Thursday, April 7, 2011

Nearly 1 in 20 Working Age Americans are on Disability, a Doubling versus 1990

While I've spent a lot of time talking about the massive increase in food stamp usage (when I started the blog it was 1 in 11 Americans, it is now 1 in 7 Americans ... including 1 in 4 children), I have rarely touched the somewhat contentious issue of disability benefits.  This is not even one of the key anti poverty programs that have exploded in use [Nov 5, 2010:  USA Today - Anti-Poverty Programs Surpass Cost of Medicare] in the "Dependence Economy" .[Apr 4, 2011: Economix - The Dependence Economy; Only Half of Average Americans Income Comes via Wages]

So aside from these numbing statistics,in a country of just over 300M....

50 million Americans on Medicaid  (keep in mind this excludes the substantial fraction of Americans with no health insurance)
10 million on unemployment benefits (peaked at 12m, but some people are exhausting their 2 years of eligibility)
40 million Americans on food stamps
4.4 million on welfare

....this NYT story indicates 1 in 21 working age Americans (age 21 to 64) is on disability insurance.  That was pretty shocking to me - it is not an area I have studied much.  At just under 5% of all working Americans, that is a doubling from the levels seen just 2 decades ago.  In 2010 alone, the number of people enrolled jumped by half a million which can help us explain part of the huge drop in workforce labor participation in the U.S. (some 2M Americans have simply dropped off the map)  If a somewhat similar number was seen in 2009 (which looking at the 45 degree angle of growth in the chart below would appear very likely) that would explain away half of the 2M Americans who have disappeared from the workforce.

 Without getting into the typical arguments about "someone is scamming the system" it does make one scratch your head when you consider much more work in the US is "service oriented" (and in theory should take less of a toll on the body) than the manufacturing type of work that used to be more common in the 60s, 70s, and even 80s.  The article says this is due to a sharp increase in mental illness and muscular-skeletal/back ailments than in previous generations.

Of course as the % enrolled has doubled, the cost has actually tripled since 1990 - from $40B a year to $120B annually.   That would place the cost above food stamps + welfare combined.... again, I had no idea about this until reading these stories.  I also did not know after 2 years in the disability program, you qualify for Medicare regardless of age.

Without getting all "GOP", one wonders if we are reaching a tipping point where so many Americans are dependent on government, that it will be impossible to ever truly cut back on these programs as so much of the population now has a stake in receiving monies from one or multiple programs. 

  • a time when employers are struggling to create spots for the 13.5 million people actively looking for jobs, helping people like Mr. Howard find employment — or keeping them working in the first place — is becoming increasingly important to the nation’s fiscal health.
  • For the last five years, Social Security has paid out more in benefits to disabled workers than it has taken in from payroll taxes. Government actuaries forecast that the disability trust fund will run out of money by 2018.
  • About 8.2 million people collected disabled worker benefits totaling $115 billion last year, up from 5 million a decade earlier. About one in 21 Americans from age 25 to 64 receive the benefit, according to an analysis of Social Security data, compared with one in 30 a little over a decade ago.
  • Along with monthly checks that are based on the worker’s earnings history, beneficiaries generally qualify for Medicare — otherwise reserved for those over 65 — two years after being admitted to the disability rolls.
  • There are several reasons for the increase in beneficiaries. Baby boomers are hitting the age when health starts to deteriorate, and more people are claiming back and other muscular-skeletal ailments and mental illnesses than claimed those as disabilities a generation ago
  • Lawyers who solicit clients on television and on the Internet probably play a role. And administrative law judges say pressure to process cases sometimes leads to more disability claims being accepted.
  • But given the difficult job market, some economists say they believe that an increasing number of people rely on disability benefits as a kind of shadow safety net.
  • The program was designed to help workers who are “permanently and totally disabled,” and administration officials say that it is an important lifeline for many people who simply cannot work at all. But Social Security officials can take into consideration a claimant’s age, skills and ability to retrain when determining eligibility. So one question is: How many of these beneficiaries could work, given the right services and workplace accommodations? 
  • Nicole Maestas, an economist at the Rand Corporation, has examined Social Security data with fellow economist Kathleen J. Mullen, and concluded that in the absence of benefits, about 18 percent of recipients could work and earn at least $12,000 a year, the threshold at which benefits are suspended.  Other economists say that even among those denied benefits, a majority fail to go back to work, in part because of medical problems and a lack of marketable skills

Once you are "in", it appears you never leave.
  • Even if claimants have more ambiguous medical cases, once they are granted disability benefits, they generally continue to collect. Of the 567,395 medical reviews conducted on beneficiaries in 2009, Social Security expects less than 1 percent to leave because of improved health.  The benefits have no expiration date, like the current 99-week limit for collecting unemployment. 
  • And because many people spend years appealing denials and building their medical case before being granted benefits, their skills often atrophy and gaps open on their résumés, making it more difficult for them to get back to work.
  • Out of 12.5 million disabled workers and those who receive benefits for the disabled poor, only 13,656 returned to work over the last two and a half years, with less than a third of them earning enough to drop the benefits


In a very related story, the WSJ says insolvency looms as states drain the U.S. disability fund.  According to this article, we have yet another future bailout (along with the state and local pension plans) coming down the road.

Strange fact - Puerto Rico has the highest % of people who get their application approved, at 63%, 4% higher than any of the traditional U.S. states.

[click to enlarge]

  • The SSDI is set to soon become the first big federal benefit program to run out of cash—and one of the main reasons is U.S. states and territories have a large say in who qualifies for the federally funded program. Without changes, the Social Security retirement fund can survive intact through about 2040 and Medicare through 2029. The disability fund, however, will run dry in four to seven years without federal intervention, government auditors say.
  • In addition to the uneven selection process, SSDI has been pushed to the brink of insolvency by the sour economy. A huge wave of applicants joined the program over the past decade, boosting it from 6.6 million beneficiaries in 2000 to 10.2 million in 2010. New recipients have come from across the country, with an 85% increase in Texas over 10 years and a 69% increase in New Hampshire. 
  • Unlike Medicare or the Social Security retirement fund, which provide benefits mostly based on age, SSDI decisions are based in large part on medical opinions, which can vary from doctor to doctor, state to state.  Because someone else pays the bills, local officials have little incentive to keep the numbers low. The feds have tried to enforce consistency, but the process relies heavily on the judgment of doctors and administrative law judges who hear appeals.  
  • In 2009, benefits averaged $1,064 a month. But the program opens up access for recipients to other government programs, multiplying the ultimate cost to taxpayers.  Anyone who spends two years on SSDI qualifies for the Medicare health program, which usually is available only for those 65 years old and older. SSDI recipients tend to remain tethered to the program for years, and the government's lifetime financial commitment averages $300,000 per person, estimates David Autor, an SSDI expert who teaches at the Massachusetts Institute of Technology. "The system has profound problems," Mr. Autor said.
  • Supporters say SSDI serves a vital need for millions of people who have paid into the system, qualify for the benefits and depend on the income. Some contend its problems can be fixed by raising taxes or by diverting money from the Social Security fund for retirees.
  • Critics have raised concerns about the solvency of the program, backed by a report last year from the nonpartisan Government Accountability Office alleging that the government was paying benefits to some people who didn't deserve them.  
  • The disability insurance trust fund was created in 1957 to provide a backstop to people who worked several years before suffering a debilitating illness or injury. Disability beneficiaries can now include those with cancer, chronic back pain, persistent anxiety and schizophrenia. Applicants should no longer be able to work in a substantial, gainful way, and must provide medical records affirming the likelihood the applicant won't be able to work for at least another year, or that their health problems would eventually result in death. 
  • In 2005, SSDI began spending more money than it brought in through tax receipts. In 2010, the number of beneficiaries grew by 489,488, the largest one-year increase ever. It is projected to spend $153 billion on benefits and other costs in 2015, $22 billion more than it brings in through tax revenue and other income. Its surplus funds built up over the years are expected to be extinguished in four to seven years.
  • Doctors in the area say applicants are still pouring into the system. Several said the SSDI program has become so large, and in some cases so dependent on medical opinions, that patients have worked out which doctors and government officials are less stringent, a phenomenon that lawyers in the U.S. said is also occurring in different parts of the country. They say this explains the high concentrations of beneficiaries in certain areas.

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