Government Watch

Experts Discuss SSDI Reform with Congressional Staff

Capitol-Hill-DomeBy – Peter Finocchio

On Tuesday, the Mercatus Center along with the Committee for a Responsible Federal Budget hosted three panel discussions on Capitol Hill that gathered many of the leading experts on Social Security and invited Congressional staff to be part of the discussion. The topic of the event was responsibly confronting Social Security Disability Insurance’s (SSDI) financial crisis. The panelists stressed the urgency of SSDI’s depleting funds and made many recommendations for reform. They emphasized the need for comprehensive, structural reforms to the system over temporary band-aid fixes that do not address the underlying financial problems.

The first panel consisted of Stephen Goss, Chief Actuary at the Social Security Administration, Charles Blahous, Director of Mercatus’ Spending and Budget Initiative, and Ed Lorenzen, Senior Advisor of the Committee for a Responsible Federal Budget (CRFB). Stephen Goss assessed the current crisis and some of the proposed reforms. Goss said that the imbalance of payments in SSDI requires immediate attention. The consequence of delay, he said, is that we face a choice between raising revenue by 33% and reducing program benefits by a 25% cut. Charles Blahous said that the SSDI shortfall offers a glimpse into the future of OASI – the larger program for Social Security retirees. Baby Boomers, he said, are already hitting the eligibility age for DI, but soon they’ll be eligible for full retirement benefits. Blahous emphasized the need to take immediate, comprehensive action to reform SSDI and OASDI. “Time is the enemy,” he warned. “If delayed until 2033, even a 100% benefit reduction wouldn’t be enough to save DI.” Blahous argued that ultimately Congress will likely have to both slow the benefit award rate growth and raise taxes.

Ed Lorenzen called the SSDI shortfall “the warning buoy of the tidal wave of retiring Baby Boomers.” Lorenzen put the current crisis into historical perspective, pointing out how past legislative “fixes” delayed much-needed reforms. Such was the case with reforms undertaken in 1977, 1980, 1983, and 1994, when, faced with an immediate shortfall in one of the two funds, SSDI or OASI, Congress did little more than shift money between the two. Now, with both funds facing an imminent shortfall, Congress must pursue “absolute, comprehensive reform,” Lorenzen explained. The last major funding reallocation was the 1994 reform. Even then, as the panel discussed, Social Security Trustees emphasized it as a temporary fix and stressed the need for comprehensive reform. Despite the Trustees’ recommendations and the promise of the needed reforms in ten years, it has now been twenty years and nothing has been done. The experts agree that the luxury of waiting is something that we no longer have.

The next panel made a strong case for structural reform to SSDI by exposing the incentives against work in the current program. The second panel’s two witnesses were Andrew Biggs, a resident scholar at the American Enterprise Institute (AEI) who advised President George W. Bush on Social Security reform, and David Stapleton, Senior Fellow and Director at the Center for Studying Disability Insurance. Biggs noted on a peculiar trend in SSDI allocations: despite a safer workplace, the proportion of those out of work because of disabilities has increased. This is because far fewer workers with disabilities are working now than in the past. In 1990, 28% of individuals with self-reported disabilities remained in the workforce. Today the percentage has been cut in half, to just 14%. The liberalization of SSDI requirements by Congress in the 1980s and 1990s has abetted this trend, as has the stagnation of wages for low-income earners. Looser eligibility requirements and stagnant wages have made the disability program more attractive to low-skilled workers. Because of this, Biggs contended, any significant reform of disability insurance needs to address this problem by increasing the rewards to work and by helping disabled workers stay on the job and attached to the workforce. Biggs recommended an increase in the earned income tax credit (EITC), especially for childless workers who seldom qualify, in order to increase the rewards of work. Additionally, he advocated changes that would make it easier for workers with disabilities to not only return to the workforce, but to stay in the workforce despite injuries, pointing out that the former is more difficult than the latter. David Stapleton noted the fact that people have to be out of the labor force for five months to qualify as another incentive that makes it harder for people to work. He also indicated many organizations that benefit when people with disabilities drop out of the workforce. Among those who do not benefit are the actual workers the system is designed to serve. “The system is not serving people with disabilities very well,” Stapleton summarized.

On the last panel of the afternoon, attendees heard from Marc Goldwein, Senior Vice President and Senior Policy Director of the Committee for a Responsible Federal Budget, Marc Warshawsky, visiting scholar at the Mercatus Center, and Jason Fichtner, a senior research fellow at Mercatus. Goldwein echoed the previous panel’s calls for structural reform that make it easier for people to return to work. He suggested that with medical treatment and vocational retraining, many of those currently on SSDI could be better off remaining in the workforce. “Right now it is an all-or-nothing system,” he stated. “There may be room for a partial or temporary disability system.” Goldwein urged listeners to check out his website for more details on reform proposals. Additionally, Warshawsky explained how the loosening of eligibility requirements for SSDI contributed to a more rapid than expected decline in funds. In 2004, the fund was estimated to be 25 years away from exhaustion, but now it is expected to dry up in a year. He also pointed out waste in the program. From 2005 to 2014, $72 billion was lost due to mistakes made by administrative law judges (ALJs). Warshawsky recommended capping the number of hearings for these judges to 500 annually as well as limiting their terms to 15 years. Additionally, he recommended updating the eligibility rules for disability insurance to eliminate age, education, and language qualifications in light of the minimization of these barriers. Fichtner also recommended new categories in SSDI for partial and temporary disabilities. “Disability is not always static but is often dynamic,” he said. Fichtner echoed the call for “comprehensive Social Security reform.” “SSDI would be a stronger program if addressed holistically,” he concluded. “While many DI reforms can be introduced as stand-alone bills, they would be stronger if enacted together.”

AMAC believes the dialogue on the Hill this week was very productive. Although the SSDI crisis is a serious one, the reforms proposed would go a long way to reforming the system. AMAC will continue to champion real reform to SSDI so that the program will be solvent for current and future generations. We are proud to further contemplate and consider many of the reform proposals that have been recommended by these leading experts. AMAC urges our members to contact their Representatives and Senators in Washington and to emphasize the importance of taking action to save and strengthen Social Security.

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