Republicans Target the SSA
On January 12th, 2015, Congressman Tom Price announced that one of his chief goals as the new chairman of the House Budget Committee is to tackle profligate entitlement spending. When it comes to entitlements, the biggest of them all is Social Security. Social Security is more than just your pension. Your Social Security taxes also pay for Social Security Disability Insurance (SSDI). The SSDI program has been the target of the Senator emeritus, Tom Coburn. Senator Tom Coburn devoted the twilight of his career toward ferreting out waste, fraud, and abuse in the SSDI entitlement.
The purpose of this post is to explain the upcoming battle over disability benefits. This beleaguered government benefit is poorly understood by the politicians who rail against it. Republicans, such as Senator Rand Paul, are laying the groundwork to sway public opinion against funding the entitlement.
What is SSDI?
SSDI is a public disability benefit available for individuals who have been paying their taxes for 5 out of the past 10 years. If you have been paying the requisite taxes and are expected to be out of work for a year or more, then you may be eligible for SSDI. There is a 5 month waiting period for you before you can receive benefits. The idea with the waiting period is to screen out applicants who are only disabled for a short period of time (recovering from surgery, injuries, etc.).
If the Social Security Administration (SSA) determines that you’re disabled, then you receive a cash benefit until you recover or retire, whichever comes first. The amount of your cash benefit varies with how much money you were making [use the SSA retirement estimator to guess how much your SSDI would be]. In addition, disabled individuals qualify for Medicare after a waiting period. In sum, SSDI is a cash and healthcare benefit that generally lasts you for the rest of your life.
What’s the Big Deal?
Your Social Security taxes are held in a trust fund by the government. The portion of the trust fund designated to fund the SSDI program is running out of money. In the first half of 2014, the trust fund was down $10.4 billion and ran a deficit of $11.8 billion in the first half of 2014. Some predict that the trust fund will be exhausted at some point in 2016. This does not mean that SSDI vanishes; it means that the government will only be able to meet a portion of its obligations. Most estimate that is nothing is done, the SSA will only be able to pay 80% of the current SSDI benefits at some point in 2016 or early 2017.
What About Taxes?
SSDI is funded through FICA & OASDI taxes. This tax is interesting in that it’s taxed only up to a maximum wage of $118,500 at 6.2% for the tax year 2015. This means that high wage earners stop paying their Social Security taxes after earning $118,500. In other words, the maximum tax you can pay on Social Security for 2015 is $7,316. This is as true for billionaires as well as those making $118,501.
Who is Disabled?
If President Clinton questioned the meaning of the term “is” then you can bet that the term “disabled” has some legal jargon behind it. To qualify for disability, you must satisfy a 5 prong test: (1) Are you currently working?; (2) Are your conditions severe?; (3) What’s your past relevant work?; (4) What’s your residual functional capacity?; (5) Given your capacity, are there any other jobs in the national economy that you can do?
Each prong is loaded with technicalities, but you can summarize disability as: If you are out of work or expected to be out of work for a year or more as a result of severe conditions which preclude you from working your job or any other, then you qualify as disabled.
What About Fraud?
Senator Coburn is convinced that SSDI is littered with people who are not really disabled and are scamming the American taxpayers out of billions each year. Most of his ire is directed at the aptly named attorney Eric Conn, who allegedly bribed a federal judge to declare his claimants disabled. In addition, the rising ranks of the disabled is offered as proof of the widespread abuse of the SSDI entitlement.
There is little doubt that Conn is an awful person and should have been disbarred for this ethical improprieties. Unfortunately, nothing will happen to him.
Regardless, Senator Coburn’s distaste for SSDI appears to ignore a major demographic reality: the boomers are getting older. The aging American population puts a strain on SSDI. This is reflected in the private sector as well. Long term disability policy actuaries are reporting financial strain as the largest segment of our society ages into retirement. Even the private sector is struggling to deal with America’s aging population.
Our nation’s disability problem is a canary in the coal mine. As the general population ages, it’s going to be difficult to finance the whole Social Security Administration. First the disability trust fund will need to be addressed, but soon those disabled workers will shift into the general retirement entitlement. At that point the same issue comes up again.
What Solutions Exist?
Major government problems are typically solved with one of two solutions: (1) raising taxes; or (2) cutting benefits. It’s clear from the Republicans’ rhetoric that they’re interested in cutting Social Security’s alleged profligacy. If you accept that the ranks of the disabled are rife with fraud scammers, then it makes sense to cut the benefits. However, if the disabled really are disabled, then we are really just cutting benefits to people who will fall into a financial abyss from which they have no ability to return.
There is no question that there is fraud in SSDI. The question hinges on whether fraud is so rampant that it makes sense to cut the benefits for the millions of legitimately disabled citizens in the United States. Like it or not, human bodies age and older people are disproportionately more disabled than younger people. As our society ages, our disability and pension programs will struggle to keep up with their financial obligations. Does it make sense to hunt down fraud if it constitutes less than 1% of the total recipients? No clear evidence exists supporting any allegations of rampant fraud.
If you are open to raising taxes, then eliminating the FICA income cap would go a long way toward preserving Social Security. This graph demonstrates how long we could preserve all SSA benefits (including pension and disability).
Raising taxes is generally a non-starter with voters. So, if we’re not willing to pay for disability benefits, then we have to consider cuts. So, what do we cut? Do we cut the cash benefit for the disabled? That cash benefit averages $1,100 per month for the typical disability beneficiary. Assuming all you receive is SSDI, then you’re living in poverty.
What about making it harder to receive disability benefits? Well, it already takes 2 years or longer to receive disability benefits due to the scrutiny from the SSA. Increased regulations will only add to the already unconscionable wait time. It’s unjust for someone suffering from multiple sclerosis or grand mal seizures to have to wait 2 or more years for disability benefits.
There is no great solution. You don’t want pay taxes. The disabled can’t work. Unless you’re okay with saying, “Crutch yourself to work,” then it’s hard to find a common ground. I anticipate the Republicans to vilify the SSDI entitlement in order to make their point that we need to cut benefits for the disabled. It’s easy to cut benefits if we all think that they’re going to a broad population of swindlers. However, little evidence supports the allegation that most of the disabled could actually work. In fact, given the substantial hurdles it takes to get on SSDI, it’s more likely than not that the population receiving the benefits are actually too disabled to work.
On the other hand, if we assume that the overwhelming majority of those receiving SSDI are actually disabled, then we face an enormous problem. There are a lot of people out there who legitimately need society’s help because they can’t provide for themselves. What are we going to do when all the money runs out?