Here’s Why the Recent Proposals to Fix Social Security Disability Won’t Solve the Shortfall

The House Committee on Ways and Means held a hearing last week on “Promoting Opportunity for Disability Insurance Beneficiaries” to discuss, among other measures, a benefit-offset policy for Social Security disability payments.

A benefit-offset policy is expected to increase the earnings and disposable income of disability program beneficiaries, while increasing program costs as the disability program expands beyond its statutorily targeted population.

As such, a benefit-offset policy by itself is the wrong approach to addressing the Social Security Disability Insurance financing shortfall.

As the Social Security Disability Insurance trust fund becomes depleted in 2016, the program faces a 20 percent shortfall.

In order to avoid automatic indiscriminate benefit cuts scheduled in current law, Congress is exploring options to increase the financial solvency of the disability insurance program. The benefit-offset policy is an unlikely solution to that problem.

Currently, disability insurance recipients who work face a wage cliff.

They lose their cash benefits if they earn just $1 over a maximum threshold for benefit eligibility, known as the Substantial Gainful Activity (SGA) level.

For example, if a working person with disabilities on Social Security disability insurance gets a $100 raise that puts them over the SGA level, they could subsequently lose $1,000 in benefits, resulting in a net $900 loss.

The Social Security Administration established the SGA level as an objective earnings test in 1958 to assess an individual’s ability to perform substantial mental and physical work for pay (gainful activity).

In 2015 earnings of $1,090 per month ($1,820 for blind beneficiaries) qualify as substantial gainful activity.

The benefit-offset arrangement would eliminate this cash cliff by replacing it with a gradual decrease in benefit payments as the beneficiary earns more through work.

The idea is to encourage individuals on the disability program to earn as much as possible through gainful employment.

However, allowing individuals on the disability program to work above the substantial gainful activity level for extended periods of time or indefinitely is at odds with the statutory intent of the current federal disability program.

To meet the statutory definition of disability, the applicant “must not be able to engage in any substantial gainful activity because of a medically-determinable physical or mental impairment(s) that is expected to result in death, or that has lasted or is expected to last for a continuous period of at least 12 months.”

Moreover, studies of benefit-offset programs do more to highlight an existing problem than to offer a helpful solution. Too many work-capable individuals receive disability insurance benefits.

The current program does a poor job defining disabilities, screening applicants, and monitoring beneficiaries to ensure that only those truly unable to work receive benefits.

This is evidenced by the jump in employment among older disabled individuals as they leave the disability insurance program and enter the Social Security system.

Before considering a benefit offset, Congress should seek ways to better define disability, evaluate applicants, and monitor beneficiaries to ensure that only individuals who meet the statutory definition of disability receive benefits.

Despite numerous policy attempts to nudge individuals with disabilities who are able to work to leave program rolls voluntarily, Congress and the Social Security Administration have seen little success in this area.

Congress should adopt broader reforms that better align benefits and work conditions with individual needs and abilities in the way a needs-based period of disability would.

Congress should further implement changes to reduce unfair incentives for early retirement through the disability program and consider comprehensive Social Security reforms that address shortcomings in the retirement and disability programs together.

To learn more, download Social Security Disability Insurance: Benefit Offsets Encourage Work—But Achieve Little to No Savings; and What Is Social Security Disability Insurance? An SSDI Primer.