volume Medicare: The 24-Month Waiting Period for 73, No. 98, May 20, 2008, at SSDI beneficiaries under Age 65. CRS Report for htt://frwebgate5.access.gpo.gov/cgi-bin/ Congress, July 14, 2005. PDFgate.cgi?WAISdocID=675018114415+0+2+ http://digital.library.unt.edu/govdocs/crs/ 0&WAISaction=retrieve. permalink/meta-crs-7749:1. 57 “Overview of the Social Security 48 Congressional Budget Office, Budget Options, Administration,” in SSA’s Fiscal Year 2007 Volume I: Health Care, December 2008, page 41. Performance and Accountability Report, at http://cbo.gov/ftpdocs/99xx/doc9925/ www.socialsecurity.gov/finance/2007/ 12-18-HealthOptions.pdf. Overview_of_SSA.pdf. 49 58 Stacy Berg Dale and James M. Verdier, DI Disabled Worker Incidence Rates are “Elimination of Medicare’s Waiting Period for reported by the Trustees, at Seriously Disabled Adults: Impact on Coverage 23 Social Security Disability Insurance: A Primer 68 www.socialsecurity.gov/OACT/TR/TR08/ The 2008 Annual Report of the Board of LD_figVC3.html. Trustees of the Federal Old-Age and Survivors’ 59 Insurance and Disability Insurance Trust Funds, Annual Statistical Report on the Social Security table IV.A2. www.ssa.gov/OACT/TR/TR08/ Disability Insurance Program, 2007, table 36, p. IV_SRest.html#251965. 89, and table 39, p. 95, at 69 www.ssa.gov/policy/docs/statcomps/di_asr/ Trustees’ Report, 2008, table IV.B3. INSIGHT on the Issues 2007/. www.socialsecurity.gov/OACT/TR/TR08/ 60 IV_LRest.html#316289. Annual Statistical Report on the Social Security 70 Disability Insurance Program, 2007, chart 10, Stephen C. Goss, “The Financial Outlook for page 87. the Social Security Disability Insurance 61 Program,” Social Security Bulletin, Volume 66, Olivia S. Mitchell and John W.R. Phillips, No. 3, 2005/2006. “Applications, Denials and Appeals for Social 71 Security Disability Insurance,” University of “Facts from EBRI—The Basics of Social Michigan Retirement Research Center, Working Security, Updated with the 2008 Board of Paper, 2002-032. Trustees Report,” EBRI Notes, April 2008, 29(4), 62 at www.ebri.org/pdf/EBRI_Notes_04-20081.pdf. David C. Stapleton, “The Eligibility Definition 72 Used in SSA’s Disability Programs Needs to be Alison Shelton, Reform Options for Social Changed,” Presentation to the Social Security Security, AARP Public Policy Institute, April Advisory Board Discussion Forum on the 2008. http://assets.aarp.org/rgcenter/econ/ Definition of Disability, Washington, DC, April i3_reform.pdf. 14, 2004. 73 CBO, August 2008. Updated Long-Term 63 Annual Statistical Report on the Social Security Projections for Social Security. Disability Insurance Program, 2007, p. 88, table www.cbo.gov/ftpdocs/96xx/doc9649/ 35. 08-20-SocialSecurityUpdate.pdf. 64 Jerry L. Mashaw and Virginia P. Reno, eds., The Environment of Disability Income Policy: Programs, People History and Context. Washington, DC: National Academy of Social Insurance, at www.nasi.org/usr_doc/ Environment_of_Disability_Income_Policy.pdf. 65 Higher income beneficiaries (about the top 20 percent currently) pay taxes on their Social Security benefits. In general, if a married beneficiary has adjusted gross income (including 50 percent of their Social Security benefits) exceeding $32,000 ($25,000 for single persons), then the lesser of 50 percent of Social Security benefits or 50 percent of the income above this amount is subject to taxation. For a married beneficiary with income above $44,000 ($34,000 for single persons), an additional amount equal to 85 percent of income above this amount is included in taxable income, up to a maximum of 85 percent of Social Security benefits subject to taxation. 66 Social Security Administration, “Trust Fund FAQs” at www.ssa.gov/OACT/ProgData/ fundFAQ.html#n3. 67 The 2008 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors’ Insurance and Disability Insurance Trust Funds, table IV.A2. www.ssa.gov/OACT/TR/TR08/ IV_SRest.html#251965. 24