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WaPo: Social Security Disability Insurance needs major reform

September 24, 2013

In the debate over entitlement reform, few subjects are more fiercely debated than the cause of the explosive recent growth of Social Security Disability Insurance (SSDI).

Defenders of the program, which cost a record $135 billion in fiscal 2012, argue that the rolls are increasing mainly because of technical and demographic changes, such as later eligibility for ordinary Social Security benefits, the aging of the workforce and the rising percentage of women in the workforce.

Critics, including a significant number of academic economists, suggest that the program’s manipulable and inconsistently applied eligibility criteria have enabled millions of people who could work to sign up for benefits instead — and that once even genuinely qualified workers get on SSDI, the program gives them few incentives to seek rehabilitation and a return to the labor force.

Now come two pieces of fresh evidence in support of the critics. In a recent paper published by the Federal Reserve Bank of San Francisco, economists Mary C. Daly, Brian Lucking and Jonathan A. Schwabish set out to explain the growth in SSDI cases from 2.3 percent of the working-age population to 4.7 percent between 1980 and 2011 — a rate of growth double that of the working-age population as a whole. They found that technical and demographic factors such as those cited by defenders of SSDI explained no more than 56 percent of the program’s growth, suggesting that a substantial portion — at least 44 percent — is because of the kind of structural defects and perverse incentives that critics have cited.

As if to confirm that finding, the latest report by the Congressional Budget Office (CBO) on the nation’s long-term fiscal situation, published last week, incorporates a more pessimistic view of SSDI’s future costs than the CBO had previously embraced. The CBO now assumes that the rate at which workers join the disability rolls each year will decrease relatively little from current levels over the next quarter century — even after accounting for demographic shifts and the business cycle. As a result, the CBO foresees “higher projected spending for Social Security.”

In other words, though SSDI is still a key part of the social safety net, and though much of its recent growth was inevitable, there’s still plenty of room for reforms that would help stabilize the government’s long-term finances and increase labor-force participation.