Social Security disability trust fund projected to run out of cash by 2016

May 30, 2012

A government entitlement program is headed for insolvency in four years, and it’s not the one members of Congress are talking about most.

The Social Security disability program’s trust fund is projected to run out of cash far sooner than the better-known Social Security retirement plan or Medicare. That will trigger a 21 percent cut in benefits to 11 million Americans — people with disabilities, plus their spouses and children — many of whom rely on the program to stay out of poverty.

“It’s really striking how rapidly this is growing, how big it’s become and how D.C. is just afraid of it,” said Mark Duggan, a University of Pennsylvania economist and adviser to the Social Security Administration.

Part of the reason for the burgeoning costs is that the 77 million baby boomers projected to swamp federal retirement plans will reach the disability program first. That’s because almost all boomers are at least 50 years old, the age at which someone is most likely to become disabled.

The growing costs are also a result of the economy’s troubles. When people can’t find work and run through their jobless benefits, many turn to disability benefits for assistance.

“They’re desperate,” said Ken Nibali, a retired associate commissioner of the program. “Some who are marginal and struggling to have a low-paying job now literally have no options.” So, he said, “they figure, ‘I do have trouble working, and I’m going to apply and see if I’m eligible.’ ”

Sen. Tom Coburn (R-Okla.), said he has tried to interest fellow lawmakers in the issue, without much luck. “Nobody wants to touch things where they can be criticized,” Coburn said, adding, “the fund is going bankrupt” and “then what are we going to do?”

Applications to the disability program have risen more than 30 percent since 2007 — the last recession started in December that year — and the number of Americans receiving disability benefits is up 23 percent.

More Americans receive disability benefits than 20 years ago, although people are less likely to have physically demanding jobs, health care has improved and the Americans With Disabilities Act bans discrimination against those with handicaps.

Social Security is made up of two programs: the retirement plan supporting 40 million senior citizens and 6 million survivors, and the disability insurance program created during the Eisenhower administration.

The disability program pays benefits averaging $1,111 a month, with the money coming from the Social Security payroll tax. The program cost $132 billion last year, more than the combined annual budgets of the departments of Agriculture, Homeland Security, Commerce, Labor, Interior and Justice. That doesn’t include an additional $80 billion spent because disability beneficiaries become eligible for Medicare, regardless of their age, after a two-year waiting period.

The disability program is projected to exhaust its trust fund in 2016, according to a Social Security trustees report released last month. Once it runs through its reserve, incoming payroll-tax revenue will cover only 79 percent of benefits, according to the trustees. Because the plan is barred from running a deficit, aid would have to be cut to match revenue.

Duggan said the disability plan has been running on autopilot for decades and lawmakers could find savings to help avoid the scheduled cuts. While federally financed, the program is administered by the states, and disability rates among them vary widely. West Virginia topped the list in 2010, with 9 percent of residents between ages 18 and 64 receiving aid. Utah and Alaska had the lowest rates at 2.8 percent.

People whose benefit applications are rejected can appeal to administrative-law judges, and statistics show some judges are far more likely to approve benefits than others. One reason is that the program, which once focused largely on people who suffered from strokes, cancer and heart attacks, increasingly supports those with depression, back pain, chronic fatigue syndrome and other comparatively subjective conditions.

“They’re very, very hard to evaluate,” said Nicole Maestas, director of the Rand Center for Disability Research. “Reasonable people differ about what constitutes a disability.”

Statistics show that once people enter the program they are unlikely to leave, with fewer than 1 percent rejoining the workforce. Many worked “menial” jobs that didn’t offer health insurance, and the program gives them an opportunity to join Medicare long before they might otherwise qualify, Nibali said.

The agency faces a backlog of 1.4 million reviews it’s supposed to periodically conduct to ensure beneficiaries are entitled to stay on the rolls. The agency has said it doesn’t have the money to do the reviews.

Neither President Obama nor House Republicans in their proposed budgets has addressed the disability program’s shortfall.

“We’re not trying to fix every problem in America with this one document,” said House Budget Committee Chairman Paul Ryan (R-Wis.) of his budget plan. “We’re trying to prevent a debt crisis, and this is not a driver of our debt.”

“The administration believes that disability insurance is a vital lifeline for millions of Americans,” Kenneth Baer, a spokesman for the White House budget office, said in an e-mail. “The president remains willing to work with Congress on a bipartisan basis to strengthen Social Security and protect the millions of beneficiaries.”

He added that lawmakers didn’t fully fund the administration’s request for more money to screen beneficiaries.

Senate Finance Committee Chairman Max Baucus (D-Mont.), whose committee sets Social Security policy, said the program’s finances are less dire than they may appear. Congress can funnel revenue from elsewhere in the government to cover the program’s shortfall, he said.

— Bloomberg News

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