L47ssdiAB.xml Social Security disability-- go page xx, with —about 126 lines.
Graphic: at bottom
Banner: Disability
Flag: Disability
GAO Analyzes Proposals For
Holding Down SSDI Benefits
BY ALLISON BELL
Efforts to keep Social Security solvent
could make private disability insurance a
little easier to sell but throw off insurers’
benefits payout projections.
A
team
of
U.S.
Government
Accountability Office researchers led by
Barbara Bovbjerg, a GAO director, recently
analyzed the effects of several different
commonly suggested Social Security
changes on Social Security Disability
Insurance benefits.
The team found that one approach -using consumer price increases, rather than
wage increases, in cost-of-living adjustment
calculations -- could cut median projected
lifetime benefits payouts to disabled workers
as much as 28%, and that three other
proposed approaches could cut median
lifetime benefits by 7% to 15%.
The three other approaches analyzed in
detail are cutting cost-of-living adjustments
by 1 percentage point each year; “longevity
indexing,” or lowering the amount of initial
benefits to reflect projected increases in life
expectancy;
and
“progressive
price
indexing,” which would stick with wagelinked benefits increases for lower-income
disabled workers and combine priceindexing with wage-indexing for higherincome beneficiaries.
The researchers also considered other
options, such as raising the age at which
disability benefits convert to full retirement
benefits and increasing the number of years
of income used in benefit calculations.
“The size of the benefit reduction could
vary across individuals,” Bovbjerg writes in
a report on the GAO disability benefits
study.
Congress could come up with ways to
protect disabled beneficiaries from the
effects of any changes in benefits formulas,
but, if Congress decides to save money by
focusing the protection on lower-income
disabled workers, the higher-income income
workers -- who may be more likely to have
private disability insurance --will face
greater benefits cuts than other workers face.
Members of Congress are looking at
ways to cut all Social Security expenses
because they believe the program will soon
be running a deficit.
Today, 6.9 million of the 49 Social
Security program’s 49 million beneficiaries
are disabled workers. Disabled workers
collect a total of $8.1 billion in benefits per
year, or an average of $979 in benefits per
beneficiary per month, compared with an
average of $1,051 per month for retirees.
Actuaries expect the SSDI trust fund to
run dry in 2026, 16 years before the OldAge and Survivors Insurance trust fund
might empty out.
Congressional staffers and other policy
experts have focused mainly on strategies
for cutting retirement income program costs,
but they should think carefully about how
any changes will affect disabled workers,
because those workers “are least able to
compensate for any reduction in benefits,”
Bovbjerg writes.
Bovbjerg recommends that Congress
also think carefully about ways to keep any
efforts to protect disabled workers from
making SSDI benefits much richer than
ordinary retirement benefits.
If Congress decides to keep the SSDI
system mostly the same but links benefits
increases to increases in consumer prices,
rather than to wages, then a worker born in
1985 who qualifies for disability at 62 and
dies at 82 would receive $505,000 in
lifetime benefits, while a similar worker
born in 1985 who retires at age 62 and dies
at age 84 would receive just $433,000 in
benefits, Bovbjerg warns.
Reforms that cut SSDI benefits could
both help and hurt the private disability
insurance industry.
Reductions in the real, inflation-adjusted
value of SSDI benefits could make private
disability coverage more attractive to
individuals and employers who can afford it,
just as concerns about the stability of the
Social Security retirement income program
have increased the appeal of private
retirement savings plans.
Any disability insurers that offer or add
inflation-adjustment features modeled on the
SSDI cost-of-living adjustment method may
find that applying changes in SSDI COLA
formulas to their own COLA formulas will
reduce their own COLA costs.
But SSDI cuts could hurt the many
disability insurers that coordinate their
benefits with SSDI and either use no COLA
riders or COLA riders that increase benefits
by a set amount, such as 3% or 6% per year.
Disability insurers often subtract any
SSDI payments claimants receive from the
checks they themselves send out, both to
hold down the cost of the private coverage
and to discourage malingering.
Helping private disability claimants
qualify for SSDI has become a big business,
and many of the vendors courting disability
insurers at disability insurance industry
events are trying to sell them SSDI
application assistance services.
If a disability insurer is depending on
increases in SSDI payouts to help reduce the
size of its own claim expenses over time,
substantial cuts in SSDI benefits could affect
the accuracy of those projections, experts
say.
Effects Of Reform Proposals On Projected Median Lifetime SSDI Benefits For Disabled Workers Born In
1985
Type of reform proposed
Percentage reduction in anticipated benefits
Cutting cost-of-living adjustment 1 percentage point 10%
Longevity indexing
15%
Linking benefits increases to consumer prices, not
28%
wages
Linking benefits increases to wages for the lowest7%
income beneficiaries but combining wage-indexing
and price-indexing in increase calculations for
higher-income beneficiaries
Source: GAO analysis of data from the Genuine Microsimulation of Social Security microsimulation model