Social Security as Part of an Integrated National Disability Policy

Is the Social Security Definition Out of Sync?
Social Security Advisory Board Washington, DC April 14, 2004
By Virginia Reno Vice President for Income Security Policy National Academy of Social Insurance

www.nasi.org

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Topics
I. Is the Social Security definition of disability out of sync? II. Are benefits a strong deterrent to work? III. Did DI cause a decline in employment in the 1990s? IV. Why did DI rolls grow in the 1990s? Other hypotheses. V. Recovery and return to work: Is it better than we think? VI. Resources for implementation are essential.

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Program Eligibility Definition Should Match the Program’s Purpose
The Social Security Act definition matches the purpose.
Purpose of DI: Wage-replacement income for workers who have lost their capacity to earn a living due to a severe, long-lasting work disability. Inability to work due to a medically-determinable physical or mental impairment that is expected to last at least a year or result in death.
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Definition:

Other Program Definitions Match Other Purposes
Vocational Rehabilitation: An individual who (1) has a physical or mental disability that constitutes or results in a substantial impediment to employment, and (2) can benefit from VR services. Personal assistance or long-term care services: Need for assistance with activities of daily living, or instrumental activities of daily living. ADA “Disability” means . . . (1) a physical or mental impairment that substantially limits one or more major life activities, (2) a record of such an impairment, or (3) being regarded as having an impairment.
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Wage-Replacement Systems Use Unable to Work
LTDI = unable to perform usual occupation, (may shift to ANY occupation after two years). STDI, or sick leave = unable to perform own job. CSRS = unable to perform current position or another available position in the same agency at comparable pay for which the individual is qualified. The Social Security definition is very strict. A less strict definition would pay benefits to more people.

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Are DI benefits a strong deterrent to work?
Wage-replacement must balance adequacy and incentives. Why benefits are not a strong deterrent to work: – Benefits and replacement rates are modest. – Spending relative to other countries is low. – People turn to benefits as a last resort.
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Figure 1. Social Security Disability Benefits and Past Earnings, 2004
$80,000 Past Wages $60,000
$54,300 $87,000

Benefits

$40,000
$34,600

25 35 40
$19,100 $21,400

$20,000
$15,600

56

$14,500

$0

$8,800

"low"

"medium"

"high"

"maximum"

Earnings Amount
Source: Office of the Actuary, OASDI Trustees Report 2004.

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Figure 2. U.S. Disability Benefit Spending is Low by International Standards
Spending as a Percent of GDP, 1999 Public Disability United States (DI + SSI) United Kingdom Germany Sweden Netherlands
Source: OECD, 2003.

Plus WC and Sickness 1.37 1.52 2.9 4.02 4.14
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0.71 1.27 1.01 2.05 2.65

Did DI Cause a Decline in Employment in the 1990s?
The expanded eligibility hypothesis: DI eligibility criteria were not expanded in the 1990s. 1984 changes sought to restore a responsible balance. 1980-1982 is an aberrant baseline.

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The Replacement Rate Hypothesis (Autor and Duggan):
Older men at the bottom of the wage distribution in the 1990s had declining wages over the lifetime. A problem in the U.S. wage structure. Not a flaw in the DI benefit formula. Did benefits draw these disabled men out of the workforce? More likely they had no real capacity to work. Given a severe impairment, advanced age, limited skills. Low and falling wages suggest weak employer demand and poor prospects for accommodation.
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Why Did the DI Rolls Grow in the 1990s?
• Are other disability programs sending people to DI? A look at Workers’ Compensation. • Is the work place more “unforgiving?” • Do men in more arduous jobs have fewer good early retirement options?
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Trends of the 1990s in Workers’ Compensation
Various trends in States’ policies:
– Limiting compensation if there is a pre-existing condition. – Stricter evidence – in case of a pain or mental stress. – Exclude or limit claims for mental stress or cumulative trauma (musculoskeletal).

Burton and Spieler, 2001

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Figure 3. Social Security Disability Insurance and Workers’ Compensation Benefits as a Percent of Payroll, 1970-2000.

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The Focus Group Surprise
Interviewed entrants to the DI rolls in the early 1990s. Almost all with musculoskeletal impairments had been denied by workers’ comp.
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Other Hypotheses: Why the Rolls Grew
• Employer Perspective: A less “forgiving” workplace. • Do men in arduous jobs have fewer early retirement options than in the 70s and 80s?
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Is DI recovery and return to work higher than we think?
Status in 1994, six year after benefit award:
Age at award All Total Percent Still receiving DI Died Shifted to retirement Recovered or returned to work: Percent of all Percent of alive, not retired
Source: SSA Tabulations, BSO, p.110.

Under 30 Age 30-39 100 72 15 -11 13 100 74 22 -7 9
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100 53 26 18 4 6

Adequate Administrative Resources Are Essential for:
• Sound initial disability decisions. • Continuing disability reviews. • Promptly adjusting payments when beneficiaries work. • Helping people use work incentives.
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