Federal Disability Insurance Nears Collapse

Washington looks the other way as disability insurance funds dry up
Senator Tom Coburn (left): "The fund is going bankrupt. ... What are we going to do?" Senator Max Baucus: "There are other things that are more imminent" Coburn: Susan Walsh/AP Photo; Baucus: Bill Clark/CQ Roll Call/Getty Images

For years, members of Congress have dithered over how to shore up the rapidly dwindling coffers of Social Security and Medicare. Yet chances are you haven’t heard any dire warnings about another massive entitlement program that will soon go insolvent if Congress doesn’t act. That’s because lawmakers have studiously avoided talking about it—and aren’t likely to this election year.

The pot of money the Social Security Administration is using to cover disability insurance is projected to run dry in 2016. That means more than 9 million out-of-work disabled Americans, plus their spouses and children, who also qualify for benefits, would see their checks shrink 21 percent. (Incoming payroll taxes will cover 79 percent of the benefit.) President Obama didn’t address the looming shortfall in his 2012 budget. Nor did House Budget Committee Chairman Paul Ryan (R-Wis.). That both parties are ignoring the issue aggravates Republican Senator Tom Coburn (Okla.), one of the few lawmakers who wants the program overhauled. “Nobody wants to touch things where they can be criticized,” he complains.

The disability rolls have swollen 23 percent since 2007, in part because of the bad economy. Many people who can’t find work exhaust their unemployment benefits, then turn to disability for assistance—not always legitimately. The benefit pays an average $1,111 a month per worker. “They’re desperate,” says Ken Nibali, a retired associate commissioner of the program. “They figure, ‘I do have trouble working, and I’m going to apply and see if I’m eligible.’ ”

That’s not as difficult as it used to be. The program once focused on people with debilitating conditions such as strokes, cancer, and heart attacks where there was no question about a diagnosis. During a round of cost-cutting measures in the early 1980s, the Reagan administration halted aid to hundreds of thousands of Americans. Some lost their homes after being dropped, prompting Congress to reverse the cuts—and to expand the benefits pool to people with depression, back pain, chronic fatigue syndrome, and other ailments with more subjective diagnoses. In West Virginia, 9 percent of residents from the ages of 18 to 64 received the aid in 2010, the most of any state. Utah and Alaska had the lowest rate, 2.8 percent.

Disabled workers, regardless of their age, can go on Medicare after a two-year waiting period. That’s another incentive for Americans working low-income jobs without health insurance to try to qualify for disability, says Nibali.

Fewer than 1 percent of those who begin collecting disability go back to work, government statistics show. Meanwhile, periodic reviews meant to ensure that people drawing government checks actually are entitled to them aren’t getting done; the Social Security Administration says it doesn’t have the funds to clear a backlog of 1.4 million reviews.

Last year the program cost taxpayers $132 billion—more than the annual budgets of the Departments of Agriculture, Homeland Security, Commerce, Labor, the Interior, and Justice combined. “It’s really striking how rapidly this is growing, how big it’s become, and how D.C. is just afraid of it,” says Mark Duggan, a University of Pennsylvania economist and adviser to the program.

Critics including Coburn say it wouldn’t be hard to find savings by demanding more aggressive screening of applicants and more incentives for them to rejoin the workforce—if Congress only tried. Democratic Senator Max Baucus (Mont.), who chairs the committee that sets Social Security policy, says lawmakers are too busy with the expiration of the Bush tax cuts, the automatic reductions in defense spending, and overhauling the tax code to take up broad changes to disability insurance. Says Baucus: “One thing at a time.”


    The bottom line: The number of Americans on disability has jumped 23 percent since 2007. They face 21 percent cuts to their benefits in 2016.

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