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Hearing on the Financing Challenges Facing the Social Security Disability Insurance Program

March 14, 2013

Hearing on the Financing Challenges Facing the Social Security Disability Insurance Program










March 14, 2013


Printed for the use of the Committee on Ways and Means


DAVE CAMP, Michigan,Chairman

PAUL RYAN, Wisconsin
DEVIN NUNES, California
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
DIANE BLACK, Tennessee
TOM REED, New York
MIKE KELLY, Pennsylvania

RICHARD E. NEAL, Massachusetts
JOHN B. LARSON, Connecticut
RON KIND, Wisconsin

JENNIFER M. SAFAVIAN, Staff Director and General Counsel
JANICE MAYS, Minority Chief Counsel


SAM JOHNSON, Texas, Chairman

MIKE KELLY, Pennsylvania






Advisory of March 14, 2013 announcing the hearing


Joyce M. Manchester, Ph.D.
Chief, Long-Term Analysis Unit, Health, Retirement, and Long-Term Analysis Division Congressional Budget Office

Stephen C. Goss
Chief Actuary, Social Security Administration


Hearing on the Financing Challenges Facing the Social Security Disability Insurance Program

Thursday, March 14, 2013
U.S. House of Representatives, 
Committee on Ways and Means, 
Washington, D.C. 



     The subcommittee met, pursuant to notice, at 10:01 a.m., in Room B‑318, Rayburn House Office Building, Hon. Sam Johnson [chairman of the subcommittee] presiding


 [The advisory of the hearing follows:]


     *Chairman Johnson.  Good morning.  Welcome to our first subcommittee hearing of the 113th Congress.  And I want to first introduce our new subcommittee members.  They are Mr. Renacci, Mr. Kelly, Mr. Griffin, Mr. Thompson, and Ms. Schwartz.  I look forward to working with each of you.

     We begin our work during a time when the government is operating under a sequester proposed by the President and agreed to on a bipartisan basis as part of the Budget Control Act in August 2011.  The House twice passed legislation to replace the President’s plan with smarter and more responsible cuts.  Unfortunately, the President and Senate ignored it.

     Right now, America is over $16 trillion in debt.  That means every American owes more than $52,000.  Now is the time to work together to stop spending money we do not have.

     Like every American family and business, Social Security is challenged to tighten its belt and live within its means.  The fiscal facts are that, one, under sequester, Social Security needs to reduce its operating budget by 3.35 percent not the 5 percent cut that all other domestic agencies have to sustain.  There are a lot of families and businesses in my district who have had to cut more on their budget than that.

     Secondly, Social Security’s operating budget has increased by 46 percent over the fiscal years 2003 to 2013.

     The stimulus provided an additional $1 billion to Social Security.  And the President cut the Commissioner’s proposed fiscal year 2013 operating budget by 6 percent before it was submitted to the Congress, the largest such cut made by President Obama during his 4 years.  And let me be clear.  Even with Social Security having to tighten its belt, benefits will continue to be paid.

     Today we will hear the latest information about the financing challenges facing the Social Security Disability Insurance Program.  This hearing will build on the groundwork of this Subcommittee from the last congress, when we held a hearing series on securing the future of the Disability Insurance Program.

     Then we learned about the predictable yet striking and unrestrained growth of the program and the reasons for it.  At a time when workers paying into the system have increased over 71 percent between 1970 and 2012, the number of people collecting disability checks has increased by over 300 percent, from 2.7 million to 10.9 million.  By 2023 the number of beneficiaries will grow to 12.3 million, and total benefits will reach over $213 billion.  That is a 57 percent increase over the 135 billion paid in benefits in 2012.

     And unless Congress acts, in 2016, just 3 years from now, disabled workers who can least afford it will be at a risk of 21 percent cut in their benefit checks.  We don’t have much time, and we need to act now.

     Some of that growth is predictable because of an increase in the size of the overall workforce, the entry of more women in the workforce, and the aging of baby boomers into their disability‑prone years.  And some of the growth is a consequence of Congress’s decision decades ago to expand the ways in which people could qualify for disability.  Our witnesses today will explain these numbers further, including the impact disability insurance has on other federal spending, along with how the makeup of those receiving benefits has changed.

     In this hearing series we also heard about the people who try to defraud the system by falsely claiming they are disabled.  We heard that Social Security’s efforts to conduct continuing eligibility reviews takes a backseat to handling the growing workloads.  That choice keeps costs higher, resulting in wasted taxpayer dollars, and weakens public trust in the program.

     We heard how the last century’s view of disability hasn’t kept up with this century’s advances in medicine, technology, and the workplace, resulting in a program that pays people not to work.

     GAO’s High Risk Series Update, issued just last month, keeps the high risk designation on the DI program because the medical criteria and occupational information relied on to make benefit decisions are still out of date.  The fact that the DI program has been on its High Risk list for 10 years is shameful.

     In the hearing series we also heard how important it is to make the right decision as early in the process as possible.  We walked through the lengthy and open‑ended initial determination and appeals process that enables claimant representatives to drag out appeals in hope of getting awards.  We heard how outlier judges who award disability benefits in most of the cases they hear can’t be managed or questioned about the decisions they are making on behalf of the Agency, encouraging a program where who makes the decision and where you live may mean more than the medical evidence in the file.

     We also heard how the courts have taken it up on themselves to reinterpret Congress’s will, creating inequities and inconsistencies in this program.  And we heard over and over that we must keep this program strong for those who truly cannot work.  And I know that is important to everyone in this room.

     Recently Dr. Ben Carson, an individual who overcame serious obstacles to become an accomplished neurosurgeon, commented that Americans are so concerned with political correctness that we are losing our ability to speak and hear the truth.

     We all want to do the right thing for those who can no longer work because of a serious illness or injury.  Yet, in 2016, there won’t be enough revenue to pay full benefits.  Disabilities have a devastating effect on individuals and their families and every dollar of those disability checks matter.

     It is time to speak the truth, work together, stay on target, and fix the disability program once and for all.  And I now recognize Ranking Member Mr. Becerra for his opening statement.

     *Mr. Becerra.  Mr. Chairman, thank you very much.  Let’s remind everyone that workers earn their Social Security disability protection.  Nearly 160 million Americans contribute to Social Security, earning protection for themselves and their families when they retire, or if they should die or become severely disabled.  Over its 77‑year lifetime, Americans have paid into Social Security $13.9 trillion in contributions.  Add in the $1.6 trillion in interest earned on those contributions, and you total $15.5 trillion, all together, that Americans have invested into Social Security.

     At the same time, Social Security has paid out only $12.8 trillion.  Do the math.  That leaves an overall trust fund surplus ‑‑ not deficit, surplus ‑‑ of $2.7 trillion in the Social Security trust fund.  Let’s remind people it is not easy to qualify for Social Security’s disability benefits.  Disability benefits are only available to those who have paid into the system and who have the most severe long‑term impairments, Americans essentially who are dying or who genuinely can’t earn even a poverty‑level wage at any job in the national economy, not what they were trained in, not that they worked in forever, but any job.  If they can’t qualify for any job in the national economy because of their disability, then and only then would they qualify.

     Make note.  About one in seven women and about one in every five men die within a few years of being awarded a disability insurance benefit.  Let’s remind people that the Social Security Disability Insurance Trust Fund’s challenge is modest, stable, and it is less immediate than the dangers of the sequester, the mindless, senseless, meat axe approach to cutting our budget deficit.

     The disability insurance shortfall is relatively modest because over the next 75 years the financing shortfall is equal to about 1/10 of 1 percent of our GDP.  To put that disability insurance shortfall in context, the annual shortage in the DI fund is equal to less than five percent of the Defense Department’s annual budget.

     And let’s make people are clear.  The DI shortfall is not a surprise.  When Congress last rebalanced the allocation of payroll taxes going into the two Social Security trust funds, it did so knowing that the amount allocated to the DI fund would result in a shortfall in 2016.  The recent growth in disability insurance benefits also is not a surprise, since it is due primarily to the demographic changes and other predictable factors in combination with the recession.

     As we talk about the challenge facing the disability insurance program we should note that a threat even more immediate is if we do nothing about this mindless sequester and across‑the‑board cuts that are going to hit every American family and every American taxpayer.  That budget sequester went into effect on Friday.  And as a result of this sequester, disability ‑‑ or disabled workers, excuse me, who are already waiting nearly four months for their benefit applications to be processed will wait an average of two weeks longer.  Workers waiting for a judge to decide their cases who already wait, on average, about a year for a hearing, will see their waiting time grow by about a month.

     The Social Security Administration will have fewer workers, fewer staff to conduct reviews of whether individuals continue to be disabled, though taxpayers save $9 for every dollar we invest in this important program that leads to integrity in the use of the Disability Insurance Trust program.

     Our first goal in addressing the DI challenge should be to “do no harm”.  The severely disabled worker who earned his benefits and receives Social Security already faces serious challenges.  The benefits aren’t especially generous.  A typical worker receives about $13,500 a year, substantially less than he or she was making when that individual was able to work.

     Through the Social Security program millions of Americans with disabilities have earned hope, dignity, and, when it is possible, a chance to work.

     And, Mr. Chairman, I think the more we move forward, we will find that we can resolve this in a bipartisan fashion to make sure that all Americans who have earned the benefit, when they become disabled, have this opportunity to live a life in dignity.

     And I would like to close, finally, Mr. Chairman, if I may, with one final point.  I wanted to make some personal comments about our chairman and my friend, Mr. Johnson.  As many of you may know, Sam and his wife Shirley recently experienced the devastating loss of their son, Bob.  Please, Mr. Chairman, know that our thoughts and prayers are with you and your family.

     And I know that this loss comes at an especially bittersweet time for you.  It is your fortieth anniversary from freedom, from seven years of confinement as a prisoner of war in Hanoi, more than half of that time which you spent in solitary confinement.  We know that you flew over 62 combat missions during the Korean War, 25 missions in Vietnam before you were shot down.  And, Sam, I take this occasion to honor your service to our country.  You are a tribute to the dedication of our men and women in uniform, and your courage and strength in the face of unimaginable adversity continues to inspire us all.  And we consider you a leader of America.

     And with that, Mr. Chairman, I will yield back.

     *Chairman Johnson.  Thank you, Mr. Becerra.  As is customary, any Member is welcome to submit a statement for the hearing record.  Before we move on to our testimony today, I want to remind our witnesses to please limit your oral statement to five minutes, if you can.  However, without objection, all the written testimony will be made part of the hearing record.

     We have one witness panel today.  Seated at the table are Joyce Manchester, Ph.D., Chief, Long‑Term Analysis Unit, Health, Retirement, and Long‑Term Analysis Division, Congressional Budget Office.

     *Chairman Johnson.  And Stephen Goss, Chief Actuary, Social Security Administration.

     Welcome, and thank you for being here.

     Dr. Manchester, you are welcome to go ahead.


     *Ms. Manchester.  Thank you.  Chairman Johnson, Ranking Member Becerra, and members of the subcommittee, thank you for inviting me to testify on the Social Security Disability Insurance, or DI, program.  My statement is based on a report that CBO released last year, in which we examined the reasons that the program has experienced rapid growth in its beneficiaries and costs, and evaluated a range of options for changing the program.

     As you know, the DI program pays cash benefits to adults younger than age 66 who have worked in the past, but are judged to be unable to continue to perform substantial work.  DI beneficiaries often receive additional benefits from other federal programs such as Medicare, generally after a 24‑month waiting period, supplemental security income, or Medicaid.

     In 2012 the DI program provided benefits to 8.8 million disabled workers and 2.1 million dependent spouses and children of those workers.  The average benefit received by disabled workers last year was about $1,130 per month.  And for basic facts about the program you can see page one of the handout or page two of the testimony.

     Since 1970, the number of DI worker beneficiaries has increased nearly sixfold.  That growth can be attributed to changes in multiple factors, including demographics, the labor force, federal policy, opportunities for work, and compensation levels.

     Part of the growth reflects the aging of the baby boom generation, because older workers are far more likely than younger workers to qualify for DI benefits.  In addition, the share of women who have worked enough to be eligible for DI has increased substantially.  And you can see the figure on page two of the handout, or page three of the testimony.

     Moreover, changes in federal policy, notably the 1984 Disability Benefits Reform Act, expanded the ways in which people could qualify for the DI program.  Those changes led to an increase in the share of DI beneficiaries with mental or musculoskeletal disorders, many of whom enter the program at younger ages, qualify based on more subjective criteria, and spend more years on the program than do people with other types of disabilities.

     Declining opportunities in the labor market for less‑educated workers have also contributed to the program’s growth.  The dividing line between people who can and cannot perform substantial work is not always clear.  And in some circumstances, the program discourages work.  For example, some people with health problems who have been out of work for long periods turn to the DI program for support.

     Since 1970, after adjusting for inflation, outlays for benefits from the DI program have grown by more than 9 times, while revenues dedicated to the program have increased nearly 5 times.  In 2012, spending on benefits in the DI program was $135 billion, and the program’s revenues, mostly from its share of the Social Security’s payroll tax, totaled $102 billion.  The imbalance between spending and revenues will persist in coming years, and the DI trust fund will be exhausted in 2016, CBO projects.  At that time, the Social Security Administration will no longer have legal authority to pay full DI benefits.

     The DI program’s rapid expansion and the continued gap between its spending and dedicated revenues have led some analysts and policy‑makers to examine options for change.  In last year’s report, CBO, in conjunction with the staff of the Joint Committee on Taxation, estimated the budgetary effects of several potential modifications to the DI program.  As with other federal programs, a reduction in the number of beneficiaries or in average benefit levels would reduce federal outlays, but also reduce the income of potential beneficiaries.

     CBO examined two options that would ‑‑ the taxes that support the program.  And again, you can see page three of the handout or page eight of the testimony.  It also assessed seven options that would reduce spending on benefits.  Ensuring the solvency of the DI program would require combinations of such policies or other changes to the program.

     CBO also examined two options that would increase spending for the program.  Unless those policy changes were accompanied by some other reductions in benefits, or by additional program revenues, the finances of the program and of the Federal Government as a whole would be worsened.

     Policy‑makers could also alter the program in more fundamental ways.  Modifications might include promoting work, for example, by focusing on rehabilitation and re‑employment prior to applying for DI benefits, as has been done in various European nations.  In CBO’s assessment, such changes would probably not yield significant short‑term cost savings, but could provide long‑term savings or achieve other goals, such as improving the well‑being of people with disabilities.

     Thank you, and I will be happy to answer any questions you may have.

     [The statement of Ms. Manchester follows:]

     *Chairman Johnson.  Thank you for your testimony.

     Mr. Goss, welcome again.  Please proceed.


     *Mr. Goss.  Thank you very much.  Chairman Johnson, Ranking Member Becerra, thank you very much for the opportunity to come again to talk to you about the situation with the DI program.

     On this first little graph that we have up here you can see the trajectory of the trust fund status, the reserves that we have in the trust funds.  And you will back in 1994 we were rapidly approaching a date that we are now once again approaching for the DI program, as Mr. Becerra indicated.  When a tax rate re‑allocation was enacted back in 1994, just one year before those reserves would have been depleted, we projected at the time in the following trustee’s report in 1995 that, in fact, they would become depleted again.  That was fully expected as of 2016.  And, lo and behold, our projections today are still that it will be 2016.  Not a lot has changed.

     The OASI trust fund is in far better financial shape.  This is really just a matter of the ‑‑ of how the tax rates are allocated between the two funds.  It was, in fact, a deliberate decision of the congress back in 1994 to re‑allocate enough to carry the DI program for a while, but not to equalize the financial prospects of the two programs.

     Now, why has the disability insurance program really risen so much in cost over time?  Fascinating story, some of us think.  What we are used to seeing are the higher lines here for the retirement program for Social Security.  We are all aware that the baby boomers are now in the process of moving into the higher ages.  Over the next 20 years they will be moving into retirement, and they will be followed by smaller generations from lower birth rates.

     The real news is that, for the disability insurance program, that has already happened while we were paying attention, more or less.  Over the last 20 years, the baby‑boom generations have moved from 20 years, at ages 25 to 44, with relatively low disability rates, to ages 45 to 64, where disability rates are relatively high.  So it is no surprise at all that we have had a big increase in disability costs over this period.  And, of course, they have essentially met the projections that we had been making back 20 years ago.

     Okay.  So let’s break down a little bit what has happened.  We tend to look at, say, 1980 to 2010, not going back as far as 1970.  Of course there were no disability beneficiaries back in 1956, because there was no disability program then, it was just enacted.  And it took a number of years, more than a decade, for the program to mature.

     So, looking at the increase in the number of disabled worker beneficiaries from 1980, where we were essentially mature, to 2010, we had a 187 percent increase.  That is nearly a tripling in the number of beneficiaries.

     So, what are the factors that caused this increase?  First one we would like to point to is just the sheer population at ages 20 to 64, the principal ages at which people are receiving disability benefits.  Because once they reach the normal retirement age ‑‑ now 66 ‑‑ they no longer receive disability benefits.  They transfer over and receive retirement benefits.  We have had a 41 percent increase in just the pure population at those ages.

     However, that is only part of the demographic story.  The second part of it is that that population, age 20 to 64, has not stayed static in terms of its age distribution.  The baby boomers, as mentioned earlier, have moved from 25 to 44 up to 45 to 64, so that the age distribution of that population, which is increased in and of itself, has shifted towards much higher ages.

     So, we have not only had a 41 percent increase in the population at this overall age, we have had another 38 percent increase in the number of disability beneficiaries on top of that, because there has been so much of an increase of that increase occurring actually at the higher ages.  We have had a 38 percent increase in the numbers of beneficiaries just because of the shift in the age distribution.  This is even assuming that the percentage of people at any given age receiving benefits had not even stayed ‑‑ had stayed the same and had not changed at all over time.

     A third factor we would like to point to, which I think both the chairman and ranking member alluded to, is that we have had some very, very good things happen over the last 20 years.  Women are working much more and much more consistently.  And, as a result, have become insured to receive our benefits to a much greater extent.  After all, as we all know, benefits are available only to people who have insured, and they have worked sufficient to become insured.  The percentage of women who are insured to receive benefits over the last 20 to 30 years has about doubled from 35 to 70 percent to essential parity with men.

     And the fourth factor that I would like to point to which really sort of completes the story of what has really happened over the last 30 years, from 1980 to 2010, in terms of the increase, is a change in the age‑adjusted prevalence rate.  That is, even assuming that the population hadn’t increased, assuming that the age distribution hadn’t changed at all, and we even ignore the idea that the insured numbers had gone up, just look at the prevalence rate amongst insured people, assuming the age distribution hadn’t changed.  We still have a 42 percent increase to explain.  About half of that is because of increase in incidence rates, largely female incidence rates.

     The other story on incidence rates ‑‑ that is the percentage of people who are insured who start to get disability benefits ‑‑ back 30 years ago those rates were only about two‑thirds as high for women as for men on an age‑by‑age basis.  And at this point now those rates have essentially equalized.  Also, there is a somewhat younger distribution of people receiving benefits, which maybe we will get into more in discussion after.  And also, the death rates have declined somewhat.

     Just to give you a little picture of what has happened in terms of the insured rates, you can see how back in 1970, 1980, the percentage of women who were insured received disability benefit was very low, compared to men.  They have essentially equalized at this point, and that has put tremendous pressure on increasing.  The incidence rates for women also, if you look back, the pink line used to be quite a bit lower than the line for males on an age‑adjusted basis, and that has essentially equalized.

     In terms of the rates of people terminating or leaving the benefit rolls, well, the good news is the red line is death rates.  And, of course, those have been going down, as death rates have been declining for the general population.  The other news is, of course, that the rate of termination from disability for recovery from a medical point of view, or from returning to work, has stayed at about one percent, about half from each of these.

     We have this little graph that we might talk about more later, I hope, about some of the ups and downs that we have had in our economy, recessions:  unemployment rate is shown in the red line; the blue line shows you what disability incidence rates are, and those have moved up and down relative to not only changes in the economy, but also some changes in policy, which, again, I hope we will have the time to talk about a little bit more as we go down.

     The final thing, if I may just take one more second, is to just talk a little bit about the nature of the distribution of impairments for people who start getting benefits.

     On this slide we are looking at what happens at relatively younger ages, 30 to 39.  It has been rather stable.  The percentage of people at 30 to 39 starting to get benefits who have gotten mental impairments, musculoskeletal, it stayed about the same over time.  There really hasn’t been any change on an age‑by‑age basis.  Where there has been a change is at higher ages.  We are showing it here for men, but for women it is very similar.  There has been an increase in musculoskeletal and a decrease in cardiovascular, not a surprise, and all the rest have really reduced deaths. And disabling conditions from the circulatory and musculoskeletal, for a number of reasons, has risen.

     One thing we probably ‑‑ I am over time, so I will not be able to talk about, but I hope we will talk about it a little bit more, is the situation with the CDRs and CDR funding, as shown in this figure, number 16.  We, back in 1996 to 2002, the congress appropriated the money.  Social Security did not even need all that had been allocated.  The appropriations were less than had actually been allocated by law, and we were able to get the backlog of full medical continuing disability reviews done.

     We are now at a position where we do have a backlog of those.  The Budget Control Act set forth enough money to be able to do that.  Unfortunately, the appropriations over the last couple years have not met the BCA ‑‑ also have not done that.

     So, the very final point is really just looking at the DI cost as percentage of GDP.  It has risen over the last 20 to 30 years for the reasons described.  Going forward, we project that with some of the incidence rates staying essentially the same in the future ‑‑ we see no reason why they would be going up ‑‑ the cost, as a percentage of GDP, for Social Security will remain at about .8 percent of GDP.  The real problem is that the dedicated revenue for the program is less than that.  So we need to either find a way to pull down that cost level or pull up the revenue level to get those back in sync.

     Thank you very much, and sorry for running overtime, Chairman Johnson.

     [The statement of Mr. Goss follows:]

     *Chairman Johnson.  Thank you for your testimony.  We will now turn to questions.  And as is customary for each round of questions, I will limit my time to five minutes and ask my colleagues to also limit their time to five minutes as well.

     Dr. Manchester, each year CBO produces its own score of President’s budget.  We know the Disability Insurance program won’t be able to pay full benefits beginning in 2016.  That is only three years away.  Has this President ever submitted a budget that included a fix so that full benefits could be paid in 2016 and beyond?

     *Ms. Manchester.  Chairman Johnson, the answer is no.  The President has not submitted such a budget.

     *Chairman Johnson.  Mr. Goss, unless Congress acts, in 2016 people receiving disability insurance will face a 21 percent across‑the‑board cut.  We are running out of time, unless we raise taxes on everyone, including those who can least afford it.  In the past, when full disability benefits could not be paid, Congress enacted a reallocation of the payroll tax so that a higher percentage of payroll tax receipts would be credited to the Disability Insurance Trust Fund and a lower percentage would be credited to the Old-Age and Survivors Insurance Trust Fund.

     How often has Congress taken such action, and were these re‑allocations temporary?  And, if not, how long did that policy last, and was the retirement program ever made whole for its loss?

     *Mr. Goss.  Chairman Johnson, thank you.  You are exactly right, that we are facing a 2016 date, at which point, assuming we actually did deplete the reserves of the DI trust fund, we would only have $.79 coming in at that moment for every dollar of scheduled benefits, and we would have an issue.

     The good news is Congress has never allowed that to happen.  And we would not be ‑‑ even if we got to that brink, we would not be in a position of having to necessarily raise taxes, because a re‑allocation, as you all described, could allow us to take some of the money that is going out of the OASI, Old-Age and Survivors Insurance Fund, put into the Disability Insurance Fund, and thereby not raise taxes in near term at all.  It would just be a transference.

     As for re‑allocations ‑‑

     *Chairman Johnson.  But the Old Age Fund is your money, isn’t it?

     *Mr. Goss.  Well, the Old Age Fund would, in fact, be reduced.  We actually have worked out schedules, and have provided them and can provide them for the record, of relatively modest re‑allocations that would equalize the prospects for the OASI and the DI trust fund.  The DI trust fund is now projected to deplete its reserves in 2016.  The OASI trust fund, we project, will deplete its reserves in 2035.

     So, with a modest re‑allocation between the two, they could both be moving towards depletion in 2033, giving you good gentlemen and gentlewomen the opportunity to have well‑reasoned and good changes to both of these programs ‑‑

     *Chairman Johnson.  The problem is we have got a cliff coming at us and we are going to fall off of it, I think.

     *Mr. Goss.  We do.  If I may, let me just mention on the re‑allocation of the historical, as you asked.  I actually looked last night very carefully at all of the changes.  And looking at all the different years since 1957 in which DI tax rates have changed and OASI tax rates have changed in the opposite direction, where there has been some movement between the two, we have had six times where the OASI tax rate has been lowered and the DI tax rate has been increased over all those years, for a total change of 1.63 percent.

     But we have also had 5 times in which the DI tax rate was lowered, and the OASI tax rate was increased, for about a 1.26 percent total change.  So there has been a net transference of the tax rates from OASI to DI over that time.  But there have been changes in both directions, and none of them have been terribly long‑lived, because the congress, in its good thinking, has made changes as necessary throughout this time period.

     *Chairman Johnson.  Which of the policies that we have made has had the greatest impact on expanding the rolls?

     *Mr. Goss.  Well, certainly, the biggest was 1956, the enactment of the law.  But beyond that, obviously, we have ‑‑ and the little graph that we had up before that showed the incidence rates going up and down, but let me just point to sort of three changes in the law that have occurred that really had impacts.  And they go in various directions.

     One is the 1980 amendments that were enacted that put into effect a pre‑effectuation review, which meant that when disability claims are allowed, at the time it said that 65 percent of those disability claims that were going to be allowed had to be reviewed an additional time before claimants were even made aware.  And that had an effect.

     In addition, back in the 1980 amendments it was put forth that we should have continuing disability reviews, which, I admit, have not always been fully funded and done to the level that ought to be done.  But they were put into effect.  And both of those, obviously, tend to stem the growth in Social Security, even in the face of a very severe recession back in 1982 to 1983.

     A second point that I would like to bring up was the 1984 amendments which went in the other direction.  The 1984 amendments afforded the possibility in disability adjudications to look at multiple impairments instead of single impairments.  And it also required, for people who were receiving benefits, if they were to be removed for medical reasons, that Social Security had to prove that there was medical improvement, not just that their current status didn’t qualify, but there was actual medical improvement.

     *Chairman Johnson.  Yes, thank you.  You can stop right there.  My time has expired.  Mr. Becerra, you are recognized for five minutes.

     *Mr. Becerra.  Thank you, Mr. Chairman.  Dr. Manchester, let’s make sure we are clear.  Eligibility for these benefits.  If I am a doctor, a singer, a professional athlete, all of a sudden I can’t be that basketball player or opera singer, something happens to my voice, or I ‑‑ my sight goes a little poor and I can no longer do the surgery, as a physician.  Just because of those incidents occurring for any one of those types of American workers, that doesn’t mean they automatically will qualify for disability insurance.

     *Ms. Manchester.  So the answer is a little bit complicated.  It depends on your age.  So, for example, if you are an age 42‑year‑old surgeon, and all of a sudden you can’t do surgery, then you would have to show that you cannot do any job in the economy in order ‑‑

     *Mr. Becerra.  So that means that if I were a surgeon and I can no longer do surgery, I still have to prove that I can’t do ‑‑ could I be told, “Well, there is a position open to be a janitor at your local school”?

     *Ms. Manchester.  If you can do some work anywhere in the economy, you would not qualify for DI benefits.

     *Mr. Becerra.  Okay.  So I ‑‑

     *Ms. Manchester.  Now, that is not true at ages 45, 50, 55, 60.  At those ages, there are more allowances made for your own career or your own specific kind of work.

     *Mr. Becerra.  Right.  So the older you get, the less able you are ‑‑ do any number of things because of age.  But simply because you can’t do what you have always done or what you were trained to do doesn’t mean you will qualify for disability insurance.

     *Ms. Manchester.  At younger ages, that is true.

     *Mr. Becerra.  Yes.  And even at older ages.  You still may not qualify, even if you can’t do a number of things as you did as a surgeon, professional athlete, or a singer.  You still may have to do other things.  You may have to be a security checker at some local shopping mall, or you ‑‑ so long as you can show that you can do a job that is available out there, Social Security is not going to grant you disability insurance benefits.

     *Ms. Manchester.  So those regulations do change as you get older, so that ‑‑

     *Mr. Becerra.  Right.  Understood, understood.

     *Ms. Manchester.  Correct ‑‑

     *Mr. Becerra.  As you get older, your abilities do diminish.  But no one should be deceived into believing that simply because you say, “I can no longer be the singer performing at that opera house,” that I all of a sudden get to qualify for disability insurance.

     Another question.  You mentioned that the average monthly benefit from disability insurance is about $1,130 a month.  Are you aware of what the poverty level is considered to be in this country.

     *Ms. Manchester.  Oh, boy.

     *Mr. Becerra.  I will tell you.  I will tell you, don’t worry.

     *Ms. Manchester.  Okay.

     *Mr. Becerra.  It is about $995 a month.  And so, essentially, you would be earning ‑‑ or you would be receiving a poverty wage which, by the way, you paid into, because when you were working you earned the right to receive these benefits, but it is not going to make you rich.

     *Ms. Manchester.  Absolutely not.

     *Mr. Becerra.  It may not even let you survive, even if you are able to receive these disability insurance benefits.

     Mr. Goss, you showed some charts.  Some people are trying to portray the disability insurance program as blowing out of proportion.  It is going to take us into bankruptcy.  I thought I saw some charts that showed that, actually, the disability insurance program stabilizes, both in terms of cost and the number of people who apply for benefits over the long run.  Is that the case?

     *Mr. Goss.  That is exactly the case.  The primary driver is ‑‑ the vast majority of the changes are the aging of the population, and the equalization of insured rates and disability incidence rates between men and women.  These are all factors that are not going to be repeated in the future.  They have played out, and therefore, we see the cost as being essentially a stable percentage of GDP in the future.

     *Mr. Becerra.  So, like any good math student who, so long as you can figure out the variables that go into that equation, you can come out with your answer, we know the variables that are driving the increasing numbers of disability insurance beneficiaries, and the increased cost of the program, and we can see how it stabilizes.

     So, if we are smart, we will all work together to try to, as we have done in the past, come up with a mix of fixes that ensure that over 75, 90, or whatever number you want to ‑‑ of years you want to decide, calculate, we will make sure that, for Americans who become disabled through no fault of their own, that if they have paid into the system, they will be able to receive some benefits that help them continue to hopefully work.  But if they can’t work, at least to survive in America for having been good American workers before.

     Is ‑‑ have I summed it up in a way that you could agree with?

     *Mr. Goss.  I believe that is the intent of Congress in enacting this program.  And so far it has been doing a very good job.

     *Mr. Becerra.  Well, and I hope, then, what we do is, Mr. Chairman, I think we have time, because, as I think our witnesses have mentioned, between the mix of what we do for those who are retiring, the aged, those who become disabled, certainly more importantly as well, the folks who receive a benefit because they are the survivors of an American worker who paid into the system and has perished, that what we are doing is figuring out, while we have some two decades to figure this out, a great ‑‑ the best way to fix the system to make sure it is there for the future generations, as it has been here for the rest of Americans.

     So, with that, Mr. Chairman, I yield back the balance of my time.

     *Chairman Johnson.  Thank you.  Mr. Renacci, you are recognized for five minutes.

     *Mr. Renacci.  Thank you, Mr. Chairman.  I want to thank the witnesses for their testimony this morning.

     You know, it is important that those that qualify get these benefits, and then they continue to qualify for the benefits.  And I want to go in that direction.

     But, Dr. Manchester, you said something in your testimony this morning that I just want to see if you would expand on.  You said in some cases this program discourages work.  Can you expand on that a little bit?

     *Ms. Manchester.  Sure.  So many researchers are concerned that, because the applicant has to be out of the workforce for five months prior to application, and then the application process itself can take a year, two years more, that the time out of the workforce leads to a depreciation of their skills as a worker.  And so, just the fact that they have taken the time out of work to apply for a benefit means that they will be less able to go back into the workforce.

     *Mr. Renacci.  And Mr. Goss, I wanted you to expand on the Continuing Disability Reviews.  You know, we talk about qualifying and then continuing to qualify.  I think that is important, that the reviews are there.  I know it was part of the 1980 amendments.

     Can you talk a little bit about what the current backlogs are of the CDRs, expand on some of the complications of administering the CDR program and, explain what the financial impacts CDRs have on the DI program.  So that is a lot, but I just want to get some more information on that.

     *Mr. Goss.  Absolutely.  Let me ‑‑ whatever I can’t get in here I will submit for the record, for sure.  But let me just mention also about the idea of discouraging work, I think the very fact that there is a five‑month waiting period during which you cannot get benefits if you become disabled should suggest that people would try to work as best they can.  If benefits were made immediately available upon disability, then I could see an argument for saying that people are able to get benefits right away, and so they might give up on work.  But given they can’t get benefits right away, that would seem to suggest, actually, that they should do everything they possibly can to keep working, rather than having a five‑month period in which they have no income.

     As far as the ‑‑ what we call the full medical reviews for continuing disability reviews, this is really a huge story.  The graph that we had up there ‑‑ it is actually figure 16 in the written testimony ‑‑ shows that we actually did, back in the 1996 to 2002 period, have legislated into law sufficient monies to be able to work down our full medical review backlog.  And luckily it turned out that Social Security was able, through efficiencies, to do it for even less.  And the actual appropriations turned out to be less, but they were worked in conjunction ‑‑ Social Security, the Appropriations Committee ‑‑ to actually get those down.

     We are now at a position, since 2002, the appropriations have been very, very, very much below where they were in the 2002 level by any measure.  And our “backlog” has grown.  For Social Security disability insurance full medical reviews, we estimate there are about 300,000 cases which we should have in process that are not currently in process.  In order to get to a position where we would not have cases in effect waiting in the queue to get into process, we would have to have more revenues.

     The Budget Control Act actually put forth those revenues, it put them into law. Unfortunately, in 2012 and 2013, the actual appropriations have fallen very substantially short of the amount of money that was put forth in the Budget Control Act.  And, therefore, Social Security has simply not been able to do the number of full medical reviews that have been scheduled.  If we were to achieve the funding from the Budget Control Act, we estimate that within five years we would be able to get this backlog taken care of and be on track.

     As far as the cost of the program, the level of backlog that we have now, if ‑‑ and this is a little bit hypothetical ‑‑ if this means that the cases that we want to do full medical reviews for are about six months delayed from what they might otherwise be if we were really fully funded, since we have about half‑a‑percent of our beneficiaries being terminated for work reasons every year, if that is six months later than it might otherwise have been, that would be a one quarter of one percent less cost, if we were able to discover the ability of people that they have actually recovered medically, and have them depart the rolls by those six months earlier.

     One half percent leaving six months earlier would be a quarter percent less cost.  On a $140 billion program, that would be $350 million annual of lower costs for the program, if we were fully funded.  And, as I think Mr. Johnson indicated, with a $9‑to‑1 ‑‑ $9 of return for $1 of investment on these full medical reviews ‑‑ this seems like a good investment.  So we hope that you will talk to the folks over in the Appropriations Committee, as my boss is doing right now, and that you will help encourage them to give us full funding for that.

     *Mr. Renacci.  Thank you, Mr. Goss.  I yield back.

     *Chairman Johnson.  Thank you, sir.  Mr. Kelly, you are recognized.

     *Mr. Kelly.  Thank you, Chairman.  And, Mr. Becerra, I really appreciate what you said about the chairman.  He truly is one of a rare breed of American heroes.  And I can’t tell you what a pleasure it is to serve with you.  And those comments are right in line.

     The two of you, what I am really worried about is we see more people going on to the rolls and not coming off.  And having been in the private sector all my life, the idea was if somebody got hurt on the job, you needed to get them back on the job again.  So why aren’t they coming back?

I have seen great advances, from the time I first got started in business until now.  Injuries and things that would happen to people before that you would say, “My gosh, this is going to be really a difficult thing for them to recover.”  That is not the same any more.  We have had great technology, we have had great innovations.  We have had a great advance in that.  And not with any disrespect.  I mean, Mr. Becerra, not about the opera singer that can’t hit the high note or the low note.  I am talking about people who work on their feet and work with their hands, musculoskeletal problems.  I have sat in on hearings to hear that.

     What is driving this?  If we have such great advancement, why aren’t we having them return to the payrolls?  Why aren’t they coming back into the workforce?

     *Ms. Manchester.  This hearkens back to my earlier answer.  I think that people have to prove that they are unable to work in order to qualify for the DI program.  So once they have been out of the workforce and they have convinced themselves and the examiners that they cannot work, it is extremely difficult for them to get back in to the workforce.

     Now, in response to this program, many researchers have identified the idea of early intervention.  So this means that firms, employers, would work hard to keep their employees on the job, even as they see that their skills are maybe not as used because they are experiencing health problems.  But they will work very hard to use technology, to use perhaps retraining and other means, in order to support their efforts to stay on the job so that they are not removed from the workforce for a couple of years before they are told, “Well, you should try to get back in to the workforce.”

     *Mr. Goss.  If I might add, part of the reason, clearly, is that we have such an incredibly strict definition of disability.  Mr. Becerra was referring earlier to what we sometimes refer to as sort of an occupational definition.  If a great surgeon with great digital dexterity for some reason loses that, we do not allow that person for benefits.  So they could become a medical consultant to help us making disability determinations, where they don’t need the dexterity any more.

     Under an occupational definition, which most private disability insurance works on, there is a much greater opportunity to get people back to some job by working with them, maybe even the same job.  But we have so much stricter definition.

     The other thing that I would really suggest is that what we really need is ‑‑ and I am sure this is something that you all are more aware of than we are ‑‑ is jobs.  We really need the opportunities for people to get back to work.  Dr. Manchester is exactly right, that once people have been out of the workforce for a while, it is harder to get back.  But it is even harder if there aren’t good jobs there for which they have been properly trained and skilled to take those jobs.

     *Mr. Kelly.  And those numbers are increasing, though, with the recession, the depth of the recession.  I am just going back.  This is my private life.  Listen.  We have technicians that we need on the shop floor.  Each service bay has to turn so many hours a day.  We need those people back to work.

     When you talk about strict definitions, I mean, if we make it hard for people to recover because we change the definition of recovery, or returning to your skills‑‑ I wonder about this, because I have seen great techs take a job at the service counter, becoming advisors, and losing their production on the floor, and going through this process of trying to get them back to work.

     Unfortunately, sometimes the incentives go the opposite way of what they are intended to do.  And this economy certainly doesn’t lead to the fact that, “You know what, what would you rather do?”  This is almost like a Wendy’s commercial.  Should I stay on disability and make this amount of money?  Or should I go back and find a job where I will make this?  It doesn’t take a genius to figure out what they are going to do.

     I think we had good intentions.  But we have made it impossible for people to make the right decision, because the metrics just don’t match.

     *Mr. Goss.  Well, in your wonderful business, where it sounds as though you were doing everything possible to encourage people to get back to full production, which is great, I think the nature of the way that the benefits work under Social Security is that, by and large, people do not get more than  ‑‑ and maybe generally not even as much as ‑‑ half the level of income that they were receiving when they were actually working.

     My sense ‑‑ and I presume everybody in the room shares this ‑‑ is that Americans have an incredibly strong work ethic.

     *Mr. Kelly.  I agree.

     *Mr. Goss.  If they have an opportunity to get a job I hope at your firm or your former firm, and they can get that job and get twice what they would be receiving from disability benefits, that the vast majority of Americans will seize that opportunity in a heartbeat.  So I would just hope that if ‑‑ hopefully the economy revives ‑‑ we are still at eight percent unemployment, but we are eager and are projecting that we will get back there in just a very few years ‑‑ that that will make a big difference.

     We have, though, nonetheless, with the disability insurance program, with everything that has been happening in the economy, we continue to have about one‑half percent of the people receiving benefits every year return to work and leave our rolls.  But keep in mind that is one‑half percent every year.  On average, people receive our benefits for about 12 years.  Half a percent a year, that means six percent.

     So, it is not as bad as half percent.  People come on the rolls, there is an expectation that six percent of them should be expected to leave the rolls before they reach retirement age and return to work.  And roughly another six percent are leaving the rolls because of medical improvement.

     *Mr. Kelly.  Thank you.

     *Chairman Johnson.  Thank you.  Mr. Tiberi, you are recognized.

     *Mr. Tiberi.  Thank you, Mr. Chairman.  Thank you for your leadership.  Thank you for Mr. Becerra’s leadership, as the ranking member.

     I am depressed.  And let me tell you why.  I don’t know how we solve the problem, when we can’t agree what the problems are.  And let me tell you what I mean.

     Mr. Becerra says the shortfall is modest, that stability is coming.  Now, I love Mr. Becerra.  He and I could drink a bottle of wine together and have a really good time talking about sports ‑‑ not politics ‑‑ and then I read your testimony, both of your testimonies.  You say there are incentives that discourage work.  You say that we have 102 billion coming in, 135 billion going out.  Is that right?  You say that there are more younger recipients, which means that they will ‑‑ at least 94 percent of them ‑‑ will be on for a longer period of time, which I would think means it stresses the system.

     You say fewer death rates.  That means people are living longer, right?  They are not on the system less.

     In your conclusion you say “Restoring sustainable solvency for the DI program requires about a 16 percent reduction in benefits” ‑‑ that stinks for a beneficiary who is truly in need of them ‑‑ “A 20 percent increase in revenue, or some combination of these changes.”  And then you go on to say, “Similar changes are needed for the OASI program.”

     Congressmen do pay into Social Security, by the way, for everybody in the audience and reporters who are here.  I look at my Social Security benefits, and I see that when I retire, if we do nothing I am expected to get less than 75 percent of the benefits that are entitled to me.

     And yet, it is like we don’t even do anything.  It is not a big deal.  It is going to be stable.  The shortfall is modest.  I am really concerned.  I know you are concerned about the beneficiaries, as well.

     So, Dr. Manchester, what do we do?

     *Ms. Manchester.  So, to straighten out some of the confusion, I think that Congressman Becerra was talking about the overall OASDI program.

     *Mr. Tiberi.  I think he was, too.  To the chairman’s point, we have got three years, right?

     *Ms. Manchester.  For the DI program, that is correct.

     *Mr. Tiberi.  Yes.

     *Ms. Manchester.  That is correct.  And, of course, in our report from last year we laid out a number of options that the congress could choose to adapt or not that, in combination, could lead to improvement in the DI program finances.

     In addition, we talk about some fundamental reforms that, over time, could also lead to improvements in the DI program finances.

     I think it is important to realize that this is a program that does serve a number of people who really need the benefit.

     *Mr. Tiberi.  Absolutely.

     *Ms. Manchester.  But that there may be ways to get to people sooner in the process, so that we can keep them on the job.  And they may be better off themselves, if they can stay on the job.

     It is also important to realize that it is not just DI finances that we worry about when we think about how many applicants eventually go on to the program, because of course those folks also qualify for Medicare benefits after 24 months on the program.  I said earlier that the ‑‑

     *Mr. Tiberi.  Whether they are 65 or not?

     *Ms. Manchester.  Oh, no.  If they are DI beneficiaries on the program ‑‑

     *Mr. Tiberi.  I just want to make sure you say that.

     *Ms. Manchester.  Yes.

     *Mr. Tiberi.  So everyone is clear on that.

     *Ms. Manchester.  Yes.

     *Mr. Tiberi.  Particularly the reporters in the room.

     *Ms. Manchester.  Okay.

     *Mr. Tiberi.  Could you say it again?

     *Ms. Manchester.  If they are DI beneficiaries on the program for two years, they then qualify for Medicare benefits.

     *Mr. Tiberi.  Whether they are 65 or not?

     *Ms. Manchester.  Correct, whether they are 65 or not.  And we figure that the average DI benefit on an annual basis is about $13,500.  The annual Medicare benefit for folks who are on the DI program and receive Medicare is about $10,500 per year.  So it is another substantial cost.

     *Mr. Tiberi.  So when you say reasons the program has grown so rapidly, changes in demographics ‑‑ which you all talked about ‑‑ growth in the labor force, changes in federal policy, and changes in opportunities for employment and compensation, on changes in federal policy, are there things that we can do to reverse that on federal policy?

     *Ms. Manchester.  So that is a decision to be made by Congress.  I think there are ideas out there that would better target people who have some remaining capacity to work.  So those are the kinds of things that you might want to think about.

     *Mr. Tiberi.  Thank you so much.  Comment?

     *Mr. Goss.  Yes, please.  First of all, there is no disconnect.  I think, you know, both of these positions that you mention are correct.  We are facing a substantial shortfall.  But the characteristic of it that I think Mr. Becerra was referring to is it is not like the thing that we were all worried about before the Affordable Care Act ‑‑ perhaps not a good thing to mention ‑‑

     *Mr. Tiberi.  Probably not.


     *Mr. Goss.  When the cost of Medicare, as a percent of GDP, was rising, it was going vertical on us.  It is not projected to be doing that now.  But the good news is, for Social Security, all components of Social Security are not going vertical.  They are staying constant, as a share of GDP.  Now, the percentage of GDP is higher than the dedicated resources.  That is where the shortfall is.  But the good news is that shortfall is not getting bigger over time.

     We also have done a lot of work on possible changes that could be done.  We have a letter ‑‑ it is up on our website ‑‑ back in July of 2011 for Senator Coburn addressing a number of different changes.  Many of the changes individually, and certainly collectively, would more than eliminate the shortfall that we see for Social Security in the long run.

     In fact, on the revenue side, the 20 percent increase in revenues would be equivalent to a 0.4 percent increase in the payroll tax rates, if you want to do it 100 percent, just on the basis of payroll tax rate.

     *Mr. Tiberi.  Well, my time has expired.  But you also have to factor in the other issue that the payroll tax is not properly funding the program today.  So it is not just in the context of this.

     *Mr. Goss.  Exactly.

     *Chairman Johnson.  Thank you for your questions.  Mr. Griffin, you are recognized.

     *Mr. Griffin.  Thank you, Mr. Chairman.  Thank you all for being here.  And I was not here the last congress, so I do not have the benefit of a lot of what went on then.  So this may be duplicative, but I want to focus on a story that was in our statewide paper in Arkansas, the Arkansas Democrat Gazette.  And it was entitled, its recent article, “Benefits Link Cited as Mire for Medicaid:  Disability Cost Now 51 Percent of State’s Medicaid Program Growth.”

     And the general point of this article was the fact that once people get on disability, they are eligible for Medicaid.  And while the Federal Government may be paying for part of that, the state has to carry that Medicaid cost.  And this is a huge problem for us in Arkansas, and it is a quite extensive article that explores some different options.

     And one of the things that struck me is there are a couple of quotes in here that reflect some of what has been discussed here, which is that, unfortunately, in some of the areas that have lost significant population, those are the areas of the state where disability has increased drastically.  And this article explores the fact that some maybe are using disability as unemployment insurance.

     I am going to read a couple of quotes.  This is from a state senator, a Democrat.  He says, “I know people who lost their job because it went away.  There is not another one, so they go ahead and apply for disability.”

     And then there is a quote in here from Mary Daly, economist with the Federal Reserve Bank in San Francisco ‑‑ I am sure you are familiar with her ‑‑ she says, “A really important question for the nation and for states is has this become our long‑term unemployment insurance program?”

     That is bothersome, not because we don’t want people to have a safety net with regard to Unemployment Insurance, but we want programs to be used for the intended purpose.  There are a lot of people that rely on Social Security disability who are disabled.  And when people who are not disabled use this program inappropriately, even if ‑‑ I am not saying they don’t need a safety net, but when they use this program, they are threatening the benefits to the people for whom the program was intended.

     So, my first question ‑‑ I am sure you have gone over this ad infinitum in the past, but is it not doable to simply have a better screening process?  I mean what is hard about that?  We put people on the moon.  I mean can we not do a better job of weeding out applicants who are inappropriately getting benefits, and putting the benefits of the disabled at risk?

     And I mean we have got a quote here by this same Democrat state senator, who says, “Either we have got some folks with handicaps, or we have got some good folks who are filling out the paperwork.”  Now, I wouldn’t have put it that way, but you see the point.

     So, could you comment on that?

     *Ms. Manchester.  I would just say that it is extremely difficult to draw the line between a person who is actually able to work and a person who is not able to work.  That is an extremely difficult, sometimes subjective, judgement call to make.

     It is true that many, many highly‑qualified people are on the program.  They absolutely cannot work.  But in recent years there have been three academic papers coming at the problem from very different approaches identifying younger DI beneficiaries, and especially younger beneficiaries with musculoskeletal and mental impairments who apparently retain some ability to work.  So it might be possible to look at those kinds of beneficiaries in particular, to see if we can help them get back to work.  It is a very difficult problem.

     The other thing to mention is that, especially during recessions, if a disabled person has had a job that has worked well for them but they lose that particular job, it may be extremely difficult to find another job that suits their needs.  And so they look at the opportunities available to them.  Do I want to go on DI?  Or you were talking about the SSI program, which is a separate program that has limits on income and assets.  That SSI program also grants immediate access to Medicaid benefits.  And part of those Medicaid benefits are funded by the states.  But it has exactly the same medical requirements to get on to the SSI program.

     So you want to think about that young person, perhaps, who is looking at a job at very low wages, if they can find one, versus a DI benefit with Medicare benefits to come down the road, or an SSI benefit with immediate Medicaid benefits.  And it turns out the way the benefit formula works, a very low‑income person gets a pretty good replacement rate.  The DI benefit has been indexed to the average wage in the economy.  Because of growing income inequality, the average wage has been growing faster than the low‑wage jobs can pay.  And, therefore, you get a better rate of return for that very low‑wage worker.

     Now, this is not to say that people don’t have a good work ethic.  It is just to say that they make a choice based on what is available to them, and they take all those factors into account.

     *Chairman Johnson.  We have got the IG working on that.  The IG is into that, big time.  And we will talk more about that next week.

     You have one second.


     *Mr. Goss.  One second, okay.  Well, three little points, so I will try to make this super quick.

     First of all, we all feel for areas such as some in Arkansas, where there has been population loss.  And I would suggest that in areas that have actually had population loss, that is probably because of lack of job opportunity.  The people who really can hold a good job, many of them have probably left, thereby leaving more people behind who perhaps are disabled.  So we shouldn’t be real surprised in such areas that you have seen more people getting disability.

     The other thing, too, about Medicaid, that Medicaid costs for disabled have been increasing faster, this is again just the demographics.  Because disabled are ‑‑ remember, that is the area where the baby boomers have been moving into disability ages.  They haven’t yet moved into the retirement age.  That is coming.  So we have this thing.

     And the fine little point is that, as Joyce mentioned, the determination of disability is very, very tricky.  Remember, only one‑third of people who apply for disability benefits are allowed a benefit at the initial stage of adjudication; about one‑half are allowed of those who have ‑‑ additional folks that we deem to be additional folks coming in during this most recent very severe recession.  Less than that have actually been allowed benefits.  It is a tough process, it is a strict definition.  Not everybody gets on.

     And SSA is doing the best it can.  And hopefully the funding will be there to be able to do a better job, especially in the medical reviews.

     *Chairman Johnson.  Part of it is the disability judges, too.  We are getting after them.  The IG is really working this hard.  In fact, had to hire more people to do it.  Thank you for your comments.

     Dr. Manchester, the Ticket to Work program has attempted to support those looking to leave the rolls.  Do you think it has been successful?  And has the reality matched the saving that was projected when it was put out?

     *Ms. Manchester.  So, Chairman, CBO has not done independent analysis of the Ticket to Work, but it appears that there has been no change in the proportion of DI beneficiaries who leave the rolls to go back to work.  So in that sense it does not appear at this time to have been successful.

     I think more and more people are thinking that we need something at an earlier stage of the process, so that we reach people before they make the decision to apply for benefits.

     *Chairman Johnson.  Mr. Goss, a recent proposal by Jeffrey Lehman ‑‑ he was an advisor for Obama and Clinton ‑‑ and Jack Smalligan, formerly a guest scholar at Brookings, estimated 10 percent of those currently on the rolls could return to work, if they had the proper support.  Do you agree with that?

     *Mr. Goss.  I think we would all agree with that.  Of course, the question is what is proper support?

     *Chairman Johnson.  Yes, I know, you all are trying to address it.

     *Mr. Goss.  How expansive is proper support?  Clearly, many people who have disabling impairments, with some level of support, could do some substantial gainful activity.  But the extent of the support that is available in the private sector that employers can afford to provide for their employees in a very competitive work environment is limited.  And the amount by which the Federal Government will provide the wherewithal to provide such supports is also limited.

     If I may, Chairman Johnson, you mentioned something about the administrative law judges.  It just happens that we looked very recently for another purposes at something that I think you will find remarkable, as I did.  We looked at disability applicants to our Social Security disability program back in 1988, and looked at the share of those that end up getting allowed that are allowed at the initial versus the hearings level.  And we found 63 percent are allowed at the initial level, 9 percent are allowed at the reconsideration level, which is sort of first appeal, and 27 percent are ‑‑ were allowed of those who applied and got allowed back in 1988 at the hearings level.

     So, fast forward.  We looked at the 2008 applications, just before the recession hit.  We find, remarkably, 63 percent of those who got allowed at the initial level.  Now 6 percent got allowed at the reconsideration level, and it is up to 31 percent at the administrative law judge level.  However, that is fully explainable and understandable.  Between those two time periods we had the prototype model come in, and one‑fourth of the country is operating without the reconsideration step.

     So, the first level of appeal in one‑fourth of the country is no longer the reconsideration, it goes straight to the administrative law judge.  So the change from 9 percent down to 6 percent for allowances at reconsideration and the increase from 27 up to 31 percent at the hearings level would appear to be solely because of the elimination of the reconsideration step in one‑fourth of the states, which are around ‑‑

     *Chairman Johnson.  Well, are you saying the ALJs are doing a good job or a bad job?

     *Mr. Goss.  Well, I wouldn’t say they are doing ‑‑ well, I would say that they are ‑‑

     *Chairman Johnson.  Because we have had some problems with them.

     *Mr. Goss.  They are probably doing a similar job.  One of the things, if I may, that is also remarkable, something we have learned really quite recently, is that of the people who are denied an initial disability, they are denied at reconsideration, and then availed themselves of the opportunity to appeal to the administrative law judge, historically we have all tended to think of that as being about 60 percent get allowed.

     Recently, in about the last year, we have seen that percentage go down to about half, to actually a little bit less than 50 percent.  We are struggling to understand exactly the reasons.  We know two reasons ‑‑

     *Chairman Johnson.  Because we put pressure on them, that is why.

     *Mr. Goss.  Well, there may be some of that.  I would like to think it is cooperative, positive persuasion.

     There is another factor, though.  The surge of people who did come in and file for disability back in 2009 and 2010, it takes a while before they find their way to the hearings level.  And we saw the surge of that come in in 2011 and 2012.  And we do believe that the allowance rates ultimately, for people who come in in times of recession, the extra folks, will be at lower allowance rates.  And that appears to be the case.

     In addition, our appeals council, which is really a level of oversight over the administrative law judges, has been doing, really, a good job.  Hopefully you will get to hear more about this, of going back and talking to our hearings offices about the nature of the way that they are making decisions, and getting mutually educated, and giving them good feedback.  And that appears to be making a real impact.

     *Chairman Johnson.  Thank you.  Mr. Becerra, you are recognized.

     *Mr. Becerra.  Thank you, Mr. Chairman.  And I think Mr. Kelly was trying to get to this point, as well.  At least I think I heard him say this.  Time is money, especially if you are in a business where you ‑‑ the product you buy can go up in price at any moment in time.  I know my father was in construction, and he would always tell me how they were always ‑‑ he was a construction worker, you were always told, “If we can get the job done, we will get it done now, because we don’t want to worry about paying for cement next week, because it may go up in price, or timber may go up in price.”

     And I gather, from what, Dr. Manchester, you and Mr. Goss are saying, that even in this process, the disability insurance, time is money.  And so, if we delay a determination, more chance that that person will age out and have skills no longer as a ‑‑ prepared to move into the workforce again.  It becomes more difficult for that person to get back in the workforce.

     And so, what we want to do, if we can, on our end, where the problems might be man‑made with regard to the disability insurance problem, is flush out those manmade problems.  And so, if one of them is time, delay, then one of the things that I would hope that we would look at doing ‑‑ and you all give us counsel on ‑‑ is getting rid of those delays, so we have quicker determinations, hopefully more crisp determinations.

     And my sense is that ‑‑ as, Mr. Goss, I think you pointed out, as well just a little while ago ‑‑ these determinations, that the integrity of the program to make correct determinations, so that whether it is the ALJ or whoever gets to make a determination whether this person is disabled or not, let’s make it on solid evidence that this person is or is not disabled.  And if we invest in making sure that there is integrity in the way those decisions are being made, we save ourselves, I think you said, $9 for every dollar we invest in that integrity review for those medical determinations and so forth.

     So, sounds like you are pointing out some ways that we could pretty quickly start to make some progress if we avoid the long delays that make people’s skills more stale and less attractive to employers, and if we put a little money in to make sure we avoid the person who is trying to sneak into the system, isn’t truly totally at a point of qualifying for disability insurance, and get them back to work as quickly as possible, and have them find that they could earn more money getting back to work than trying to collect on a disability benefit.

     Is your sense that if we were to really make the investment in program integrity, these medical determinations, Mr. Goss, that we could make progress in getting folks either back to work or off the disability insurance rolls?

     *Mr. Goss.  There is no question but that if we made a greater investment, if we even just met the levels put forth that you all enacted in the Budget Control Act, we would be able to get up to speed, we would eliminate the backlog for full medical reviews.

     And the important point on that, I think, is that if we are delayed in allowing a person a benefit initially, Dr. Manchester is exactly right, that that is more time that the person is, in effect, required not to be working, because they are waiting to see if they will get a determination.  But also, there is another factor to that.  If they wait an extra six or eight months to receive their initial determination and they are allowed benefits, they get the back benefits.

     Whereas, if we are delayed in doing our full medical reviews to determine whether somebody is medically improved and would be leaving the rolls, it is only the point at which that determination is made that the benefits cease.  In fact, we determine it appears as though they actually did improve six months ago, they keep the benefits from those six months and they only ‑‑ so getting up to speed on those full medical reviews is really important, from the point of view of the accounting ‑‑

     *Mr. Becerra.  Dr. Manchester, would you agree with that last point?

     *Ms. Manchester.  I would, indeed.  I would like to make an additional point, however.

     *Mr. Becerra.  Sure.

     *Ms. Manchester.  And that is that the first million dollars that you spend on CDRs may have that 9‑to‑1 return.  So you are finding the cases that are easy to find in which the people are really going to go back to work.  Then the ninth million dollars that you spend on CDRs is not going to have such a high rate of return, because it is much more difficult to find those marginal cases.

     *Mr. Becerra.  Right.  You are picking the low‑hanging fruit at the very beginning.

     *Ms. Manchester.  Exactly.

     *Mr. Becerra.  But it is still good to pick that fruit.

     *Ms. Manchester.  Oh, absolutely.

     *Mr. Becerra.  Yes.

     *Ms. Manchester.  No question.

     *Mr. Becerra.  And you mention the case that, based on age, different tiers, that the standard for actually going back to work changes and it becomes more favorable to disability, the older you get.

     *Ms. Manchester.  Yes.

     *Mr. Becerra.  And so, the quicker we move on these cases that are just pending, the less likely we are going to let someone age into a category that would have now allowed them to not go back to work.

     And so, would you agree, then, that the more we can work to remove these delays, the better off everyone is, not just the person who gets to go back to work, but the taxpayer who is helping provide that service to the individual?

     *Ms. Manchester.  Yes.

     *Mr. Becerra.  To a disability benefit?

     *Ms. Manchester.  That is definitely true, yes.

     *Mr. Becerra.  I appreciate your testimony.  Thank you very much for helping us with this.  Thank you.

     *Chairman Johnson.  Thank you.  Mr. Kelly, you are recognized.

     *Mr. Kelly.  Thank you, Mr. Chairman.  And this is going to be very quick.  Tell me about the revenue streams.  So where does the money come from that goes into these funds?

     *Mr. Goss.  Oh, well, the revenue for both the disability insurance program and the old age and survivors insurance program, and, for that matter, also the hospital insurance program for Medicare, work essentially ‑‑ not exclusively, but essentially almost completely out of payroll taxes that are paid by the American workers.

     For the Social Security program, it is up to $113,700.  People who earn more than that do not pay taxes on anything above that level.  But the individual worker pays 6.2 percent, and their employer pays an additional 6.2 percent.  Self‑employed individuals pay the whole 12.4 percent by themselves.  Those monies go into the trust fund.

     And there are two sort of significant things about the money as they go into the trust funds.  First of all, they are required ‑‑ the monies that aren’t spent right away are required to be invested in interest‑bearing securities backed by the full faith and credit of the U.S. Government, which we all take to be the most secure investment anybody could consider making.  And the other is that we have had legislation in the past ‑‑ I think back in 1996 ‑‑ that suggested that any penny that goes into those trust funds can be used for one and only one purpose, and that is to pay benefits.

     *Mr. Kelly.  Okay.  So the money going in is coming from employers and employees paychecks.

     *Mr. Goss.  Exactly.

     *Mr. Kelly.  Okay.  And it is a percentage of their income.  So, in a dynamic and robust economy, we probably wouldn’t be having this discussion, or it wouldn’t be at the edge of the cliff, the way the chairman described it.  And I would say that not only do we have a lot of disabled people, we have an economy that is very sick and very ailing.

     Now, having been part of the program as an employer, 6.2 percent of everything I paid everybody every 2 weeks I put in.  They put in and I put in.  And in my own check I put the 12.4, it was all mine.  I think sometimes we lose a fact that all of these things are fixable if we could get this country back on its feet again.  And we continue to talk ‑‑ and these are great conversations ‑‑ but if we don’t get this economy fixed, it is just talk.  It is just idle conversation.  “Yeah, we could do this and we could do that.”

     But if a percentage of everything I make goes into that fund, the more I make ‑‑ so a middle income family that was making $54,000 or $55,000 a year is now making $50,000 or $51,000.  And if it was at 4.2 and not 6.2, the way it had been the last couple of years, you have less money coming in, more money going out.  The metrics just don’t make sense to me, from a purely business standpoint.  And this is all fixable.

     And this is the thing that drives me crazy in the two years I have been here.  We talk more about these programs, and how we have to sustain them, as opposed to how do we keep alive the goose that is laying the golden egg.  That if you want to see these programs get fixed ‑‑ and this is a fascinating conversation ‑‑ we better get this country back to work.  And we better take advantage of what the Lord has given us.  We are twiddling our thumbs and not addressing the real problem, and that is getting America back to work.

     And I got to tell you, Mr. Chairman, I appreciate this.  I fight with this every day in the private sector.  I want everybody I work with to have the best benefits possible.

     Now, in addition to Social Security disability, we also have accident disability insurance in the dealership.  So I would say to you that while the Social Security part may not be as much as they were making before, when we throw in ours on top of it, it is a little bit different picture.

     Now, I am not discrediting anybody and saying they don’t have a great work ethic.  I am just saying that somehow we have turned upside down the meaning of incentive.  As an individual, I just would rather be in control of my future.  I don’t want somebody in Washington, D.C. who doesn’t know me, doesn’t know what I do, doesn’t know what my dreams or aspirations are, to have a determination of what I am going to be able to do in my life.  I think that is wrong.

     So, thank you for what you are doing, keep up the good work.  We will keep watching.  But you know what?  The answer ‑‑ we got to get back to work.  We got to make decisions that get people back to work, allow their incomes to rise, allow businesses to prosper.  Because the percentage of a larger number is much better than a percentage of a lower number.  And everybody I know that is out of business is not contributing to this fund.  So I thank you very much.

     *Chairman Johnson.  Thank you.  Mr. Griffin, you are recognized.

     *Mr. Griffin.  Thank you, Mr. Chairman.  I ran out of time last time.  I just wanted to thank you all for being here.  I really do appreciate it.  And I want to say I look forward to the upcoming hearings and the IG’s investigation.

     I will tell you, as someone who has not been on this Subcommittee long, that I get so many anecdotal stories about abuse, waste, fraud, and abuse in this area.  And I know that ‑‑ I know for a fact ‑‑ that a lot of them are true.  And I know my constituents are on to something.  I have learned in the last two‑and‑a‑half years that when you start to get a lot of the same sort of stories from your constituents, that there is something there.

     So, while some things may be going well, my constituents tell me that there are a lot of people they know who are on disability who should not be on disability.  And that is putting pressure on the funding for the people who need, who legitimately need, those benefits.

     And so, I don’t believe everything is great.  I look forward to learning more about where the problem is.  But I am convinced, based on what I have seen and heard, that there is a major problem with the process of being ‑‑ receiving ‑‑ applying and receiving these benefits.  I have not identified where all those problems are yet, but I know there is a problem.

     And I have also learned in my 10 years prior to coming to Congress and working in D.C., that there is not an agency up here that couldn’t stand some significant reform, and that you just happen to be the one in front of us right now.  But you could take any one of them in this city ‑‑ and some of them I was a part of for years ‑‑ and there is plenty of room for reform.

     So I look forward to learning as we go through this.  But I am very, very suspect of what is going on.  And we will continue to look at this.  Thank you, Mr. Chairman.

     *Chairman Johnson.  Thank you.  We welcome Ms. Black from another subcommittee, she is on the full committee ‑‑ and thank you for being here today.  Ms. Black, you are recognized for any question you might want to ask.

     *Ms. Black.  Mr. Chairman, thank you so much for allowing me to be here to hear the testimony, and to be able to ask questions.  This is an issue, having been on Ways and Means for the last two years, that we have heard some testimony in some of the other committees, so I am very interested.

     And there is so much yet to learn.  And I want to start out my remarks by saying thank you for being here.  But I am going to ask if there is a way also to start understanding more about the process.  Because it seems that when I do talk to my constituents who are either applying for or have qualified, the process is so onerous.

     I want to look at the six different areas that I have to learn more about.  And that is, first of all, the application, the full medical review, whether there is a criteria that is used there that is consistent across the board for a determination to be made, and then the denials, because we hear that you are denied the first time.  Very seldom do I hear somebody getting the qualification the first time, so the denials.

     What happens next from that, the appeals.  What I hear is that they have to hire an attorney, they do have to get legal counsel.  And then the other area is the administrative law judge, because in my reading I see that there is a real disparity from one end of this country to the other geographically.  Some judges will approve 9 out of 10 cases, others are 2 out of 10.  And so understanding where the consistency is there, if we need to do some work in that area.

     And then, finally, the review after they have qualified.  How do we check up?  Are we doing a good job to make sure that someone can’t still work and perhaps even find a job to get them back into the workforce?

     So, those are things that I would like to learn more about, Mr. Chairman.  Maybe that is something I just need to get somebody to come and talk to me.  But I think that is, from my point of view, something that people really don’t have a good grasp on.  So maybe there is an opportunity for us to learn more about that.

     *Chairman Johnson.  Come back next week.  We are going to talk about that next session.

     *Ms. Black.  I will be here.  So let me ask you about the chart that is on page 11.  Because, as a nurse, I am very interested when I see these large groups of qualifying areas.

     So, one of those that, obviously, is the largest, is mental disorders.  And then the next one is musculoskeletal.  I would like to know if you can give me an idea about the diagnosis that is the most prevalent diagnosis in these areas, because musculoskeletal obviously covers a broad range, as does the diagnosis of mental disorders.  So, do you have that information?  Is that available, so I can understand more about why these categories ‑‑ particularly with people between the ages of 30 and 39 that are qualifying under this, because for females it is 55 percent and for males it looks like it is 58 percent of those that qualify.  Am I reading that correctly?

     *Mr. Goss.  I don’t think so.  I am looking at figure number 12 ‑‑

     *Ms. Black.  Okay.

     *Mr. Goss.  ‑‑ which are for women at age 30 to 39.

     *Ms. Black.  Yes, yes.

     *Mr. Goss.  And the largest band is the blue band, which are for mental impairments at relatively young ages, which are at about 40 percent.  I think one of the Members mentioned that earlier.

     The next most prevalent is, in fact, musculoskeletal, but that is more like in the, what, 10 to 15 percent?

     *Ms. Black.  I am sorry, I missed ‑‑ what did you say the blue band was?

     *Mr. Goss.  Well, the bottom blue band, which is for mental disorders ‑‑

     *Ms. Black.  Mental disorders, yes, sir.

     *Mr. Goss.  The primary diagnosis.

     *Ms. Black.  Right.

     *Mr. Goss.  And that is about 40 percent of the younger people who come on the rolls.

     *Ms. Black.  Yes, yes.

     *Mr. Goss.  And perhaps the significant thing about that is if you go back to 1982 all the way through 2010, the percentage of those who get allowed a benefit at age 30 to 39 females has stayed constant at 40 percent.  There has not been ‑‑ one of the theories that has been put forth is that we have had a big expansion of the number of people getting disability benefits because there has been a surge of people coming on with mental impairments.

     Well, if you look at this age group, age 30 to 39, the young age, there has been an increase in the number of people getting benefits.  But it has not been because of an increase in mental impairments.  It has stayed at 40 percent.  So, there has been an increase at all of the ‑‑ for all the different kinds of impairment levels fairly equally.  So there has just been simply an increase at those ages.

     The largest reason why we have had an increase of people coming on the rolls at younger ages, really, is because women have become so much more insured, and their incidence rates have risen very substantially.

     *Ms. Black.  But that would not hold on males.  So you are saying because women have come in to the workforce, and I understand that, but it is pretty consistent with the male population, as well.

     *Mr. Goss.  Exactly.  For instance, the younger ages, the percentage that is ‑‑ and I think we ‑‑

     *Ms. Black.  Is there a way that I can get information about what the diagnoses are that are the most prevalent in both of these areas?  Because that is a wide range of diagnoses in those two categories.

     *Mr. Goss.  Absolutely.  We will get back to you with all ‑‑

     *Ms. Black.  Okay.

     *Mr. Goss.  ‑‑ the detail we can pull together on that.

     *Ms. Black.  Let me ask you this question, too.  How many quarters do you need to work to qualify for benefits?

     *Mr. Goss.  Okay, well, that depends on age.  For ‑‑

     *Ms. Black.  Yes.  So if you are 20 years old and you apply ‑‑

     *Mr. Goss.  If you are 20 years old, you would need to really have six quarters of coverage ‑‑

     *Ms. Black.  Six quarters, okay.

     *Mr. Goss.  ‑‑ at a very young age.

     *Ms. Black.  Okay.

     *Mr. Goss.  As you get to be older, it requires more.

     *Ms. Black.  I see.

     *Mr. Goss.  Basically, it requires that you have at least six quarters of coverage, but that you have worked at least half the time from age 22 to your current age, or at least half the time over the last 10 years.

     *Ms. Black.  Okay.

     *Mr. Goss.  Five out of the last ten years.

     *Ms. Black.  And then my final question is let’s say you were unemployed, and then you apply for disability.  Does the time at which you were unemployed count for that five months?

     So, in other words, I lose my job, and I am at home, and then I apply for disability.  Does that five months count?

     *Mr. Goss.  It does, indeed.

     *Ms. Black.  It does.

     *Mr. Goss.  For instance, you are 45 years old.  We look at the most recent 10 years and see if you, out of those 10 years, 40 quarters of coverage possible, have you earned at least 20 quarters of coverage in that period.

     So, if a person leaves work for whatever reason ‑‑

     *Ms. Black.  Right, for whatever reason.

     *Mr. Goss.  ‑‑ for a period of more than five years, they lose their disability insurance status.  And that, really, is the explainer, if you will, for why women have had such a big increase in the percentage of them that are insured, because women are so much more consistently in the workforce now.

     *Ms. Black.  So we heard one statistic that last year ‑‑ and this may not ‑‑ please correct me if this is wrong ‑‑ that we had more people get on Social Security disability than actually got a job.  We heard that folks that had lost their jobs were applying and going right from the end of their unemployment insurance right into a disability situation.

     Is that information that you would actually have to say whether that is, in fact, true or not?

     *Mr. Goss.  Well, I know in 2012, for example, we had about 1 million people beginning newly‑awarded disable worker beneficiaries.  I would have to think that in the year 2012 there were more than 1 million people newly hired to jobs.

     Now, if people are simply looking at the net increase in the number of people employed, in a time of recession, even though a lot of people might get jobs, other people are losing jobs or are retiring.

     *Ms. Black.  Okay.

     *Mr. Goss.  And so, the net ‑‑ you have to look carefully about the net increase ‑‑

     *Ms. Black.  Sure.

     *Mr. Goss.  ‑‑ versus the number of people newly getting a job.

     *Ms. Black.  Always have to be careful when you are reading anything.

     *Mr. Goss.  Exactly, yes.

     *Ms. Black.  To make sure you know exactly what they are measuring.  Thank you so much.

     And again, thank you, Mr. Chairman.  I will be here next week.

     *Chairman Johnson.  Good for you.  We will welcome you to the subcommittee, if you want to get on it.


     *Chairman Johnson.  Mr. Becerra says you are okay.


     *Chairman Johnson.  Thank you all for being here.  I appreciate the testimony.  You are good witnesses.  I think this was a good hearing.

     *Mr. Becerra.  Thank you.

     *Chairman Johnson.  We appreciate you all helping us.  And with that, the committee stands adjourned.

     [Whereupon, at 11:34 a.m., the subcommittee was adjourned.]

Public Submissions For The Record

Center for Fiscal Equity
EPS Settlements Group
Michael Kelley
National Disability Rights Network