Sunday, March 13, 2011

The elephant in the waiting-room

Disability payments

The elephant in the waiting-room

Politicians are ignoring a big, dysfunctional programme

It only hurts when I work

THOMAS SCULLY has a busy law office in Lake County, Indiana. He mainly practices disability law, with good reason. Lake County is home to steel mills. Workers have aching backs and hands warped by machinery. Mr Scully helps them win Social Security Disability Insurance (DI), which provides cash and, after two years, access to Medicare, government-subsidised health insurance meant mainly for the elderly. DI is not supposed to be a safety net for the jobless. “I tell clients”, Mr Scully explains, “disability insurance is not unemployment insurance.” But they should be forgiven for being confused.

Politicians like to deride expensive programmes. DI may be the least discussed and most muddled. The programme is severely strained. The number of awards has spiked in the downturn, rising 28% since 2007. This surge follows decades of growth. DI accounted for about 10% of Social Security spending in 1989 but 18% by 2009. This is not because beneficiaries are bending any rules; the real problem is that the rules are a mess.

Congress created DI in 1956. Since then physical labour has become less common, while medical technology has advanced. One might have thought that DI rolls would shrink, but the opposite has occurred. Even compared with the Social Security Administration’s other costly programme for the disabled, DI is huge. Supplemental Security Income (SSI), which gives help to the very poor, doled out $43 billion to adults and children in 2010, up 124% since 1990. DI gave $110 billion to disabled workers, up almost 420%.

The reasons for this are debated. States have an incentive to keep their welfare rolls low, so they may be pushing workers towards the federally funded SSI and DI programmes, argues Nancy Shor of the National Organisation of Social Security Claimants’ Representatives, a lawyers’ group. But unlike SSI, DI is not a substitute for welfare; DI requires beneficiaries to have worked for five of the past ten years.

Ageing would seem another obvious explanation, as those aged 50-64 account for almost 60% of DI awards. But the rolls grew quickly even when the share of 50- to 64-year-olds was steady, according to David Autor of the Massachusetts Institute of Technology and Mark Duggan of the University of Maryland. Obesity does not seem to be the main cause either. Beneficiaries claiming problems such as diabetes and heart disease comprised a sliver of the awards in 2009.

A more likely culprit is the programme’s structure. Messrs Autor and Duggan show that DI awards have become more attractive to those struggling in the labour market. Those awards, meanwhile, have become more accessible. In 1984 Congress made it easier for DI applicants to claim mental illness and musculoskeletal disorders such as back pain—both inherently subjective ailments. In 2009 these two conditions accounted for 22% and 31% of DI awards, respectively, about double their share in 1981. Even if an applicant does not meet DI’s basic medical requirements, he may eventually win payments for other reasons. DI’s rules, for example, allow an older worker unlikely to retrain to get benefits instead. Persistent applicants can seek the help of lawyers. Of those who appeal their case to a judge, almost 90% are successful.

Given DI’s design, it should come as little surprise that enrolment jumps during recessions. Till von Wachter of Columbia University offers three explanations. First, impaired workers may be among the first to be sacked. After they are laid off, they may find that they qualify for DI, as is the case for many of Mr Scully’s clients. Second, DI’s criteria explicitly include economic factors, such as the ability to retrain. Third, those desperate for cash may use more subjective criteria, such as mental illness and “bad back”, to try to win benefits. Many will fail, but they can appeal.

The Social Security Administration has tried to fix some of these problems. The “ticket to work” programme, for example, is intended to help DI and SSI beneficiaries get jobs. But as of November 2010, just 2.4% of those offered job help actually received it (let alone found work). A newer pilot also encourages those on the rolls to find jobs. Such programmes seemed doom to fail, trying to convince beneficiaries that they can find work after they have spent years arguing otherwise. More effective, says Richard Burkhauser of Cornell University and the conservative American Enterprise Institute, employers should be given incentives to accommodate workers at the onset of their disability. A separate plan by Messrs Autor and Duggan, for the centre-left Hamilton Project, calls for all employers to offer disability insurance.

A solution is needed, and soon. The DI trust fund is expected to dry up in 2018, 22 years before the trust fund for Social Security retirees does. Nevertheless, budget hawks have flown over the issue. Barack Obama’s deficit panel said proposals to reform DI would be “critical” but were “beyond the scope of this commission.” Last year Paul Ryan, a Republican congressman, presented a bold plan for reforming entitlements. Of DI, the plan said simply: “disability benefits will see no change.”

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