Five ways to reform Social Security Disability Insurance


(Source: Center for American Progress)

Chana Jaffe-Walt's NPR article/segment on disability insurance has provoked considerable debate as to the program's health and how, if at all, it needs to be changed. So what reform proposals are on the table?

  1. Put a mandate on it: Perhaps the most influential reform proposal comes from MIT economics chairman David Autor, whom Jaffe-Walt quoted in her piece, and the University of Maryland's Mark Duggan. Published jointly by the Center for American Progress and the Hamilton Project, the Autor/Duggan plan is adapted from a policy regime that's had good results in the Netherlands.
    Under the plan, employers would be required to pay premiums for disability insurance for their workers. Up to half the cost of those premiums could be deducted from earnings. Employees become eligible after 90 days of employment, and the earliest they can get their first check is after 180 days of employment.
    The coverage would kick in if an employee develops a disability that affects his or her work. The plans would cover vocational support to help employees do their jobs while disabled, and wage replacement of up to 60 percent of income to make up for lost productivity and, in some cases, reduced hours. The wage replacement would have to continue if the employee left the job.
    The benefits would run out after 27 months, and after 18 months of collecting benefits, employees could apply for Social Security Disability Insurance payments. That's a much longer wait time than the current five-month SSDI waiting period. The idea is that this would give employers an incentive to accommodate disabled employees and give those employees a strong incentive to stay in the workforce by not reducing benefits if they keep working (as happens under SSDI). But the plan is also intended to leave SSDI in place for beneficiaries who really cannot work.
  2. Higher taxes for employers who produce disabled workers: A variant on the Autor/Duggan plan is offered by the San Francisco Fed's Mary Daly (also quoted by Jaffe-Walt) and Cornell's Richard Burkhauser in their book, "The Declining Work and Welfare of People with Disabilities." Daly and Burkhauser would give employers with low rates of disability insurance use a tax break, and increase taxes on employers who send a lot of workers onto disability.
  3. Try a few approaches, expand what works: The Kennedy School's Jeffrey Liebman and the OMB's Jack Smalligan have proposed the creation of three demonstration projects to test possible reforms to the program. One would mimic either the Autor/Duggan plan or the Daly/Burkhauser plan. Another would attempt to prevent applications for insurance through the provision of wage subsidies and vocational aid to disabled workers tempted to leave the workforce The third would let states use disability funds and experiment with their own reforms through waivers (update: the post originally compared the plan to block grants; Liebman writes in to clarify that waivers are the more accurate point of comparison).
    Liebman and Smalligan also want to grant the Social Security commissioner more flexibility in administering the program, with the hope that this could reduce costs and target the program more effectively.
  4. Ease the phase-out: Another possible reform is a $2-for-$1 scheme, in which benefits are reduced by $1 for every $2 increase in a beneficiary's earnings. The idea is to reduce the severity of the program's phaseout, which means there would be less of a disincentive to work. Jaffe-Walt quoted one beneficiary who freaked out upon learning that earning money would reduce the size of her disability check, and so left the workforce. This change would be designed to target people like her.
    As part of her PhD dissertation in economics at the University of Virginia, Ruwei Wang built a model of disability insurance and tested the effects of a $2-for-$1 reform. She found that it would reduce the number of people on DI by about 8 percent. Hugo Benítez-Silva (SUNY-Stony Brook), Moshe Buchinsky (UCLA), and John Rust (University of Maryland) estimate that the policy would increase the share of disabled beneficiaries who eventually return to work from 9.5 percent to 48.9 percent.
  5. Longer waiting period: The CBO has considered a variety of cost-saving measures for the plan, ranging from adopting chained CPI to making people 62 or older ineligible. But probably the most likely to change enrollment is a plan to increase the waiting period before benefits from five months to 12 months. That would likely deter people tempted to game the system by increasing the cost of that, but it would also leave genuinely disabled people out to dry to some extent. It would also reduce the cost of the program by 6 percent in 2022.

 

RELATED: Ezra talks to Jaffe-Walt.

Brad talks to the University of Chicago's Harold Pollack, an expert on disability policy.

Brad and I chat about Jaffe-Walt's piece and Brad's interview with Pollack.

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