Disability Insurance Skyrockets in the Last Two Decades

Mar 15, 2017 | Health


Political Pundits, public officials and the media often discuss the rising cost of entitlements and healthcare in the country. While Republicans and Democrats argue over how best to address these issues, few have acknowledged a key component to the rising cost of social security: an increase in individuals qualifying for disability insurance.

The federal government spent nearly $250 billion in 2011, paying more than 23 million people disability claims, 7 percent of the overall population and 16 percent of the workforce. This number accounts for nearly 4 percent of the federal budget and is equivalent to 1 percent of the nation’s gross domestic product. There has been a 44 percent increase in disability claims by people who used to be in the workplace and a 28 percent increase in disability claims among veterans. A report by NPR also found that populations receiving disability insurance were higher in certain locations of the country. In Hale County, Alabama, nearly 1 in 4 working-age adults are on disability.

According to the Social Security Administration, a disability is defined as a situation where someone cannot do the work they did before and cannot adjust to other work because of a medical condition that has lasted or is expected to last more than one year or result in death. If an applicant is making more than $1,130 per month, they cannot qualify. With the rise in recipients, it is important to recognize the reasons why individuals are applying for disability insurance and how these reasons have changed. In 1960, the two largest reasons why an individual received disability insurance were due to issues with the circulatory system (26.9 percent) and the nervous system and sense organs (15.4 percent). In 2014, the two major reasons for receiving disability insurance were due to issues with the musculoskeletal system and connective tissue (36.1 percent) and the circulatory system (10.0 percent). The three main causes that have led to the increase in disability insurance applications are the recessions in 2001 and 2008, an aging population, and a decade of war.

new disability insurance claims

Studies have demonstrated the impact of economic conditions on the fraction of individuals receiving disability insurance benefits. During the recession of 1989 to 1993, the number of disability applications increased by 45 percent; between 1999 and 2003 disability insurance increased by 58 percent. Due to the great recession of 2008, by the end of 2014, the number of recipients of disability insurance had increased by 21 percent. These statistics are important for they demonstrate how many individuals are applying for disability insurance after economic distress. However, economic distress should not allow someone to classify as disabled.

An aging population has also led to an increase in those applying for disability insurance. The likelihood that a 50 to 64-year-old man receives disability benefits is 50 times greater than the probability that a man between twenty and forty-nine will receive insurance. Workers in their fifties are about 20 percent less likely than workers aged 25 to 34 to become re-employed. Studies show that the aging population has led to a 15 percent increase in disability insurance among men and a four percent increase among women. Along with age, war has had a huge effect on individuals receiving disability payments. Between 2000 and 2013, the number of veterans receiving payments rose by almost 55 percent, from 2.3 million to 3.5 million. In 2000, 9 percent of all veterans received disability insurance, by 2013, that number rose to 16 percent. Average disability payments to veterans also rose by nearly 60 percent over this time period, from $8,100 in 2000 to $12,900 in 2013.

Number of veterans receiving disability payments.
Image source: Congressional Budget Office

All of these reasons and the significant impact of the recession on revenues led the Disability Insurance Trust fund to take on financial strain — at the end of 2014, the disability insurance trust fund was 152 billion less than what was projected in 2008 — with 60 billion in assets. With the increase in funding, the social security administration has projected that funding for the Social Security Disability trust fund will last until 2023. The funding was originally expected to run out in 2016, but due to the Bipartisan Budget Act of 2015 and a reallocation of the payroll tax rate, the depletion date was extended. However, when the same problem comes around in a decade, reallocating the payroll tax rate should not be used again — it is an easy short-term fix, but does not address the problem that with technology, people are living longer and costs are constantly rising.

In order to secure disability insurance and social security as a whole, there must be a way to make the trust fund solvent. In order to save money, public officials should eliminate what is known as the carried interest exemption. This exemption allows managers to count earnings as capital gains instead of ordinary income — capital gains are taxed at 23.8 percent, while labor income is taxed at 39.6 percent. Closing the loophole would generate $17 billion in tax revenue over the next 10 years that could be used towards the solvency of social security. The federal government should also consider capping itemized deductions for households to $50,000 dollars which would save roughly $749 billion in the next decade. These savings would ensure that disability insurance remains solvent and adequately funded. Finally, the federal government should re-evaluate the review process for those receiving disability benefits. Currently, the Social Security Administration reviews cases that are expected to improve once a year, cases where improvement is not likely once every three years, and cases where someone is permanently disabled every seven years. Reviews should happen more frequently in order to ensure that fraud is avoided and that those receiving benefits truly qualify. Someone applying for disability insurance after an economic recession, not beforehand, may be more qualified for welfare and fall outside of the qualifications of disability insurance.

Social Security, specifically the disability fund, was designed to ensure protections for those who need it the most and cannot work to take care of themselves. Global conflicts, recessions and innovations in health and medicine have led society to change. The government must remain vigilant against fraud and adapt to the change in demographics, age, and the economy. The disability fund cannot be allowed to fail and our government must rise to the challenge of making necessary fixes so that our most vulnerable populations have the protections they need to live a good life.

Image source: Amerigroup