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Economists: How to slow the growth in disability claims

How bad? How come?

Social Security Administration records show that SSDI rolls are steadily rising – from 1.2 million disabled workers collecting cash benefits in 1967, to 8.8 million in 2012. Since 2009 the program has been paying out more in annual benefits than it receives in taxes and interest from its trust fund. Based on current growth, the SSDI program is projected to be insolvent by 2016.

Population factors, including the aging-and-ailing baby-boom bulge in the American workforce, have something to do with this increase in disability insurance claimants, as did the Great Recession, the economists note. But these factors only explain part of the growth. The rest, the economists say, is policy driven.

Battered by years of policy-driven growth and going broke, probably by 2016, America’s Social Security Disability Insurance (SSDI) program could be stabilized with reforms European countries implemented in a similar situation a decade ago, according to an international team of economic analysts, including one at Cornell.

Calling for “early intervention” and “timely accommodation and rehabilitation,” the economists say the Swedish and Dutch experience shows that “in a system oriented towards long-term cash benefits rather than work, many of those with residual work capacity will never return to work. But with such policies in place, they will.”

“The social environment – access to accommodation and rehabilitation and a set of disability policies focusing on return to work ­­– are as important as workers’ impairments in determining whether they remain in the workforce or go onto SSDI following the onset of a disability,” says Richard V. Burkhauser, professor of policy analysis and management who Cornell shares with the University of Melbourne in Australia – one in the five-nation comparative study of rising disability enrollments.

The economists review fundamental disability reforms in the Netherlands, Sweden and Great Britain – and more modest reforms in Australia – to provide American policymakers with a set of options for more successfully keeping workers with disabilities in the work force and off the disability rolls in their IZA Journal of Labor Policy (March 2014) article, “Disability Benefit Growth and Disability Reform in the U.S.: Lessons from Other OECD Nations.”

Although the European nations that implemented fundamental reform used different strategies to slow the growth of their disability rolls, one common thread was found: “Ensuring that their citizens with disabilities have the opportunity to work in the paid labor market is now a government priority,” the economists wrote, hoping that U.S. policymakers are listening. “Each of the European countries we reviewed embraces this goal and more importantly implemented policy reforms that ensured that those best able to achieve it were properly incentivized to do so.”

For instance, in the Netherlands, this meant making employers bear more of the direct costs of the program and making employees comply with rehabilitation and retraining requirements in order to maintain benefits. In Sweden this meant standardizing the disability screening process of their public program, holding disability program gatekeepers accountable for engaging applicants in work rehabilitation plans, and reducing or eliminating the benefits of those workers who did not comply with their rehabilitation and accommodation plans.

While Reagan-era reforms trimmed SSDI rolls a bit, remorseful policymakers in Congress subsequently made it easier to claim SSDI benefits, Cornell’s Burkhauser recalls. More recent attempts at reform – such as required disability reviews, post-entry rehabilitation or job training programs like Ticket-to-Work – have their merits, the economists say, but nothing beats early intervention and what they call a “work first policy.”

For most workers with disabilities, their fate is sealed when the SSDI examiner confirms the claim. They’ve signed up for years or decades of bare-bones benefits with meager cost-of-living increases.

As the economists observe, “By not working, long-term disability beneficiaries will over time slip further and further behind the rest of the working-age population, whose employment allows them to benefit from increased economic growth.”

And that’s no way to grow old.

Other authors of the journal article are Mary C. Daly, Federal Reserve Bank of San Francisco; Duncan McVicar, Queen’s University-Belfast; and Roger Wilkins, University of Melbourne. The study was in part funded by the U.S. Department of Education’s National Institute on Disability and Rehabilitation Research.

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Joe Schwartz