The Center's work on 'Disability' Issues

Despite Anti-Fraud Rhetoric, Republican Budgets Omit Funding to Combat Fraud and Abuse

March 25, 2015 at 5:00 am

The budgets that the House and Senate will consider this week leave out the funding that the 2011 Budget Control Act (BCA) specifically allows for “program integrity” activities to fight fraud and abuse in Medicare, Medicaid, and disability programs, despite the fact that these activities have a proven track record of saving money.  This action stands in contrast to Republican claims that their budgets will make government spending more “efficient and effective.”

Both the House and Senate budgets fail to include the $1.166 billion in funding the BCA sanctions in 2016 for reducing overpayments and fraud in the Social Security Disability Insurance and Supplemental Security Income (SSI) programs, and the $395 million for combatting Medicare and Medicaid fraud.  Congress provided the allowed amounts for fiscal year 2015 — $1.123 billion to combat fraud and overpayments in the disability programs and $361 million to address Medicare and Medicaid fraud — but under the new House and Senate budgets, this funding would end.

These program integrity activities have been found to save substantial sums, reduce program costs, and thereby lower budget deficits.  For example, a key use of program integrity funding for Social Security and SSI is to conduct “continuing disability reviews” to weed out beneficiaries who have recovered from their impairments.  The Social Security actuaries have found that these reviews save about $10 for every $1 they cost.

Similarly, program integrity activities to detect and stop erroneous payments and outright fraud in Medicare and Medicaid (including payments to doctors and hospitals that improperly bill or overbill the programs) saved about $8 for each dollar spent on such efforts in 2012-2014.

The funds in question are the amounts the BCA specifically allows for designated program integrity activities with a proven track record of saving money.  Because these activities yield savings significantly exceeding their cost, the BCA allows specified amounts for these program integrity efforts that don’t count against the BCA’s austere appropriations caps.

Many Republican lawmakers have been vocal in criticizing various programs for people who have disabilities or low-income families by charging that the programs are marked by fraud and abuse.  This can make good political and campaign rhetoric.  Now comes the question:  will they put their money where their mouths are?

Even if the budget resolutions do not include these funds, the Appropriations Committees may still be able to provide them when they write the annual appropriations bills.  That would be the right thing to do.

Few Disability Insurance Beneficiaries Could Support Themselves by Working

March 9, 2015 at 3:33 pm

The Social Security Disability Insurance (DI) program provides modest but vital benefits to workers who can no longer do substantial work due to a severe medical impairment.  Lawmakers will need to replenish DI’s trust fund by 2016 and may be tempted to curtail eligibility on the assumption that those affected could support themselves by working.  But a wide variety of evidence suggests that’s not the case.

DI not only permits but encourages beneficiaries to work.  The average benefit is only $1,165 a month — barely above the poverty line.  Beneficiaries can earn up to $1,090 a month indefinitely and still collect benefits; for an average beneficiary, that would roughly double his or her income.  Recipients may earn unlimited amounts for a year without jeopardizing their benefits, while they test their ability to return to work.  During the next three years, they may automatically return to the DI rolls if their monthly earnings sink below $1,090.  Beneficiaries who return to work and earn more than $1,090 a month may continue to receive Medicare coverage for up to 7½ years after their cash benefits stop.

Despite these and other work incentives, most beneficiaries do not have earnings.  One careful study found that only one-fifth of beneficiaries aged 45 to 64 — who dominate the DI rolls — have any earnings two years after application, and even fewer have significant earnings.  (See figure.)

Even those who apply for benefits and are rejected — because they don’t meet DI’s strict eligibility criteria — fare very poorly in the labor market.  Barely half have any earnings two years after application, and the average amount earned is very low.  In contrast, workers of the same age who don’t seek DI benefits are likely to work and have substantial earnings.

Economic analyses consistently find that, while receipt of DI somewhat reduces employment, its effect on earnings is small.  One widely cited study estimates that “marginal” beneficiaries — those who might plausibly have been denied (and who are thus healthier than the average beneficiary) — would earn only $3,800 to $4,600 more annually if they were not receiving DI benefits.

The Social Security Administration has also undertaken several demonstration projects over the years to test new ways to encourage DI beneficiaries to return to work, but they have shown limited results or proved not cost-effective.  “This large body of research has demonstrated the enormous difficulty of helping and encouraging people with chronic health conditions and disabilities to work and earn enough to become self-sufficient,” concludes a recent assessment.  None of the demonstrations has been found to have “the potential to lead to substantial caseload reductions.”

In short, there’s no reason to think that many DI beneficiaries could support themselves by working if lawmakers make deep cuts to the program.

Disability Insurance: An Essential Part of Social Security

February 24, 2015 at 11:12 am

With a House subcommittee holding a hearing tomorrow on the future of Disability Insurance (DI), policymakers need to understand that DI is an essential part of Social Security.

Social Security is much more than a retirement program.  It pays modest but guaranteed benefits when someone with a steady work history dies, retires, or becomes severely disabled. Although nobody likes to think that serious sickness or injury might knock them out of the workforce, a young person starting a career today has a one-third chance of dying or qualifying for DI before reaching Social Security’s full retirement age.

More than 150 million workers have earned DI protection through their payroll tax contributions in case they suffer a severe, long-lasting medical impairment.  Nearly 9 million of them, mostly in their 50s and 60s, receive disabled-worker benefits from DI.  (See chart.)

DI’s eligibility criteria are strict (applicants must provide convincing medical evidence from qualified sources, and most applications are denied) and its benefits modest (the average disabled worker receives $1,165 a month, and 99.4 percent get less than $2,500).  DI is essential to recipients and their families, including nearly 2 million dependent children; because its benefits replace, on average, only about half of their lost earnings, DI beneficiaries are far likelier to be poor or near-poor than other Americans.

Social Security’s disability and retirement programs are closely integrated.  Key features are similar or identical for the two programs, including the tax base, the work history required to become insured for benefits, the benefit formula, and cost-of-living adjustments.  And at age 66, DI beneficiaries are seamlessly switched to retirement benefits without filing a fresh application.  (That conversion used to occur at age 65, and the one-year delay is one of the demographic reasons behind DI’s growth.)

Despite those close links, the disability program’s trust fund is separate from the retirement and survivor program.  There’s no longer any good reason for that — the 1979 Advisory Council recommended a merger of the trust funds — but lawmakers instead have relied on periodic reallocations of tax revenue between the two programs to shore up whichever trust fund needed it.  They need to do so again to prevent a sudden, 20-percent cut in payments to vulnerable DI beneficiaries in 2016.

The need to replenish DI isn’t a crisis, nor would reallocating simply “kick the can down the road” as some contend.  Instead it’d allow lawmakers to focus on the real task:  assembling a package of revenue increases and modest benefit reforms to preserve long-term solvency for all of Social Security.  Americans of all ages and incomes support Social Security and are willing to pay for it.

Netherlands Not a Model for U.S. Disability Reforms

February 18, 2015 at 3:06 pm

Critics of Social Security Disability Insurance (DI) often cite the Netherlands —  where several rounds of disability reform have tightened eligibility, trimmed benefits, and imposed greater responsibilities on employers — as a possible model.  But while the Dutch experience may provide useful insights, here are some things you need to know:

  • The Netherlands spends far more than the United States on disability benefits. Even after the reforms, Dutch spending (as a share of gross domestic product or GDP) ranks near the top among the 34 advanced countries tallied by the Organisation for Economic Co-operation and Development.  (See graph.)  The U.S. ranking?  Near the bottom.
  • The Dutch disability programs needed significant reforms; the U.S. programs don’t. Until the mid-1990s, the Netherlands spent six to eight times as much on disability programs as the United States, relative to GDP; even now it spends about twice as much.  The gap has shrunk because the Dutch cut spending, not because the United States expanded it.
  • Overall protection for people in poor health is far more extensive in the Netherlands than in the United States. For example, the Dutch system pays benefits for partial or temporary disability as well as full, permanent disability; DI and Supplemental Security Income only cover very severe impairments that’ll last at least one year or result in death.  The basic Dutch benefit is 75 percent of a worker’s wage; average DI benefits replace about half of past earnings.  Dutch employees get two years of employer-paid sick leave at 70 percent or more of their usual earnings (unless they’ve been on the job for less than two years, in which case the taxpayers pay); the U.S. has no mandatory paid sick leave and a five-month waiting period for DI — a wait that may stretch much longer.  Finally, health coverage is universal in the Netherlands, in contrast to the U.S. patchwork.
  • Adopting Dutch reforms “on the cheap” would be a terrible idea. The Dutch system is carefully integrated, so we shouldn’t just import selected features.  Tasking employers with greater responsibility for paid sick leave, without safeguards like an exemption for the recently hired, could lead to discrimination in hiring and firing.  Similarly, reviewing current beneficiaries under new, stricter criteria (as the Dutch did in 2006) without having a partial-disability system as a backstop would be harsh and even counterproductive, as we learned when a comparable U.S. initiative in the early 1980s unfairly cut off many beneficiaries.

The Disability Insurance Non-Crisis

February 10, 2015 at 2:51 pm

Although the Senate Budget Committee will hold a hearing tomorrow titled “The Coming Crisis: Social Security Disability Trust Fund Insolvency,” Disability Insurance (DI) is not, in fact, in crisis.

Here, briefly, are the facts (see our chart book and blog posts for more):

  • DI’s recent growth stems mostly from well-understood demographic factors. The aging of the baby boomers into their 50s and 60s (peak ages for DI receipt), the rise in women’s labor force participation (which means more women now qualify for benefits), and the rise in Social Security’s full retirement age (which delays DI beneficiaries’ reclassification as retired workers) all contributed to the growth in the DI rolls.  Those pressures are easing, and the DI rolls have barely grown for the last two years (see chart).
  • The need to replenish DI was long anticipated and has a simple solution. Rebalancing payroll taxes between DI and Social Security’s separate Old-Age and Survivors Insurance (OASI) fund, in either direction, is a traditional and historically noncontroversial way to even out the programs’ finances.  Due to the last two such measures, DI now needs more funds soon while the OASI fund doesn’t.  The DI trust fund is expected to run out in 2016 — the same year lawmakers expected back in 1994, when they approved the last rebalancing.  Reallocating a small share of the payroll tax from OASI to DI would avert a 20-percent cut in DI benefits in 2016 and make both the OASI and DI trust funds solvent until 2033.
  • DI’s eligibility standards are strict. Applicants must provide convincing medical evidence from qualified sources, and most applications are denied.  (Those rejected applicants struggle in the labor market, evidence that DI’s standards are indeed stringent.)  The Social Security Administration regularly reviews beneficiaries to weed out those who have recovered.
  • Most DI beneficiaries are older. A typical beneficiary is in his or her late 50s or early 60s, with a high-school education or less and a history of physically demanding jobs.  About 13 percent are veterans.  DI recipients have high mortality rates:  they’re at least three times as likely to die as other people their age.
  • DI benefits are extremely modest. The average disabled worker receives $1,165 a month  and virtually all (99.4 percent) get less than $2,500.  Those benefits make a big difference, since DI beneficiaries — especially those who aren’t married — are far likelier to be poor or near-poor than other people.
  • The United States spends less on disability benefits than most other advanced countries. The United States ranks 26th among the 34 members of the Organisation for Economic Co-operation and Development in spending on disability benefits as a share of the economy.  The Netherlands, which DI critics often propose as a model, spends twice as much as the United States.

Even with its strict standards and modest benefits, this vital part of Social Security offers important protection to all working Americans.