Boskin Underscores the Need for DI Reform

With all of the new developments in tax reform it may be easy to forget about entitlements. But Michael Boskin, former chairman of the Council of Economic Advisers, reminds us in a recent piece that we really do not have much time to wait on Social Security Disability Insurance (SSDI) reform.

Unlike the old-age trust fund, which is expected to be depleted by 2035, and Medicare Part A's trust fund, which is expected to be depleted by 2026, SSDI's insolvency date is in only three years, at which point benefits would have to be cut by 20 percent unless funds are transferred from the old-age program. If they are, the combined trust fund would be exhausted in 2033. The former two entitlement programs should be reformed to ensure a gradual transition, but with SSDI, we barely even have that luxury.

Without reform, Boskin states, the program will only become more difficult. From 1980 to 2012, the number of SSDI beneficiaries has increased by 187 percent, and the drivers of this increase make inaction threatening. The rise is not only a result of aging demographics, a growing population, and women entering the labor force, but also, Boskin states, three fundamental problems within the program.

For one, Boskin argues, Congress has progressively loosened disability insurance eligibility reviews. Not only has this increased the sheer number of beneficiaries, but it has also changed the type of beneficiary. Broadening eligibility has resulted in a big transition in SSDI from circulatory and musculosketal disabilities in the 1980s to a focus on things like mental disabilities today. These disabilities are all given the same weight within the program, but the latter group is generally much more difficult to identify, diagnosed young, and generally incurable.

Second, because disability insurance benefits have gradually increased relative to wages, work incentives have gradually weakened. Because of this, Boskin argues that "disability insurance has clearly become, in part, a form of extended unemployment insurance and early retirement, with Medicare benefits."

Lastly, Boskin argues that states are pushing people from low-income programs like Medicaid onto SSDI because some of the costs of the former are paid by states while the latter is paid entirely by the federal government.

[chart:6082]

^{Source: Social Security Trustees}

The result, combined with the demographic forces, is a fourfold increase in the number of beneficiaries since 1970 and an eightfold increase in costs (adjusted for inflation) since 1970, with revenues unable to keep up. Boskin offers several potential solutions that work towards financial sustainability while attempting to leave the goals of the program intact (click here for more options). He proposes creating a more uniform definition of "disability" and redesigning decisional procedures for administrative law judges. Once applicants are admitted into SSDI, Boskin calls for more frequent re-evaluations. To strengthen work incentives within the program, he believes that a combination of early intervention programs, providing more information on job options, and varying DI employer taxes with the rate of disability incidence would encourage more beneficiaries to return to or stay in the workplace.

In only three years, the SSDI program will have exhausted all trust fund reserves, at which point, the program will have to begin transferring funds from the old-age trust fund or face a 20 percent cuts to benefits. Clearly, something needs to be done on disability insurance. There are many options for reform, including those presented by Boskin, our Social Security simulator "The Reformer," the Hamilton Project, the CBO, and CRFB senior policy director Marc Goldwein.