Over the past two decades, the share of total Social Security spending accounted for by Social Security Disability Insurance (DI) has increased from 10 percent in the 1970s to 17 percent today. In 2005, cash payment to DI beneficiaries topped $85 billion. Authors David Autor and Mark Duggan try to explain this phenomenon in their 2006 working paper.
The researchers main conclusion are:
- Most of the extra cost of the DI program is due to the liberalization of screening process that occurred due to a 1984 law. This law gives more weight to the applicants pain and discomfort and more credence to medical evidence from the applicant’s physician. In recent years, nearly 40 percent of total DI awards were granted during the appeals process, up from 20 percent in the late 1970s.
- The value of DI has increased. While the real dollar value of DI has not increased significantly over time, income inequality has increased. Thus, for the individuals on the bottom on the income distribution, DI now appears relatively more attractive since real wages have declined in the lowest income deciles.
- The aging U.S. population has not had a significant impact on the increase in DI rolls. The authors claim that the demographic shift towards more older individuals in society only accounts for 6% of the increase in DI.
It is always difficult to determine whether an increase in the rolls of a welfare program (such as DI) is ‘good’ or ‘bad’ for society. The population which makes up the increase is likely made up of deserving and undeserving individuals. Further, many individuals are partially disabled. What if a factory worker is injured and can only work 5 hours/week? Are they disabled? What if they can only work 10 hours? 20 hours? It is difficult to know where to draw the line.
In an earlier paper (“Rise in Disability“), the authors use adverse demand shocks between 1984 and 1998 and find that “a growing fraction of discouraged and displaced workers are seeking DI benefits,” suggesting that a higher percentage of ‘undeserving’ individuals may be going on the DI rolls. The question society must ask itself is how much money will be ‘wasted’ on the inevitable phony DI claims in order to ensure that those truly disabled are able to received adequate DI benefits.
Two suggestions made to reform the system are to make it easier for individuals to obtain health insurance so DI is not serving as the insurer of last resort and, secondly, to introduce graduated DI payments depending on the severity of the injury.
- Much of the information used for this summary came from the NBER Fall 2006 Bulletin on Aging and Health.
- Autor and Duggan; (2006) “The Growth in the Social Security Disability Rolls: A Fiscal Crisis Unfolding” NBER Working Paper No. 12436.
- Autor and Duggan; (2003) “The Rise in Disability Rolls and the Decline in Unemployment,” Quarterly Journal of Economics, 118:1, pp. 157-206.