The Facts on Social Security Disability Insurance and Supplemental Security Income for Workers with Disabilities
SOURCE: AP/Jacquelyn Martin
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Nearly one out of every six working-age Americans—29.5 million people—has a disability, making them much more likely to experience economic hardship than people without disabilities. Many people with disabilities are able to work, although they face greater challenges finding work than people without disabilities. But many individuals with severe and long-lasting disabilities have no or only limited capacity to work and are particularly vulnerable to economic hardship.
For roughly 12 million people with disabilities, Social Security Disability Insurance and Supplemental Security Income, both core components of our nation’s Social Security system, provide critical lifelines. The modest but vital assistance that Disability Insurance and Supplemental Security provide makes it possible for individuals with severe disabilities and health conditions to live independently, keep a roof over their heads and food on the table, and pay for needed, often life-sustaining medications and other basic expenses.
This issue brief answers some of the common questions about Disability Insurance and Supplemental Security. Our focus in this brief is on nonelderly adults with severe disabilities. It is important to note, however, that Supplemental Security also provides vital support to some 1.2 million children with severe disabilities, as well as more than 2 million low-income seniors.
How many people currently receive Social Security disability benefits, and what is the value of the benefits they receive?
About 8.8 million workers with disabilities currently receive Disability Insurance. The amount of Disability Insurance benefits that a disabled worker receives is based on his or her earnings before becoming disabled. As Table 1 shows, Disability Insurance benefits typically replace less than half of a disabled worker’s previous earnings.
As of March 2013, the average monthly benefit for a disabled worker was about $1,129, with male workers receiving $1,255 per month and female workers receiving $993 per month on average. About 1.9 million children of disabled workers and 160,000 spouses of disabled workers also receive supplemental benefits from Social Security—roughly $300 a month on average.
For most beneficiaries of Disability Insurance and Supplemental Security, disability benefits make up most or all of their income. For the vast majority of Disability Insurance beneficiaries—about 71 percent—half or more of their income comes from Disability Insurance. And for nearly half of beneficiaries, 90 percent or more of their income comes from Disability Insurance. Given the modest extent to which benefits replace lost earnings and the limited sources of other income upon which they can depend, people who receive Disability Insurance are rarely able to maintain the same standard of living they had before becoming disabled. Disability Insurance provides a floor, however, that moderates the decline in their living standards.
About 4.9 million nonelderly adults currently receive Supplemental Security. Nearly one-third—31.3 percent in 2011—also receive very modest Disability Insurance benefits. On average, nonelderly adults who receive Supplemental Security currently receive a Supplemental Security benefit of $525 per month. Most of them have no other source of income.
People who receive disability benefits are generally eligible for public health insurance. People who receive Disability Insurance are eligible for Medicare but only after a two-year waiting period. And in most states, people who receive Supplemental Security are automatically eligible for Medicaid. Some states, however, use more restrictive eligibility criteria for Medicaid coverage than those used by Supplemental Security.
How are Disability Insurance and Supplemental Security benefits funded?
Disability Insurance is funded by payroll tax contributions from workers and their employers. Workers currently pay a tax of 0.9 percent of their wages up to $113,700, and their employers pay an equal amount. These tax contributions go into the Disability Insurance trust fund. Funding for Supplemental Security comes from the federal income tax and other federal revenues.
The Social Security Administration administers both of these programs. State agencies, usually called disability determination services, make the initial determination of whether applicants meet the disability standard. These state agencies are federally funded and follow federal guidelines.
What is the disability standard for Disability Insurance and Supplemental Security?
Disability Insurance and Supplemental Security are reserved for workers with the most severe disabilities and conditions, and both use the same strict disability standard: inability to engage in “substantial gainful activity”—defined as being able to earn $1,040 a month in 2013—due to one or more severe physical or mental impairments that are expected to last at least a year or could result in death. A worker’s impairment or combination of impairments must be so severe that the applicant is not only unable to do his or her previous work but also unable—considering his or her age, education, and work experience—to engage in any other kind of substantial gainful work that exists in significant numbers in the national economy.
Medical evidence is the cornerstone for the determination of disability in both programs. To qualify, there must be medical evidence from a doctor, specialist, or certain other licensed or certified medical sources that documents a severe impairment. Evidence from other health care providers—such as nurse practitioners or clinical social workers—is not sufficient to document a severe medical impairment. And statements from the applicants themselves, their families, co-workers, friends, or neighbors are not treated as medical evidence.
Most applications for Disability Insurance are denied under this strict standard, and many workers with significant disabilities do not qualify. Between 2006 and 2008 only about 40 percent of applications were ultimately approved. The level of severity required by the disability standard is apparent when one considers how poorly workers who have been denied Disability Insurance subsequently fare in the labor market. A recent study found that among people whose Disability Insurance applications were denied by the Social Security Administration, the vast majority—70 percent to 80 percent—did not go on to work in jobs with annual earnings above the substantial gainful activity level.
Further underscoring the strictness of the disability standard are the considerably elevated mortality rates for disabled workers found eligible for benefits. One in five men and nearly one in six women die within five years of being approved for benefits. Disability Insurance beneficiaries have death rates at least three times higher than other people their age.
What other requirements are beneficiaries required to meet?
In order to receive Disability Insurance, a worker must have worked during at least one-fourth of his or her adult lifetime and during at least 5 of the 10 years before disability onset. There is also a five-month waiting period before a worker can qualify for benefits.
Supplemental Security provides assistance to people with severe disabilities who have very low incomes and assets and who either lack sufficient work history to be covered for Disability Insurance or receive only a very small Disability Insurance benefit. It is important to note that many Supplemental Security beneficiaries, although lacking the sustained work history necessary to be insured under Disability Insurance, have worked and paid into the Disability Insurance system. And others, particularly women, are not eligible for Disability Insurance because they took time out of the paid labor force to care for children or other family members.
Workers must apply for and exhaust all other available benefits before qualifying for Disability Insurance or Supplemental Security. Accordingly, Social Security’s disability programs serve as a true last resort for people with severe disabilities and little to no ability to work.
How common is it for beneficiaries to return to work?
Both Disability Insurance and Supplemental Security provide incentives for beneficiaries to work. Disability Insurance beneficiaries are encouraged to work up to their full capacity and can earn an unlimited amount for up to 12 months without losing any benefits. Beneficiaries who work for more than 12 months and have earnings above the substantial gainful activity level cease to receive a monthly benefit. If at any point in the next five years their condition worsens and they are not able to continue working above the substantial gainful activity level, however, they are eligible for “expedited reinstatement” of their benefits. This means they do not need to repeat the entire, and typically lengthy, disability-determination process that they initially went through to qualify for benefits.
Supplemental Security beneficiaries who are able to work are encouraged to do so as well. Their benefits are reduced based on their earnings—after the first $85 of earnings each month, which is not counted against the benefit—but by only $1 for every $2 of earnings. Beneficiaries who are able to do some work will therefore always be better off with both earnings and a reduced benefit than just the benefit alone.
Supplemental Security beneficiaries who are able to sustain work above the program’s income limit can generally do so without risk of losing the health insurance that they receive through Medicaid. Moreover, if their condition worsens and they no longer have earnings above Supplemental Security’s income limit, they can start receiving benefits again without having to go through the initial disability-determination process.
These incentives are helpful for beneficiaries who are able to do some work or whose conditions improve. Due to the program’s strict disability standard, however, most beneficiaries have such severe impairments and health conditions that they are not able to work at all—and most beneficiaries do not have earnings.
The best available data on annual employment rates among working-age beneficiaries of Disability Insurance and Supplemental Security come from a recent report that linked Social Security data and earnings records in 2007, before the onset of the Great Recession. This report found that 16.9 percent of all disability beneficiaries worked at some point during the year. Disability Insurance beneficiaries were somewhat more likely to have worked than Supplemental Security beneficiaries: 19.5 percent of the former worked during the year, compared to 12.6 percent of the latter. The vast majority of beneficiaries who did work had extremely low earnings—just 2.9 percent earned more than $10,000 during the year.
How have the number and share of people receiving disability benefits changed over time, and what accounts for these changes?
There has been little change over the past two decades in the share of nonelderly adults receiving Supplemental Security due to a disability. In 2011, 2.4 percent of nonelderly adults received Supplemental Security for a disability, compared to 2.1 percent in 1996. This comparison does not, however, take into account demographic and economic changes, particularly the aging of the population and the increase in poverty, which both have increased the number of people who are potentially eligible for Supplemental Security.
Controlling just for income, participation in Supplemental Security by working-age adults who are potentially eligible because of low income has actually declined over the past decade and a half. In 2011 there were 17.6 nonelderly adults receiving Supplemental Security for every 100 nonelderly adults with incomes below 100 percent of the poverty line, compared to 18.5 nonelderly adults in 1996. In other words, the number of nonelderly adults receiving Supplemental Security grew at a slower rate than the number of nonelderly adults with very low incomes.
The share of nonelderly adults receiving Disability Insurance has increased over time. This is largely due to demographic factors, including:
- The aging of the Baby Boom generation: Disability risk increases considerably with age—an individual is twice as likely to be disabled at age 50 as he or she is at age 40, and twice as likely at age 60 as at age 50. As a result, a workforce with a greater share of workers in their 50s and early 60s will include many more workers with severe disabilities.
- The long-term increase in women’s employment, which means more women are meeting the work-history standard required to qualify for Disability Insurance: Since 1980 the share of working-age women who meet the work-history standard for Disability Insurance has increased considerably, from 50 percent to 68 percent.
Because these demographic factors are so important, the preferred way to assess trends in Disability Insurance is by looking at the “age-sex adjusted disability prevalence rate” used by actuaries at the Social Security Administration, since it controls for changes in the age and sex distribution of the insured population. The disability-prevalence rate, adjusted for age and sex, was 4.5 percent in 2011, compared to 3.5 percent in 1995.
A number of factors account for this one-percentage-point increase in the disability-prevalence rate after accounting for the changes in the age and gender distribution of the workforce, including the following:
- The increase in the Social Security retirement age means that more people who would have received Social Security as retirees under previous rules are now receiving Disability Insurance. About 5 percent of Disability Insurance beneficiaries are now ages 65 or 66.
- Among workers who are insured for Disability Insurance, the gender gap in rates of receipt of Disability Insurance has closed. Until the mid-1990s women who met Disability Insurance’s work-history test were substantially less likely than men to receive benefits on their own work records. Since then the gender gap has narrowed steadily and now no longer exists. A factor here may be the overall increase in female “breadwinners”—women who earn as much as or more than their husbands.
Finally, declining job opportunities for older workers, particularly older workers with severe physical limitations, have likely contributed to the increase. Currently, the number of U.S. jobs is roughly 10 million below the number we need to reach prerecession employment levels while also absorbing the people who enter the labor force each month. It is important, however, to not overstate the impact of the Great Recession or of economic recessions generally. While the economic downturn is believed to have led more unemployed workers to apply for Disability Insurance, the program’s stringent disability standard bars the door to benefits for most of them.
Why is there a shortfall in the Disability Insurance trust fund, and what can be done about it?
As described above, Disability Insurance is funded by a dedicated share of payroll tax contributions—0.9 percent of taxable wages paid by workers and the same amount by employers. Since the mid-1990s the Social Security Administration has consistently projected that the Disability Insurance trust fund would have sufficient reserves to cover all scheduled benefits until 2016, but that after that date, additional funds would be needed to avoid a shortfall in the necessary funds to continue paying full benefits. If no action is taken to address the shortfall, the Disability Insurance trust fund will only be able to pay 80 percent of scheduled benefit levels after 2016.
Congress has addressed similar shortfalls—in both the Disability Insurance trust fund and the Old Age and Survivors Insurance trust fund, which pays retirement benefits—nearly a dozen times in the past by temporarily reallocating the share of overall payroll tax revenues that is dedicated to each trust fund. In some cases, they have reallocated funds from the Disability Insurance trust fund to the Old Age and Survivors Insurance trust fund; in others, they have reallocated funds from the Old Age and Survivors Insurance trust fund to the Disability Insurance trust fund.
According to the Social Security Administration, the current shortfall could be closed through 2033 by temporarily reallocating a modest share of funds from the Old Age and Survivors Insurance trust fund to the Disability Insurance trust fund. Alternatively, the shortfall could be closed over the long term by a small—0.2 percent—increase in the payroll tax rate paid by both employers and employees.
Absent increased revenues or decreased costs, both the Disability Insurance and Old Age and Survivors Insurance trust funds face shortfalls in the mid- to late 2030s. Long-term—75-year—solvency for both programs could be achieved through an increase in the payroll tax rate from 6.2 percent for workers and employers (12.4 percent in total) to 7.6 percent each (15.2 percent in total). Another frequently discussed option is raising or eliminating the cap on earnings that are taxed for Social Security. This would mean that the 5 percent of workers who currently earn more than the cap—$133,700—would pay into Social Security through the entire year, as other workers do.
How does the United States compare with other countries?
According to a recent analysis by the Organisation for Economic Co-operation and Development, or OECD, the United States has the least generous disability-benefit system of all OECD member countries except Korea. The OECD describes the U.S. disability-benefit system, along with those of Korea, Japan, and Canada, as having “the most stringent eligibility criteria for a full disability benefit, including the most rigid reference to all jobs available in the labor market and the shortest sickness benefit payment duration.” In addition, the United States spends less as a share of its economy on incapacity-related benefits than other nations. In 2009 public expenditures on incapacity-related benefits comprised just 1.5 percent of U.S. gross domestic product, or GDP, compared to an average of 2.4 percent for all OECD nations.
Proponents of cutting disability benefits in the United States sometimes point to particular elements of disability program reforms in Europe—particularly in Germany, the Netherlands, and the United Kingdom—as potential models for changes to the Social Security disability programs. In general, however, such proposals fail to take into account that these nations have much more generous disability systems, less rigorous disability standards, higher levels of social expenditures—not just on incapacity benefits but on social assistance generally—and more regulated labor markets than the United States.
How can the Social Security disability programs be improved to increase economic security and work opportunities for beneficiaries?
Disability Insurance and Supplemental Security increase economic security for millions of disabled workers. For beneficiaries whose conditions improve, the programs also provide important incentives and supports for returning to work. Still, the programs could be further strengthened to increase disabled workers’ economic security and provide a more seamless transition for those who are able to return to work.
Modernize Supplemental Security
The value of Supplemental Security benefits has eroded considerably since the program’s inception in 1972, as the program’s income exclusions and asset limits have not kept pace with inflation and living standards. The current maximum benefit is equivalent to just three-quarters of the also-outdated federal poverty line for a single person. The general income exclusion ($20 per month) and earned income exclusion ($65 per month) have never been increased. To address this erosion, H.R. 1601, the Supplemental Security Restoration Act, sponsored by Rep. Raul Grijalva (D-AZ) and introduced in Congress in April 2013, would increase the monthly maximum benefit to $937, which is 100 percent of the current federal poverty line, and would increase the general income disregard to $110 per month and the earned income disregard to $357 a month. Increasing the income exclusions and indexing them to inflation going forward would restore the monthly benefit amount to its intended value and significantly increase beneficiaries’ economic security.
Additionally, Supplemental Security’s asset limits—$2,000 for a single person and $3,000 for a couple—have only been increased once, in 1989, and are not adjusted for inflation. These out-of-date restrictions make it impossible to maintain even a modest amount of savings, forcing beneficiaries to remain asset poor and unprotected in the event of an unexpected dental bill, leaky roof, or other unforeseen emergency expense. H.R. 1601 would address these out-of-date restrictions as well, increasing the asset limit to $10,000 for a single person and $15,000 for a couple.
Support a more seamless transition for beneficiaries able to return to work
Many disabled workers who receive disability benefits have made repeated attempts to work in spite of their impairments before finally turning to Disability Insurance or Supplemental Security as a last resort. Due to the strictness of the disability standard, many beneficiaries are terminally ill, and most are in poor and declining health. As discussed above, however, for beneficiaries whose conditions improve, the Social Security disability programs encourage beneficiaries to work up to their capacity and return to work if and when they are able, with protections in the event of failed work attempts.
But more should be done to ensure that beneficiaries are aware of the work incentives, supports, and protections that Disability Insurance and Supplemental Security provide. Additionally, consideration should be given to further enhancing these incentives, supports, and protections. Options include:
- Make work pay more for Supplemental Security beneficiaries: Permitting Supplemental Security beneficiaries who work to keep more of their earnings by reducing benefits by $1 for every $3 of earnings, rather than the current reduction of $1 for every $2 of earnings, would provide enhanced support and encouragement for beneficiaries who are able to do some work.
- Simplify work incentives: The disability programs’ work incentives are complicated, and it can be difficult for beneficiaries to understand how working will impact their benefits. This is especially the case for “concurrent” beneficiaries, who receive both a small amount of Disability Insurance and Supplemental Security. Demonstration projects such as the Work Incentive Simplification Pilot, or WISP, hold promise for testing major simplifications to the Disability Insurance work incentives, which would make them easier for beneficiaries to understand and less costly for the Social Security Administration to administer. The Social Security Administration’s authority to test the WISP, however, as well as other proposed demonstration projects related to Disability Insurance, expired in 2005 and has not yet been renewed by Congress. This authority, which already exists in Supplemental Security, should be renewed for Disability Insurance.
- Support benefits counseling for disability beneficiaries: The Work Incentives Planning and Assistance, or WIPA, and Protection and Advocacy for Beneficiaries of Social Security, or PABSS, programs provide crucial support for disability beneficiaries who are considering employment and should be reauthorized on a multiyear basis. These programs inform beneficiaries about how employment will affect their disability income and medical coverage and address many of the real fears that individuals have about going to work at the risk of losing health coverage. They offer a wide range of services to beneficiaries, including information and advice about obtaining vocational rehabilitation and employment services, information and referral services on work incentives, and advocacy or other legal services that a beneficiary needs in order to secure, maintain, or regain gainful employment.
- Provide the Social Security Administration with sufficient administrative funding to process disability beneficiaries’ earnings reports in a timely fashion: Currently, when beneficiaries report earnings, it can take the Social Security Administration several months—and sometimes even years—to adjust benefits based on the report. This late adjustment often results in beneficiaries being told that they have been overpaid benefits in past months, which they may then be required to repay. Many individuals are wary of attempting work for fear of incurring this kind of overpayment.
Shawn Fremstad is a consultant on social policy and a senior research associate at the Center for Economic and Policy Research in Washington, D.C. Rebecca Vallas is an attorney and policy advocate specializing in disability law and policy at Community Legal Services in Philadelphia.
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