The “Other” Social Security: Yeah, It’s Broken, Too.
Amid the fierce debate over our tottering Social Security program, it’s easy to lose sight of the fact that Social Security isn’t just an entitlement for those over the age of 65. It’s also a government-run disability insurance program for over 152 million American workers. And not surprisingly, it’s a government program that is poorly run and on the brink of collapse.
A Tattered Safety Net
The Social Security Disability Insurance (SSDI) program was designed to provide a safety net for working Americans under the age of 65 in case of disability. About 8.1 million workers receive disability benefits from the program, a number that has been rapidly growing over the last two decades. As a result, the disability insurance program is in even worse shape than the retirement benefits program.
According to an excellent recent study published by the Brookings Institute and The Center for American Progress (certainly not anti-entitlement sources), “SSDI expenditures currently exceed the payroll tax revenue the program collects, and analysts project that the SSDI trust fund will be exhausted in 2018, twenty-two years ahead of the trust fund for Social Security retirement.” Regardless of the effectiveness or merits of the program, it is fiscally unsustainable.
Skyrocketing Payouts and Perverse Incentives
But the problem isn’t just that SSDI is unsustainable. It’s also a horrifically bad program, littered with dependency-creating incentives that are fostering a swelling tide of workers living off of other workers who weren’t smart enough to get onto the disability bandwagon.
A significant part of the SSDI’s problem is that the program’s responsibilities are ballooning for no good reason. While the disability rate in the American workforce has held steady around 10% in the last two decades, the number of Americans receiving disability benefits from SSDI has doubled, and payouts have increased from around $40 billion to $121 billion annually.
In other words, the overall number of disabled Americans has not increased, but the number of non-working disabled Americans has. Disabled workers are checking out of the work force, and checking onto the government dole. This in itself is a troubling indication that the program is operating less like a needed safety net, and more like an increasingly attractive gravy train.
Inbuilt Fallacies
As with most government entitlements, the Social Security Disabilities Insurance program operates with fallacies inbuilt into the system. One of these fallacies is that disabilities and employment are mutually exclusive, an assumption that is increasingly indefensible in our technology based economy.
A disability, even a severe one, doesn’t mean that the disabled individual is permanently unable to work or even be self-sufficient. But the SSDI system comes with a built-in incentive for workers to stay unemployed, because benefits aren’t available to those who are employed at the time of application.
The disproportionate increase in SSDI dependents indicates that given a choice between paychecks and government checks, many individuals choose the latter. After all, why risk returning to the workforce once receiving benefits? It’s a no-brainer because SSDI benefits have no time limit. Not surprisingly, 99% of enrollees never return to work.
Bad Backs and Mental Disorders
In 1984, Congress liberalized the application requirements to make it substantially easier for applicants with subjective and non-verifiable disorders—most importantly, pain and mental illness—to qualify for SSDI benefits.
Not surprisingly, mental and musculoskeletal disorders currently comprise 54 percent of all SSDI awards, compared to only 27 percent in 1981. (And if you’re curious, ‘musculoskeletal disorders” includes the infamous “bad back” that’s been a mainstay of work-skippers for as long as there’s been work to skip.)
In a telling episode, a mid-nineties crackdown on alcoholics claiming disability simply resulted in most alcoholics being readmitted under the guise of suffering from “mental illness.”
In a nutshell, the reality of SSDI is unsurprisingly ugly. It’s a bloated entitlement that is inflating at a rapidly increasing rate, extorting taxpayers and threatening the already unstable Social Security house of cards. It’s a program loaded with perverse incentives and riddled with freeloaders, parasites and opportunists who take advantage of the proverbial government generosity with other people’s money.
That’s not to say that disability insurance is inherently superfluous or unnecessary. It goes without saying that there are many legitimately crippling disabilities suffered by working Americans that prevent employment temporarily or permanently. Such instances are not so rare that they can be ignored, but the presence of a problem does not lead inevitably to the need for a government solution.
Privatization: The Right Solution That Nobody Wants
Currently the payroll tax supporting the SSDI is set at 1.8 percent. And as David Autor and Mark Duggan estimate in their recent paper, the cost of a premium private disability insurance plan hovers around the $250 mark – annually. A worker making even a marginal yearly salary would easily be able to pay for their own private insurance and have money left over simply by dedicating his 1.8% to a private account.
Indeed, simply allowing workers to divert their payroll tax to a private account would create a minor economic stimulus while still providing a personal safety net for each worker in the event of disability. At some point, taxpayers must ask if investing in a public disability entitlement provides the best bang for their buck.
Privatization may be unpopular with current beneficiaries of SSDI, but the rapidly approaching insolvency of the program leaves little choice but to implement some kind of reform.
Privatization protects taxpayers and the economy they support, and it would avoid the predictable wastefulness of a government supervised program. Workers who choose not to purchase private disability insurance would still have substantial protections built into the system in the form of Workman’s Comp, Americans with Disabilities Act protections, Medicare, Medicaid and unemployment benefits.
Transitioning to a private account system should include safeguards for legitimately disabled dependents of SSDI, and the overall transition process will of necessity be a gradual one.
But if there is one thing that is certain, it is that the current system is fast approaching insolvency, and demands drastic change. And like many of the utopian programs instituted by welfare-state aficionados, SSDI has created so much dependency that there is no easy way out.
Any reform will inevitably leave either beneficiaries or taxpayers cold, yet the failure to reform means eventual bankruptcy. Ultimately, the solution for SSDI is simple but painful – stop feeding the beast, and start freeing the taxpayer.
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