Social Security Disability Insurance in Obama's 2016 Budget

Social Security Disability Insurance (SSDI) is in financial hot water. The program, which provides partial wage replacement and access to health insurance to Americans who are no longer able to work due to a disability, relies on a trust fund that is projected to be exhausted in the fall of 2016. Absent action by policymakers, the program’s beneficiaries — numbering more than 10 million — face a 20-percent reduction to the scheduled benefits that they rely upon for financial wellbeing.

The pending insolvency of this important program will have to be addressed by the 114th Congress. In preparation, House Republicans passed a rule requiring that reallocation of funds from the Old-Age and Survivors Insurance (OASI) program to SSDI — a transfer that has been legislated in previous instances when the latter was facing a shortfall — could not take place without accompanying measures that improve the overall fiscal health of the Social Security system. President Obama, too, understands that he will have to sign a bill ensuring the program’s solvency and included in his Fiscal Year (FY) 2016 budget a number of proposals aimed at strengthening the program and improving its operations:

• Shore up the SSDI Trust Fund. Currently, workers and their employers each pay a total of 6.2 percent of their wages to the Social Security system: 0.9 percent is allocated to SSDI and 5.3 percent to OASI. Under this proposal, neither the overall tax rate nor the solvency of the combined trust funds would be affected. Instead it would reallocate a few tenths of a percentage point of payroll tax revenue from the OASI fund to the SSDI fund, such that both trust funds would be sustained until 2033.
• Test early intervention strategies to help individuals remain in the workplace. This proposal would test early intervention strategies to help individuals with a potentially work-limiting disability remain in the workforce, including providing supportive services to those with mental impairments, giving employers incentives to retain workers with disabilities, and incentivizing states to better coordinate the services that they provide. The president would allocate $400 million to the Social Security Administration to test these strategies, an amount that would be offset by better coordinating retroactive SSDI benefits and retroactive disability payments to federal employees. This proposal is identical to one in the president’s FY 2015 budget.
• Hire More Administrative Law Judges (ALJs) and Review Hiring Procedures to Shorten the Admissions Backlog. The backlog of workers waiting to appeal their SSDI rejection before an ALJ is now over one million people long. As of 2015, workers who were initially denied entry to the program will probably have to wait 16 months to get a determination from an ALJ. The president’s budget proposes funding to reduce the backlog by increasing the number of ALJs. Moreover, the president proposes a workgroup to review and streamline the ALJ hiring process as it has been overly complicated even when adequate funding was available.
• Provide a Mandatory Funding Stream for Continuing Disability Reviews (CDRs). Beneficiaries on the SSDI program are subject to CDRs every three to seven years in order to determine whether their medical condition has improved enough that they should no longer receive benefits. The Social Security Administration (SSA) has estimated that CDRs save $9 for every $1 spent. The president believes that policymakers have repeatedly appropriated too little money for SSA to carry out all of its intended CDRs, evidenced by a backlog of over 900,000, so he proposes to establish a mandatory funding source (i.e., available on a formula basis rather than being appropriated every year) for CDRs. The president proposes to start the mandatory funding stream in 2017. Combining the funding that Obama proposes to appropriate for CDRs in 2016 in the budget with the mandatory funding starting in 2017 would save the program an estimated $32 billion over ten years. This proposal was also in the president’s budget last year.
• Offset Disability Benefits for Unemployment Insurance Receipt. President Obama proposes to offset an individual’s entitled SSDI benefit in any month that they receive state or federal unemployment insurance benefits, a proposal also featured in last year’s budget. For example, if someone was entitled to $1,000 a month from SSDI and already received $400 from unemployment insurance in a particular month, their SSDI benefit would be reduced to $600 for that month. This proposal reflects the fact that SSDI and unemployment insurance are meant for different groups of people – SSDI is designed for those who will not be able to work for a long time because of their disability while unemployment insurance is to allow people who are actively searching for a new job to continue to receive income in the interim.

The SSDI system has other issues that the president does not address in his budget, but the fact that he continues to offer reforms to accompany a fund reallocation is promising and indicates an interest in restoring near-term solvency to the SSDI program in a timely manner. BPC is looking closely at these proposals as we consider the SSDI program as part of the Commission on Retirement Security and Personal Savings. Let’s hope that the president and Congress can work together to pass legislation that sensibly reforms the program to meet the needs of the 21st century and ensures the trust fund’s solvency before it becomes a crisis.

Alex Gold served as a policy analyst for BPC’s Economic Policy Project.