Social Security
Disability Insurance:
Challenges and Opportunities
Melissa Favreault
The Urban Institute
June 21, 2013
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Goals
• DI beneficiaries’ characteristics
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Demographics/health/mortality
Replacement rates
Poverty and near poverty status, hardships
Percentages in each income quintile
Income composition/share from DI
• Implications for Social Security discussions
– Solvency packages and parameters, including
parameters specific to DI
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DI beneficiaries are older, have less
education than nonbeneficiaries
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DI beneficiaries report health
problems and die at high rates
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DI beneficiaries have diverse experiences
and needs
• Onset age
• Type and severity of impairment
– Multiple impairments / interacting impairments
– Sudden (e.g., traumatic injury) or slow onset
– Rapid mortality or long-duration receipt
• Education, work history, and experience
• Social Security / SSI beneficiary status
– Some (mostly women) will convert to survivor
or spouse benefits later in life
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DI replaces less than half of predisability earnings for most beneficiaries
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Nearly half of DI beneficiaries receive at
least half of their income from DI
(much higher for unmarried)
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DI beneficiaries, especially when young, are
concentrated in lower quintiles of income
distribution
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Many DI beneficiaries, especially the
unmarried, are poor or near poor
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Discussions of Social Security finances
need to consider DI
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Payroll tax re-allocation has precedent
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DI beneficiary poverty and near poverty
would increase markedly with “payable”
(or “feasible”) benefit reductions
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Options to improve Social Security’s
long-range finances
• Increase revenues
– Increase payroll tax rates
– Increase earnings base to which the rates apply
• Taxable maximum ($113,700)
• Other forms of compensation
– Increase revenue from taxation of benefits
• Reduce benefits
• Some combination
– Other options (e.g., invest Trust Fund) entail risk
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Critical features of Social Security
solvency plans
• Split between revenues and benefits
– Relatively modest shifts can have large
distributional impacts
• Time path/cross-generational effects
– Adjustment time vs. sharing burdens
– “Sustainable solvency” (75th year issue)
• Within-cohort distributional effects
– Focus on DI, but other important effects include
lifetime earnings, gender, marital status, work
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The usual suspects:
Parameters in solvency packages
Revenue side:
• Taxmax: Uncap / cover 90% of earnings ($239,400)
/ impose surtax over a limit (e.g., $250,000)
• Payroll tax
Benefit side:
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Shift COLA to chained CPI
FRA/EEA increases or indexing
Progressive price indexing
Upper bend point reduction without index
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Parameters that focus on DI
(CBO and CRS reports, legislations, plans)
• 5-month waiting period
• Integration with EEA / FRA
– DI beneficiaries starting at age 62 receive 100% of PIA
– Age 62 OAI claimants receive 70/75% of PIA —
Voluntary vs. involuntary withdrawal due to disability
– Actuarial fairness may justify a difference
– Medicare access crucial consideration
• Insured status requirements
– Require 4 of last 6 years rather than 5 of last 10
• Shift from AWI to median wage (Muller 2008, SSB)
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Parameters that focus on DI
(CBO and CRS reports, legislations, plans)
• Process changes may have special promise
– Speed up / modify determination
• Complexity of process
• Use of scoring / data to streamline decisions / process
• Reconsideration / Administrative Law Judges
– Early intervention
• Accommodation
• Workforce development, expanded EITC
• Up-front investment could lead to savings later
– Continuing Disability Reviews
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Solvency parameters that don’t target DI but
affect DI beneficiaries/subgroups differentially
• Comparatively deep effects: COLA changes (if longterm beneficiary), personal account approaches (truncated
accruals compromise adequacy)
• Comparatively less deep effects: Taxable
maximum, high bracket reductions, taxation of
benefits
• No effects: FRA increases
– But NOT if specified as PIA reductions
• Adjustments to improve adequacy, offset
reductions
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Package components differ from
packages’ overall effects
• A package that carefully considers DI
beneficiaries’ needs will not necessarily be
comprised entirely of elements that hold DI
beneficiaries harmless.
• Implications for solvency discussions: offsets and
adjustments elsewhere.
• Earlier action leaves more options and gives
taxpayers, beneficiaries, and future generations
more time to adjust.
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Social safety net as a whole:
Social Security’s programmatic context
• Health assistance programs often support
workers with disabilities.
– Medicare, Medicaid, ACA coverage expansions.
– Flexibility for dealing with OASDI will depend on
health care cost growth.
• Disability assistance programs.
– Gina will speak about work supports.
• Program interactions – SSI, SNAP, UI, Workers’
Compensation.
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Social and economic context
• Parallel trends in key indicators: concentration of gains
at high earnings/education levels.
– Mortality
– Health status
– Earnings gains (very high percentiles)
• Making policy in this context: How about indexing
for inequality?
– Payroll/income tax side
– Benefit side (multidimensional inequality: even marriage)
• Shared prosperity / inclusion may require investment
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Conclusions
• Many DI beneficiaries—especially those who
are younger, unmarried, and whose
disabilities onset early—are economically
vulnerable.
– A lot of opportunity to do better.
• Poses tremendous challenges for placing the
Social Security system on 75-year footing.
– Implications for the revenue-reduction mix, and
distributional tilt, especially on benefit side.
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Acknowledgements
We are grateful to the Ford Foundation for
support of this event and our work.
All views are my own and not those of the
Urban Institute, its board, or sponsors.
Please visit us at:
www.urban.org and www.retirementpolicy.org
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Appendix: Data
• Primarily from the Survey of Income and
Program Participation (SIPP) matched to
administrative records / MINT
• Age-specific comparisons (sample is ages 31-64)
• Estimates sensitive to a range of choices
– How to treat families (especially complex families),
assets/asset income, rounding rules
– Ever DI compared to now on DI
• Relative differences typically robust to these
choices, but point estimates change
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