As its title suggests, the Social Security Administration’s “Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds” does not make for light reading.
Yet this year’s edition documents one happy development, of interest to everyone — even non-wonks. It suggests that, despite the general dysfunction in Washington, progress can still happen, however modest, and albeit as a result of unexpected favorable social trends as well as deliberate policy.
Specifically, the report estimates that Social Security’s disability insurance (SSDI) trust fund will remain solvent and able to pay all eligible beneficiaries for at least 75 years. This is in sharp contrast to the trustees’ forecast 10 years ago, which had the fund running out of money in 2016. Media reports warned that roughly 11 million recipients, disproportionately poor, could face cuts of up to 21 percent in benefits that averaged, in 2012, a mere $1,100 a month.
Instead, the SSDI trust fund’s asset reserves bottomed out at $32.3 billion in 2015 — then grew steadily to $99.4 billion at the end of 2021. In five out of the intervening six years, SSDI took in more from payroll tax revenue than it paid out in benefits. There were no benefit cuts.
A small but crucial part of what went right was bipartisan legislation, signed by President Barack Obama in November 2015, that authorized a temporary reallocation of about one half percentage point of the combined 12.4 percent FICA tax from Social Security’s flusher old-age trust fund to the SSDI fund.
That tided SSDI over through 2018, and avoided what might have been a politically devastating wave of distress for disabled workers — or, more likely, an embarrassing effort to pay their benefits by borrowing from the old-age fund — during the 2016 election campaign. However, it only guaranteed the program’s solvency through late 2022, according to projections at the time.
SSDI still faced two structural problems. One was an aging workforce, whose oldest members were more likely to become disabled, yet were too young to qualify for Social Security’s old-age program. The other was the program’s tendency to grow during recessions, as workers turned to it in lieu of exhausted unemployment benefits or jobs that were unsuitable to their abilities, poorly paid — or, in some communities, had permanently disappeared. New disability enrollment peaked in 2010 in the wake of the Great Recession.
Yet new enrollment did plunge after 2010 — more steeply than Social Security actuaries initially anticipated. Partly this was due to demography, as the last baby boomers began to move through their late 50s and early 60s, en route to full retirement. A lower SSDI “incidence rate” appears to be the new normal.
“Over the medium and longer-term, the Trustees believe disability rates have been declining and will not return to prior trend,” says economist Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget.
Policy changes helped, too. SSDI retrained administrative-law judges who determine eligibility and stepped up disability reviews to make sure recipients still qualified. The implementation of the Affordable Care Act brought expanded health care to the working poor, reducing an incentive to go on SSDI, which provides recipients with health insurance after two years on the rolls.
More broadly, the U.S. economy “ran hot” through the 21st century’s second decade. Expansionary fiscal and monetary policy drove unemployment down, and wages, including for low-skilled workers, up. Both factors induced people, including many with disabilities, who had previously left the labor force to return.
More payroll tax revenue for Social Security was a helpful side effect of these trends — which the pandemic-induced 2020 recession, steep as it was, did not reverse.
Now for the not-so-good news. The SSDI trust fund’s solid condition will help extend the life of Social Security as a whole — that is, including both disability and old-age insurance — but only until 2035. That’s a mere one-year improvement since the 2021 forecast. Medicare is projected to exhaust its hospital trust fund in 2028 (two years later than projected last year).
Political reality is such that Congress will undoubtedly borrow and spend whatever it takes to keep these programs going. Economic reality is such that this would necessarily divert finite resources from other needs.
Stabilizing U.S. social insurance programs — permanently — will necessitate structural reform, also known as higher revenue and lower spending. Be glad that SSDI may have surprised on the upside, but wise policymakers would rather be good than lucky.