Social Security's disability insurance is expensive, destructive, and out of control.

Commentary about business and finance.
Sept. 13 2010 12:14 PM

America's Hidden Welfare Program

Social Security's disability insurance is expensive, destructive, and out of control.

Social Securtity logo.

Throughout the year, economists and both houses of Congress have debated whether to extend unemployment insurance for another 13 weeks, or 26 weeks, worried that the payments would bloat the deficit or, worse, actually cause people to stay jobless. All along, however, millions of Americans without work have quietly continued to cash a federal check every month. They don't show up in the unemployment statistics—not even as "discouraged" workers—and their benefits won't stop after 99 weeks.

They are the recipients of Social Security's Disability Insurance, a somewhat obscure federal program that nonetheless eats up nearly $200 billion a year. SSDI began in 1956 and was intended to provide benefits for people between 50 and 64 who'd been in the workforce but had developed "any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration." At the end of the first year, there were 150,000 Americans receiving SSDI benefits. As Congress serially widened the eligibility criteria—by age, by type and duration of impairment—that number began to grow. Enrollment hit 1 million adults in 1966; by the end of 1977 it was 2.8 million; and today it's more than 8 million ex-workers, plus another million disabled adult offspring and disabled widows and widowers.

Social Security graph.

With the annual commitments now at about $180 billion, SSDI represents, as the authors of a 2006 economics journal paper put it, a "fiscal crisis." Equally distressing, it also represents public policy run amok. Over the last few decades, a program that was designed to help a relatively small group of people who were fatally sick or permanently unable to work has evolved into a backdoor welfare program in which a huge number of people are paid not to get jobs. How huge? Nationwide, we're talking about well over 4 percent of the adult population. In some states—Alabama, Arkansas, Kentucky, Maine, Mississippi, and West Virginia—the rate exceeds 6 percent. These millions of workers extricated from payrolls represent untold lost billions in tax revenues and all manner of desperately needed economic activity (consumption, home purchases, etc.).

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Granted, no one gets rich off SSDI—the average monthly check is about $1,000. But unlike unemployment insurance or the TANF program that replaced welfare in the 1990s, SSDI benefits are open-ended. Once you qualify for SSDI, you keep getting it until one of three things happens: You die; you reach retirement age (at which point your medical expenses are paid by Medicare); or you stop being eligible, either by getting a job or by getting better. That last criterion accounts for only about 12 percent of those who leave the program in any given year.

Of course, many SSDI recipients are truly incapacitated. Others, however, are certainly employable in some fashion. All of them have had jobs at some point. And since the American workplace is demonstrably not more dangerous to life and limb than it was 30 or 40 years ago, it's not immediately obvious why a large group of somewhat- or once-impaired people has more trouble getting and keeping jobs than their counterparts did in the recent past.

It's crucial, then, to examine what conditions now qualify people for SSDI. In the early decades of the program, the largest categories were life-threatening ailments, particularly heart disease and cancer. Today, the single largest category is mental disorders (not including mental retardation). This category has skyrocketed in the last few decades. In 1983, about 50,000 people were given SSDI awards for mental illness; in 2003, it was nearly 200,000—almost a fourfold increase in a generation.

Some analysts are understandably concerned about whether claimants are exaggerating mental illness to get SSDI. On the other hand, depending on the definition, most Americans will experience "mental illness" at some point in their lives; a growing diagnosis in the overall population will of course be reflected in the SSDI population.

But from a labor-economy perspective, the numbers are perplexing enough even at face value. Did the American workplace once accommodate mentally ill people more readily than it does today? It's not hard to believe. As long as a worker made his quota, the clang of the factory floor drowned out many personality traits—illiteracy, poor skills, alcohol and drug abuse—that in different settings would be liabilities. Mental illness could easily make that list. Today's multitasking, language- and tech-intensive, customer-facing workplace challenges all sorts of workers, and perhaps the mentally ill more than many. (Similar questions apply to the next-largest category, musculoskeletal and connective tissue injuries, a large portion of which is back pain. Does it make sense that a higher percentage of workers have back pain today than did 50 years ago?)

What's troubling about SSDI's sprawling growth is not only the budgetary cost, although $180 billion a year is not chump change. It's also troubling that the U.S. unemployment problem is actually much worse, and much more intractable, than the already dismal numbers tell us. Perhaps more important, SSDI in its current incarnation is a moral and economic tragedy: We are paying millions of presumably otherwise fit mentally ill people to stay out of the workforce for the rest of their productive lives. And this at a time when mental illness is more treatable than it ever has been. When Congress passed the Americans With Disabilities Act, it established several overarching principles, including equality of opportunity, full participation, and economic self-sufficiency. SSDI, regardless of its good intentions, is public policy that pushes "disabled" people in precisely the opposite direction.

Can SSDI be fixed? Yes, but it's tricky. David Autor, a labor economist at MIT who has written several eye-opening papers on SSDI, says that there is little point in trying to strip current SSDI recipients of their benefits. And various attempts to push the SSDI population back to the workforce have had no effect. Rather, Congress urgently needs to clarify what the purpose of SSDI is and reassess eligibility criteria accordingly. Even more effective, he says, would be to find a way to assist marginally disabled people while they're still working. (He and colleagues are working on a comprehensive SSDI overhaul to be unveiled in December.) Of course, the best deterrent to future bloating of the SSDI rolls is an economy that generates enough good-paying jobs to make SSDI seem unattractive to vulnerable marginal workers. But if the federal government could do that …

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