The Rising Cost of Social Security Disability Insurance
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No. 733 August 6, 2013
The Rising Cost of
Social Security Disability Insurance
by Tad DeHaven
Executive Summary
Social Security Disability Insurance (SSDI) is a lengthy and litigious appeals process if their
one of the largest federal programs, and it is one initial applications are denied. And there is a
of the most troubled. The program’s expendi- growing reliance on subjective considerations
tures have doubled over the last decade, reach- in evaluating claims, which has exacerbated the
ing an estimated $144 billion this year. Spend- difficult task of determining whether an indi-
ing has risen so rapidly that SSDI’s trust fund vidual is truly “disabled.” Specialty law firms
is projected to be depleted just three years from working on a contingency fee basis have taken
now. advantage of the complex system and its incon-
SSDI was originally created as a modest safe- sistencies to reap a financial bonanza at taxpay-
ty net aimed at severely disabled workers who er expense.
were close to retirement age. But Congress has Instead of providing a wage-replacement
expanded benefit levels over the decades, and el- backstop for the disabled workers who are per-
igibility standards have been greatly liberalized. manently incapable of working, disability in-
The result is that people capable of working are surance has become more like permanent un-
instead opting for the disability rolls when con- employment insurance or a general welfare
fronted with employment challenges. Once on program. SSDI has become financially unsus-
the disability rolls, experience shows that indi- tainable and economically damaging, and poli-
viduals are likely to remain there, which is bad cymakers should pursue major spending cuts to
for the individuals, taxpayers, and the economy. the program. They should also explore the po-
The process for determining eligibility for tential to transition responsibility for disability
disability insurance benefits has become a bu- insurance from the government to the private
reaucratic nightmare. Applicants often pursue sector.
Tad DeHaven is a budget analyst on federal and state budget issues for the Cato Institute.Policymakers Introduction in 2003 to an estimated $144 billion in 2013.3
have liberalized In real (inflation-adjusted) dollars, SSDI ex-
The goal of the federal Social Security penditures will have roughly doubled since
eligibility Disability Insurance (SSDI) program is to 2000. SSDI’s benefits are funded by a 1.8
standards for replace a portion of a worker’s income in the percent tax on workers’ wages as part of the
event that he or she is unable to work as a broader Social Security tax, but because ben-
SSDI repeatedly result of a severe disability. The program is efit payments are outpacing tax revenues the
over the decades, supposed to provide support to people who system is running deficits and the SSDI trust
with the result cannot work because they have a medical fund will be exhausted by 2016.4
condition that is expected to last at least one The growing numbers of people on dis-
that many people year or result in death. ability is also increasing Medicare spending
who are capable The number of people enrolled in SSDI because SSDI recipients qualify for the fed-
of working has expanded rapidly in recent years, even as eral health program. Medicare benefits for
the share of the U.S. working-age population SSDI recipients cost the government about
choose instead to reporting a severe disability has remained 80 percent as much as the SSDI benefits
remain idle and stable.1 In addition, medical advances have themselves, which translates to more than
aided people with disabilities and fewer $100 billion a year in further taxpayer costs.5
receive benefits. workers are engaged in hard physical labor. Policymakers have liberalized eligibil-
The number of SSDI beneficiaries jumped ity standards for SSDI repeatedly over the
from 4.3 million in 1990, to 6.7 million in decades, with the result that many people
2000, to 10.9 million in 2012.2 The ratio of who are capable of working choose instead
SSDI beneficiaries to all working-age people to remain idle and receive benefits. That is
has doubled in the last two decades. not only bad for taxpayers, but also for the
Accordingly, the taxpayer costs of SSDI broader economy because skilled and pro-
have ballooned. Figure 1 shows that total ductive people are being lured into long-
spending will have doubled from $72 billion term government dependency.
Figure 1
Social Security Disability Spending
150 $144
$139
$132
$126
$118
$107
$100
100 $94
Billions of Dollars
$86
$79
$72
$66
$61
$56
50
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Fiscal Years
Source: Budget of the U.S. Government, Fiscal Year 2014, Historical Tables, Table 13.1.
2The liberal eligibility rules for SSDI, the believed that a nationalized disability system
expansion of benefits, and the system’s per- would be more efficient than the existing
missive court rulings have made the pro- private system. But private disability insur-
gram rife with abuses. Many individuals ance providers at the time argued that the
who could be gainfully employed are receiv- political system would lack the discipline
ing government support and not working to manage a federal program efficiently. In-
because the system is tilted in favor of pro- surance executive M. Jarvis Farley said: “The
viding benefits to new applicants. Indeed, profit motive provides that discipline in a
the system has a multi-level appeals pro- private organization . . . but I know of no
cess that enables people with questionable substitute in government administration. I
claims to succeed in winning benefits if they believe that a government would fail to obey
are persistent. the moral hazard.”9 Sadly, Farley turned out
This study describes the history of SSDI to be right, as the exploding growth in SSDI
and the structure of the program today. It has made clear.
explains how the complex process of deter- In 1943 legislation was introduced to
mining eligibility has become an adminis- expand federal social insurance to include
trative nightmare, and it discusses the evi- temporary and permanent disability bene-
dence that many people capable of working fits, as well as unemployment compensation
Once established,
are using SSDI as essentially a permanent and health insurance.10 This legislation—the federal subsidies
unemployment or welfare program, which it Wagner-Murray-Dingell bill—never made it for the disabled
was not intended to be. out of committee.11 After that, World War
With today’s huge federal deficits, tax- II put efforts to introduce federal disability increased steadily
payers simply can’t afford the skyrocketing insurance on hold. Also, a major obstacle over the decades
expenditures for this $144 billion federal to the creation of federal disability insur-
program. In the short term, policymakers ance was the American Medical Association,
as policymakers
should pursue cuts to sharply reduce the which opposed any steps that it believed thought of new
program’s high price tag. In the long run, would lead to nationalized health care.12 ways to expand
policymakers should explore possible paths In 1948 a Social Security Advisory Coun-
to phasing out the system and leaving the cil recommended to Congress a plan to ex- benefits.
provision of long-term disability insurance tend benefits to the permanently disabled.13
to private markets. Based on the Council’s recommendation,
the House added disability coverage to
pending Social Security legislation in 1949,
A Brief History of SSDI but this plan was rejected by the Senate. In-
stead, the upper chamber supported federal
When the Social Security system was cre- grants to the states for assistance to the dis-
ated in 1935, disability insurance was not abled, and this approach was signed into law
included.6 A federal program for disability in amendments to Social Security in 1950.14
benefits was considered in the 1930s, but Once established, federal subsidies for the
many policymakers thought that it would disabled increased steadily over the decades
be too expensive and that disability subsi- as policymakers thought of new ways to ex-
dies would create an incentive for people to pand benefits. In 1954 policymakers created
drop out of the workforce.7 a “disability freeze” on Social Security ben-
However, there was growing support efits, which allowed workers to omit periods
among federal officials for a government dis- of disability from the calculation of their re-
ability program. The Social Security Board tirement benefits.15
(renamed the Social Security Administration In 1956 SSDI was born when Social Secu-
in 1946) actively advocated in favor of add- rity was amended to create a federal disabil-
ing benefits for the disabled.8 Supporters ity insurance program. Initially, the program
3was just for individuals between the ages of children. They also extended Medicare ben-
50 and 65 who had a substantial work his- efits to SSDI recipients.23
tory. Children who were disabled before the Also in 1972, policymakers created a sister
age of 18 and who were dependents of a re- program for SSDI called Supplemental Secu-
tired or deceased worker were also eligible.16 rity Income (SSI). In general, SSDI provides
The benefits were financed by a 0.5 percent benefits for individuals with work histories,
payroll tax on the wages of workers in the while the new SSI program was designed to
Social Security system. President Dwight provide benefits for low-income elderly and
Eisenhower initially opposed the legisla- disabled people without substantial work
tion, which was engineered by congressional histories. In 2011, 16 percent of SSDI ben-
Democrats and Social Security Adminis- eficiaries also received SSI benefits.24 SSI is
tration (SSA) officials. In the end, however, funded by general federal revenues.
Eisenhower signed the bill.17 SSDI expanded rapidly during the 1970s.
Under SSDI, an individual’s initial appli- In constant 2012 dollars, the program’s
cation for benefits was made at a local Social annual cost soared that decade from $14
Security office. However, the determination billion to $38 billion. The SSA points to a
as to whether an individual was severely dis- combination of factors that fueled the cost
abled and “unable to engage in substantial increases during that period:
gainful activity” was determined by a state
government office.18 State involvement in [H]igh unemployment rates; chang-
the new disability program was needed to al- es in attitude toward disability; high
lay concerns from doctors and others about benefit levels that encourage persons
the growing size and scope of the federal with impairments to stop working
welfare state.19 and apply for benefits; and various
Those concerns proved well founded as administrative factors, such as the
SSDI began to expand. In 1958 the program massive nature of the disability deter-
was broadened to include the dependents of mination process, tremendous pres-
the disabled. In 1960 age restrictions were re- sures for timely processing of claims,
moved and benefits were extended to people disparity in adjudication among the
of all ages.20 In 1965 the qualifying determi- States and at different levels of admin-
nation for disability was liberalized. Previ- istrative review, and other factors.25
ously, an individual’s disability had to be of
“long-continued and indefinite duration.” 21 A federal official who was involved with
But under the new rules, a worker became defining disability noted that disability is
eligible for benefits if the disability was ex- “an elastic concept,” which is the root of a
pected to last just 12 months or longer. lot of cost problems.26 It isn’t possible to
In 1967 Congress adopted a more precise determine with precision whether an appli-
It isn’t possible definition of disability, partly in response to cant is truly unable to work, or whether the
to determine with concerns about rising program costs.22 But disability is temporary or permanent. This
the new rules actually expanded eligibility in problem is illustrated by the wide variance
precision whether certain ways, and efforts to bring more rigor in SSDI benefit claims in different regions
an applicant is and uniformity to the disability definition of the country and under different adminis-
truly unable to were hindered by inconsistent administra- trative law judges (ALJs), as discussed below.
tion by the states. The problem is also illustrated by the rap-
work, or whether That same year SSDI was expanded again, id expansion of SSDI during periods of high
the disability is this time by adding in benefits for disabled unemployment, such as during the 1970s
widows. In 1972 policymakers reduced the and recent years. More people don’t actu-
temporary or waiting period for SSDI benefits and ex- ally become disabled during recessions, but
permanent. panded the definition of eligible disabled many more decide to try to claim disability
4in order to receive federal benefits. er eligibility requirements. As one example, While SSDI
By the 1980s, SSDI was a freight train the new rules allowed people to gain SSDI enrollment and
out of control. An official history says that benefits if they had numerous nonsevere dis-
the disability rolls were “substantially larg- abilities that, combined, reduced their work cost growth had
er than had been anticipated” and that the capacity, rather than having a single “severe” slowed during
“massive nature” of the program’s complex impairment.34 Economist David Autor not-
administration was creating serious prob- ed of the 1984 changes, “A key consequence
the early 1980s,
lems.27 In 1978 President Jimmy Carter’s was that applicants with difficult-to-verify by the late-1980s
secretary of health, education, and welfare, disorders such as muscle pain and mental enrollment and
Joseph Califano, called SSDI a “caricature disorders could more easily qualify for ben-
of bureaucratic complexity.”28 According to efits.”35 costs were rising
Califano, the program had “drifted into cri- According to social insurance historian again and have
sis” and was “in urgent need of fundamental Edward Berkowitz: continued to
reassessment and overhaul.”
President Carter tried to solve some of Although billed as a reform, there- rise rapidly and
those problems and signed reform legisla- fore, the 1984 law stopped the longer- nonstop since
tion in 1980 that tightened benefits in vari- run reform process cold. Concern had
ous ways.29 One provision required that state shifted from containing the future
then.
administrators reexamine “non-permanent- costs of the system to protecting the
ly” disabled beneficiaries once every three present rights of the disabled. Where
years to see if they were able to reenter the once policy highlighted the growth of
workforce. Prior to this requirement, little the rolls, it now centered on protect-
was done to remove able-bodied people from ing the rights of people already on the
the SSDI rolls. The Government Account- rolls . . . Where once reform sought
ability Office (GAO) estimated at the time to streamline disability determination,
that one in five recipients was no longer eli- more bureaucracy was now added to
gible for disability benefits.30 The SSA esti- the system through such measures
mated that the figure was one in four.31 as face-to-face reconsideration hear-
Following the Carter administration’s ings.36
lead, the incoming Ronald Reagan adminis-
tration initially focused on trimming SSDI While SSDI enrollment and cost growth
costs. However, a political backlash erupted had slowed during the early 1980s, by the
when newspapers began reporting “horror late-1980s enrollment and costs were rising
stories” about individuals who had their again and have continued to rise rapidly and
disability benefits terminated. Some mem- nonstop since then.
bers of Congress pounced on the stories and
held dozens of hearings to highlight them.32
Also, the attempted removals from SSDI led SSDI Basics
to a growing number of appeals to ALJs, and
ultimately rising backlogs of cases. Soon SSDI is administered by the SSA, which
state administrators of SSDI joined the has over 65,000 employees and over 1,300 of-
rebellion against the Reagan administra- fices across the nation.37 As previously noted,
tion’s attempt to prune the rolls and many the program is financed by a 1.8 percent pay-
stopped reviewing beneficiary eligibility.33 roll tax on all covered workers in the Social
The backlash led to the Social Security Security system. That tax rate is more than
Disability Benefits Reform Act of 1984, triple the rate of 0.5 percent when SSDI was
which effectively reversed the 1980 reforms. first established.38 The tax is applied to earn-
The 1984 law required the SSA to develop ings up to a certain level ($113,700 in 2013).
new standards, which ultimately led to loos- Unlike unemployment insurance or workers’
5Figure 2
Social Security Disability Spending
150
Billions of 2013 Dollars 100
50
0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Fiscal Years
Source: Budget of the U.S. Government, Fiscal Year 2014, Historical Tables, Table 13.1.
compensation, employers pay the same tax icits since 2009. Those deficits are projected
rate regardless of how much their employees to persist and the trust fund is scheduled to
utilize the system. be exhausted in 2016.41 In present value, the
The program’s finances are accounted for SSDI trust fund has an unfunded liability of
in the federal budget’s SSDI trust fund. The $1.2 trillion over a 75-year horizon.42
accounts of the trust fund show that the pro- There are currently 10.9 million Ameri-
gram’s expenditures are expected to be $144 cans collecting SSDI benefits.43 Of that total,
billion in 2013, of which about $141 billion is 8.8 million are disabled workers and 2.1 mil-
for the payment of benefits and $3 billion for lion are spouses and children. The average
administrative expenses.39 As Figure 2 shows, monthly benefit, which depends on a work-
the real, or inflation-adjusted, costs of SSDI er’s earnings history, for a disabled worker
have exploded over the last two decades. is $1,130.44 To be considered “disabled,” a
In 2013 the SSDI trust fund is expected to worker must possess the “inability to engage
take in $111 billion in revenue, and thus the in any substantial gainful activity by reason
fund would have a deficit of $33 billion.40 of any medically determinable physical or
Deficits are financed by redeeming nonmar- mental impairment which can be expected
ketable government securities that were ac- to result in death or which has lasted or can
cumulated over the years when the program be expected to last for a continuous period
had a surplus. The government spent the of not less than 12 months.”45 As will be dis-
The real, or surpluses on other government programs cussed, however, this definition is often sub-
and credited the fund with the securities. Be- jectively applied.
inflation- cause the securities are simply IOUs (mean-
adjusted, costs ing they are not invested in assets that will
of SSDI have produce future financial returns), they have Soaring Expenditures
to be redeemed with the use of general fed-
exploded over the eral revenues when a program deficit occurs. The growing number of people on SSDI
last two decades. The trust fund has been running annual def- has led to an explosion in expenditures since
6the late 1980s. That increase has occurred but rather by policies that increased the sub- When
even though the share of the U.S. working- jectivity and permeability of the disability unemployment
age population reporting a severe disability screening process.”48 Similarly, economist
has remained stable over the years.46 Fur- Richard Burkhauser calls the explosion in is rising,
thermore, the share of the working-age pop- the number of people gaining federal dis- applications for
ulation that reports having a work-limiting ability benefits a “policy-driven epidemic”
health condition has remained steady over caused by rule changes that “have made it far
SSDI tend to
time.47 In addition, medical advances have easier to gain entry to these benefit rolls.”49 increase, while a
enhanced the ability of people with disabili- Evidence of this stems from the fact that strong economy
ties to function in many workplaces, and the there have been large increases in SSDI ap-
economy has become less reliant on labor- plications when the economy is poor, as coincides with
intensive blue-collar jobs. has been the case in recent years. As Figure fewer SSDI
With this good news about Americans’ 4 shows, when unemployment is rising, ap- applications.
health, one would think the ratio of SSDI plications for SSDI tend to increase, while a
recipients to working-age population would strong economy coincides with fewer SSDI
have remained stable or fallen over time. applications. Marginally disabled people who
Instead, as Figure 3 shows, there has been a could perform work may decide to try for
large increase in the ratio of SSDI recipients disability benefits when employment condi-
to active workers. This ratio has doubled tions deteriorate. Indeed, a recent study on
since the early 1990s, which is a remarkable the work disincentive effects of SSDI found
development. that “employment of the marginal program
If Americans are not becoming less able entrant would be on average 28 percentage
to work because of health problems, why points greater in the absence of SSDI benefit
are the disability rolls increasing? Econo- receipt two years after the initial determina-
mists David Autor and Mark Duggan note tion.”50
that “the rapid growth of Disability Insur- The inability to define disability precisely
ance does not appear to be explained by a has thus resulted in a program that partly
true rise in the incidence of disabling illness, acts like permanent unemployment insur-
Figure 3
Disability Recipients per Thousand U.S. Workers
80
70
Disability Recipients per Thousand
60
50
U.S. Workers
40
30
20
10
0
1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: Social Security Administration and Bureau of Labor Statistics.
7Figure 4
Percent Change in Disability Applications and in U.S. Unemployment Rate
Disability Applications U.S. Unemployment Rate
65%
55%
45%
35%
25%
15%
5%
-5%
-15%
-25%
1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: Social Security Administration and Bureau of Labor Statistics.
ance or welfare. One problem with that is quent 20 years.53 Today, the majority of ap-
the longer an individual remains out of plicants who are awarded benefits by an ALJ
work on SSDI, the more difficulty that per- are determined to possess a “nonexertional
son will experience in finding employment restriction.”54
later on.51 Unlike unemployment benefits, Law professor Richard Pierce explains
which are fixed in duration, a person who that it is practically impossible to prove that
goes on the disability rolls can stay there in- these conditions constitute a complete in-
definitely. Indeed, that is typically the case. ability to work:
The Congressional Budget Office projects
that “as a result of the most recent recession, There are no objective diagnostic crite-
the number of disability insurance benefi- ria that can be used to verify or refute
ciaries will continue to rise over the next few a claim that an individual has a nonex-
years by more than otherwise would have oc- ertional restriction. Moreover, all such
curred, contributing to the long-term trend restrictions are matters of degree. The
of rising enrollment already under way.”52 Social Security Act renders an individ-
Unlike Policymakers have fueled rising enroll- ual eligible for disability benefits only
unemployment ment by embracing ever more liberal eligibil- if he has an impairment “of such sever-
ity standards for SSDI. Originally, the idea ity that he . . . cannot . . . engage in any
benefits, which was that people would only be eligible for . . . kind of substantial gainful work
are fixed in SSDI if they could not work at all, but today which exists in the national economy.”
duration, a the standards for ability to work are much Yet, there are no objective diagnostic
looser. For example, after Congress relaxed criteria that can be used to measure
person who goes eligibility standards in 1984, awards based the degree of an applicant’s anxiety,
on the disability on “nonexertional restrictions”—a mental depression, or pain. Finally, nonexer-
condition such as depression or physical tional restrictions are ubiquitous. The
rolls can stay pain stemming from a musculoskeletal con- National Institute of Medicine has
there indefinitely. dition—jumped 323 percent in the subse- found that 116,000,000 Americans
8suffer from chronic pain, while the process to determine whether the worker’s SSDI is more
National Institute of Mental Health medical condition warrants disability bene- and more like a
has found that 61,000,000 Americans fits. At any step, the applicant can be denied
suffer from mental disease. It is a benefits. general welfare
rare person who reaches my age (68) The DDS first decides whether the dis- program, not a
without having experienced anxiety, ability is severe enough to limit basic life ac-
depression, and/or pain over some sig- tivities. If the answer is yes, a determination
last-resort safety
nificant periods of time. Thus, at some is made as to whether the disability meets or net for the small
point in his life, almost every person is the equivalent of a condition in the SSA’s group of people
can make a plausible claim of eligibil- “Listings of Impairments.” If the answer
ity for permanent disability benefits is yes, the applicant qualifies for benefits. completely
based on nonexertional restrictions.55 If the answer is no, the applicant may still unable to earn
qualify for benefits after some additional a living because
Pierce blames ALJs for helping to push steps: First, the DDS determines whether
up the costs of the SSDI system.56 A single the applicant can perform work from any of a medical
judge in Pennsylvania, for example, over- previous occupations. If the answer is no, disability.
ruled the SSA on 2,285 benefit applications the DDS determines whether the applicant
in a four-year period—applications that the can perform other work that exists in the
SSA had declined. That single judge’s ac- national economy. If the answer is no again,
tions have cost taxpayers more than $2 bil- the applicant qualifies for benefits.
lion.57 Another SSDI expert, James Taylor, The SSA first introduced Listings of Im-
thinks that another problem is the deep in- pairments in 1968 in order to expedite the
stitutional bias within the SSA that encour- claims process. There are 14 categories orga-
ages favorable determinations at every level nized by major body systems. When subcat-
of the process.58 For one thing, SSA benefit egories are included, the list of impairments
awards are generally not open to public scru- exceeds 100.59 However, the share of initial
tiny, so officials are likely biased to be gener- claims allowed based on the listings has
ous to applicants out of sympathy, rather dropped from 93 percent in the early years to
than feeling accountable to taxpayers. The around 50 in the past decade.60 Nowadays,
result of all this is that SSDI is more and the Medical-Vocational Guidelines, used in
more like a general welfare program, not a the final evaluative step, are four times more
last-resort safety net for the small group of likely to determine eligibility.61 The SSA has
people completely unable to earn a living be- developed a grid containing more than 80
cause of a medical disability. options that take into consideration factors
such as age, education, and the ability to
perform some level of work. “The Grids” al-
A Complex and Slanted low for more subjective considerations when
Process determining eligibility, which has resulted
in people being declared “disabled” who are
The SSDI application process begins actually capable of performing work or who
when workers submit paperwork to a local have a disabling condition that has a good
SSA office. The office determines if the ap- chance of being temporary.62
plicant has worked long enough to be con- Applicants who are approved become
sidered “insured” under SSDI and is not eligible to receive benefits five months from
currently earning above the “substantial the time the disability began.63 In addition,
gainful activity” limit ($1,011 a month in successful SSDI applicants can also start
2012). If the applicant meets those require- receiving Medicare health coverage after 24
ments, a state Disability Determination months. The Congressional Budget Office
Service (DDS) then follows a step-by-step says that Medicare benefits “cost the federal
9government on average more than 80 per- In 2010 there were 2.9 million total ap-
cent as much as their [disability insurance] plications for SSDI benefits. Only 35 percent
benefits,” which translates to more than were awarded benefits.69 However, that fig-
$100 billion in 2012.64 Disability benefits ure includes applicants who were denied for
continue until the individual reaches nor- technical reasons or where a final decision
mal Social Security retirement age, at which was still pending. The overall allowance rate
point he is covered by regular Social Secu- based on medical decisions was 55 percent.70
rity, or the individual is able to resume work. For medical decisions made at the hearings
The SSA conducts periodic reviews to de- level or higher, the allowance rate was 76 per-
termine if a beneficiary is still disabled. The cent.71
frequency of the reviews depends on how
long an individual’s condition is expected to
last. In 2011, only 3.6 percent of workers on Administrative Nightmare
SSDI had their benefits terminated because
of medical improvement. Almost 90 percent The federal government faces huge and
of people had their benefits stopped because growing problems in administering SSDI
they either died or reached retirement age.65 because of the program’s size and inherent
The data thus The data thus indicate that once workers get complexity. In particular, there is a massive
indicate that on the disability rolls, they rarely leave and backlog of disability claims at the hearings
once workers get go back to work. level. Since 1977 the number of appeals to
Applicants who are denied benefits can the ALJ level has tripled.72 Claims awaiting a
on the disability appeal. Indeed, the appeals process has hearing before one of 1,400 ALJs grew from
rolls, they rarely four levels, and at each level the individual 12,000 cases in 1999 to 817,000 cases in
receives another chance to convince a gov- 2012.73 The Social Security Administration
leave and go back ernment official or judge to grant benefits. has effectively instituted quotas on judges
to work. Thus, individuals with questionable claims to reduce the backlog. However, the Associa-
of disability have up to five tries at receiving tion of Administrative Law Judges says that
benefits and they just have to succeed once. because of the quotas, “many administra-
The process can be very cumbersome and tive law judges are pressured to grant more
costly. A rejected applicant can first ask the claims than they otherwise would, as it sim-
SSA for a “reconsideration” of his or her ply is faster and easier to grant claims than
claim from a different group of SSA officials. to deny them.”74
If rejected again, the applicant can request The backlog for continuing disability re-
a hearing before an ALJ. These hearings do views (CDRs), which are conducted to make
not include a government representative to sure an individual collecting SSDI benefits is
question the claim on behalf of taxpayers.66 still eligible, is another problem. At the end
Meanwhile, the SSDI applicant in the great of 2010, the SSA had a backlog of almost 1.5
majority of cases uses the services of lawyers million CDRs. The SSA’s inspector general
working on a contingency fee basis.67 It is a estimates that between $1.3 billion and $2.6
process slanted in favor of program expan- billion in unnecessary disability payments
sion and higher spending. could have been avoided in recent years had
If the ALJ denies the claim, the quest for CDRs been conducted on time.75 The GAO
federal benefits is still not over. The SSDI notes that between 2004 and 2008, the num-
applicant can request a review from the So- ber of CDRs conducted annually decreased
cial Security Appeals Council. If the council by almost 65 percent.76 In 2009 only 1.3 per-
either denies the claim or decides against re- cent of SSDI recipients received a review.77
viewing it, the applicant can then file a law- The SSA notes that a full review costs $1,000
suit in a federal district court. In 2011 over per case and in most cases the agency simply
14,000 new civil actions were filed.68 ascertains continuing eligibility by mailing
10the recipient a questionnaire.78 Less than 1 been critical of the SSA’s efforts to recover
percent of recipients who are reviewed have overpayments and notes that although debt
their benefits terminated.79 collections have increased, the overall debt
The inability to sufficiently monitor has gone from $2.5 billion in 2001 to $5.4
whether individuals are still entitled to ben- billion in 2010. That excludes $4 billion in
efits has contributed to a large volume of un- overpayment debt that the SSA wrote off.85
justified benefit payments and great deals of Given the subjective and convoluted na-
fraud and abuse. The SSA inspector general’s ture of determining SSDI eligibility, it’s like-
office says that “fraud is an inherent risk in ly that erroneous and unjustified payments
SSA’s disability programs.”80 While the SSA are far larger in volume than just outright
does not generally release information on fraud. The huge, complex, and difficult-to-
particular SSDI awards, voluminous exam- audit system is a perfect breeding ground for
ples of waste and fraud can be found from awarding and continuing benefits to people
document releases in court cases. An editor who shouldn’t be on the disability rolls.
of a disabilities legal publication, James M. According to the GAO, the list of impair-
Taylor, dug through court documents in ments used to determine if an applicant has
disability cases and found many appalling an eligible disability is outdated and the SSA
examples of the SSA awarding benefits when has been slow to revise it.86 Mental disorders,
individuals clearly were not too disabled to for example, have grown to become the sec-
gain employment.81 ond-largest impairment cited for awarding
Indeed, a casual Internet search reveals disability benefits (19 percent), behind mus-
many articles about SSDI fraud. Not only are culoskeletal system and connective tissue
individuals bombarding the system with bo- (34 percent).87 In terms of initial and recon-
gus claims for benefits, but shady health care sidered claims allowed based on the SSA’s
professionals are helping them. For example, medical listings, mental disorders are by far
a San Diego psychologist recently pled guilty the largest category.88 However, the GAO re-
to falsely certifying dozens of individuals as ports that “it has been at least 27 years since
being disabled, resulting in the government SSA finalized comprehensive revisions for . . .
paying out over $1.5 million in unwarrant- mental and neurological disorders.”89
ed benefits. The doctor “admitted that ap- The SSA’s concept of “disability” is also
proximately 33 percent of his patient files outdated. Workplace accommodations and
contained fabrications, false statements, and assistive devices can enable many of today’s
false certifications of disability.”82 disabled people to function in a job, but the The huge,
When individuals convicted of commit- SSA “does not always consider them in its complex, and
ting fraud are caught, the SSA does not do a assessment of disability.”90 For example, the difficult-to-
good job of recouping ill-gotten benefits. An SSA says that assistive devices are incorpo-
SSA inspector general audit examined 272 rated into the medical listings once they be- audit system
beneficiaries who had been convicted of de- come “standard in the medical community.” is a perfect
frauding the SSA and found that 96 of those But when asked if wheelchairs are consid-
individuals were still collecting benefits. The ered standard in the medical community,
breeding ground
audit noted that often “the payment terms and whether consideration is given to how for awarding
agreed to by SSA are so unfavorable that individuals with wheelchairs might func- and continuing
SSA will never fully recover the amounts tion in today’s more white-collar economy,
owed from these individuals.”83 SSA officials gave the GAO “conflicting in- benefits to
The GAO has found that the SSA too formation.”91 people who
often overpays benefits. In 2010 SSDI ben- Because of the subjectivity and complex-
efit overpayments were $1.4 billion, and the ity involved in determining if a medical
shouldn’t be on
GAO says that the figure “could be even larg- condition warrants disability benefits, out- the disability
er than SSA’s data detect.”84 The GAO has comes at the appeals level show a high de- rolls.
11The complicated gree of variation. When the SSA inspector dence was allowed by an ALJ as late as
process for general (IG) examined the four impairments a few hours before the hearing.96
that are most frequently accepted for review ●● When contradictory evidence was pro-
seeking disability at the appeals level, it found that the varia- vided by different sources, both DDS
benefits has tion could be large even within the same city. officials and ALJs were more likely to
The IG noted that “one hearing office in the cite the evidence more favorable to the
become a boon Chicago Region had an allowance rate of 83 claimant.97
to legal firms percent for cases with Disorders of Back, but
that specialize in another hearing office in the Chicago Re- Judges who spoke to investigators point-
gion had an allowance rate of 45 percent for ed to the heavy workload and the fact that
disability claims. cases with the same impairment.”92 rules used to determine eligibility have be-
The differences are even larger for cases come so complex. One result of judges trying
reviewed by an ALJ. The IG cited an example to expeditiously complete case loads is high
where one judge approved 97 percent of his approval rates of about 60 percent on aver-
cases that involved back disorders, while an- age.98 In 2011, 130 ALJs awarded benefits
other judge only allowed 15 percent of his in 85 percent or more of the cases heard.99
cases with that health problem.93 Judges are A judge in West Virginia awarded benefits
largely independent and possess broad dis- in all but four of the 1,284 cases he tried in
cretion to award or deny benefits. They are 2010.100 Overall, the Wall Street Journal found
also hard to fire, which means an appoint- that in 2011, 1,334 judges made more awards
ment can amount to a lifetime position. than denials, while only 439 judges had the
A recent Senate oversight committee in- ratio the other way around.101
vestigation reviewed 300 cases from a coun- The SSA has started performing “focused
ty in three different states. The investigation quality reviews” on random samples of de-
found that benefit award decisions made at cisions made by ALJs. A 2011 report found
the ALJ level were “fraught” with problems: that more than one in five decisions con-
tained errors.102 Although an error does not
These problems ranged from basing automatically mean that disability benefits
decisions on evidence of questionable were incorrectly awarded, 82 percent of the
value, to citing insufficient evidence decisions were remanded to the originat-
to support the decision made, mis- ing hearing office for further review because
using expert testimony, and holding “the record was not sufficient to render a de-
perfunctory hearings. The result was cision.”103
a large number of poor quality deci- The complicated process for seeking dis-
sions, raising questions about wheth- ability benefits has become a boon to legal
er they were decided correctly.94 firms that specialize in disability claims.
The vast majority of applicants who appeal
Other findings from the investigation in- a denial of benefits to the ALJ level have legal
cluded: representation.104 For some impairments—
back disorders, for example—representation
●● Some judges awarded benefits even can exceed 90 percent.105 These lawyers typi-
though the claimant was able to cally work on a contingency fee basis, which
work.95 means a large amount of taxpayer money
●● The SSA discourages the introduction ends up in the pockets of thousands of dis-
of evidence in support of a claim less ability lawyers.
than 10 days before a hearing. In one An applicant whose appeal is successful is
region, it is mandatory not to admit awarded payments dating back to the onset
evidence that isn’t received five days in of the disability. The lawyer typically receives
advance. However, in some cases evi- 25 percent or up to $6,000 of this “back pay.”
12While that amount may not be enticing to The PCG agents help the potentially
general law firms, firms specializing in dis- disabled fill out the Social Security
ability claims can make millions of dollars disability application over the phone.
based on a high volume of cases and know- And by help, I mean the agents actual-
ing how to work the system. According to ly do the filling out. When the poten-
SSA data obtained by the Wall Street Journal, tially disabled don’t have the right
fees paid to lawyers and other representatives medical documentation to prove a
of SSDI applicants went from $425 million disability, the agents at PCG help
in 2001 to $1.4 billion in 2011.106 Legal firms them get it. They call doctors’ offices;
are aware of which judges are more likely to they get records faxed. If the right
award benefits and try to steer their clients medical records do not exist, PCG sets
accordingly. up doctors’ appointments and calls
The Wall Street Journal profiled the na- applicants the day before to remind
tion’s largest “disability advocate,” the firm them of those appointments.
Binder and Binder.107 The rise of the firm PCG also works very, very hard to
stems from a 2004 federal law that made make the people who work at the So-
it easier for non-lawyers to represent appli- cial Security Administration happy.
cants. The motivation for this legal change Whenever the company wins a new The NPR
was to nurture advocacy organizations that contract, Coakley [a PCG employee] reporter aptly
would help move applicants through the will personally introduce himself at refers to the
complicated process and thus reduce the the local Social Security Administra-
backlog of claims. Binder and Binder quickly tion office, and see how he can make collaboration
moved to hire cheaper nonlawyers and start- things as easy as possible for the ad- between the
ed advertising nationally. According to one ministrators there.
former Binder case manager, the firm is “like “We go through even to the point,
public and
a warehouse” whose employees’ objective is frankly, of do you like things to be private sectors
to see “how much money they can make.”108 stapled or paper-clipped?” he told me. to expand the
In 2010 the SSA paid Binder $88 million in “Paper clips wins out a lot of times
fees. Binder and Binder has a reputation for because they need to make photocop- disability rolls as
withholding information that could damage ies and they don’t want to be taking the “Disability-
a client’s case, but the SSA’s commissioner staples out.”111
says that “we are not so much in the business
Industrial
of, quote unquote, monitoring law firms.”109 The NPR reporter aptly refers to the col- Complex.”
Law firms are not the only private inter- laboration between the public and private
est making money off of the SSDI system. sectors to expand the disability rolls as the
In a special report on federal disability pro- “Disability-Industrial Complex.” And she
grams, National Public Radio recently high- accurately notes that “It has just one goal:
lighted the firm Public Consulting Group push more people onto disability.”112
(PCG), which provides consulting services
to state governments.110 One of the services
PCG provides is helping states move people Conclusion
from cash welfare, which is partly funded
with state money, to SSDI, which the federal With massive and ongoing federal deficits,
government fully pays for. For example, a re- policymakers need to pursue spending cuts
cent contract with the state of Missouri will in every area of the budget. The Social Secu-
pay PCG $2,300 for every person it helps ob- rity Disability Insurance program’s soaring
tain SSDI benefits. With that kind of money expenditures desperately need to be tackled.
to be made, PCG goes to great effort to get SSDI’s trust fund is expected to be exhausted
people on the disability rolls: in just a few years. While some policymakers
13might favor higher SSDI taxes to bolster the In sum, SSDI is a classic example of a
trust fund, that would further punish work- well-intentioned effort to provide modest
ers and damage the economy in order to prop support to truly needy people that has ex-
up a structurally flawed program that is col- ploded into a massive entitlement that is
lapsing under its own weight. driving up the federal deficit. Federal poli-
SSDI spending should be cut sharply. cymakers should pursue major cost-cutting
That can be achieved by cutting SSDI’s aver- reforms to SSDI, but they should also begin
age benefit levels and instituting stricter eli- considering ways of moving the provision of
gibility standards to discourage claims from long-term disability coverage to the private
people who could be working. Other chang- sector.
es might include imposing a longer delay
for the initial receipt of benefits to discour-
age frivolous applications, and reducing the
Notes
large number of appeal opportunities for 1. U.S. Census Bureau, “Americans with Dis-
abilities,” various years, www.census.gov/people/
people who are denied benefits. Steps could disability/publications/reports_briefs.html.
also be taken to ensure greater quality con-
trol and consistency of decisions by SSA of- 2. The Board of Trustees, Federal Old-Age and
ficials and judges. The administrative law Survivors Insurance and Federal Disability In-
surance Trust Funds, The 2012 Annual Report of
process should include a role for a “taxpayer the Board of Trustees of the Federal Old-Age and Survi-
advocate” to challenge any dubious claims vors Insurance and Federal Disability Insurance Trust
made by applicants and their lawyers. Funds (Washington: Government Printing Of-
Continuous disability reviews of people fice, 2012), Table V.C5, p. 131, www.ssa.gov/oact/
receiving benefits should be vigorously ap- tr/2012/tr2012.pdf.
plied. During 1980 and 1983 when the SSA 3. Budget of the U.S. Government, Fiscal Year
reexamined large numbers of SSDI recipi- 2014, Historical Tables (Washington: Govern-
ents, it found that 40 percent were not suffi- ment Printing Office, 2013), Table 13.1.
ciently disabled to be receiving benefits.113 It
4. The tax rate was temporarily reduced from
would not be surprising if that share is higher 1.8 percent in 2011 and 2012 in an effort to stim-
today. The experience of the 1980s shows that ulate the economy.
SSDI spending can be cut when policymak-
ers focus on saving taxpayer money. It is also 5. Congressional Budget Office, “Policy Op-
tions for the Social Security Disability Insurance
true, however, that SSDI spending bounced Program,” July 2012, p. III.
back with a vengeance after the 1980s as poli-
SSDI is a classic ticians reverted to their spendthrift ways. 6. Title X of the Social Security Act did autho-
Today, reforms are needed more than rize grants to the states for aid to the blind.
example of a
ever.114 Reining in SSDI would not only save 7. Edward D. Berkowitz, America’s Welfare State:
well-intentioned taxpayer money, it would also give margin- From Roosevelt to Reagan (Baltimore: John Hop-
effort to provide ally disabled people who have valuable skills kins University, 1991), pp. 158–59.
an incentive to reenter the workforce.115
modest support Once people get on SSDI, they rarely leave
8. Social Security Administration (SSA), “A His-
tory of the Social Security Disability Programs,”
to truly needy the program and go back to work, even January 1986, www.ssa.gov/history/1986dibhistor
if their health improves. Indeed, only 3.6 y.html.
people that
percent of workers on SSDI had their ben-
has exploded efits terminated in 2011 because of medi-
9. Edward D. Berkowitz, Disabled Policy: Ameri-
ca’s Programs for the Handicapped (New York: Press
into a massive cal improvement.116 With the U.S. work- Syndicate of the University of Cambridge, 1987),
force shrinking because of the retirement of p. 55.
entitlement that droves of baby boomers, the economy can-
10. Berkowitz, America’s Welfare State, p. 51.
is driving up the not afford policies—such as excessively gen-
federal deficit. erous SSDI—that suppress work incentives. 11. SSA, www.ssa.gov/history/corningchap3.html.
1412. Berkowitz, America’s Welfare State, pp. 164– sequences, and Policy Actions,” National Bureau of
65. Economic Research (2011): 5, http://economics.mit.
edu/files/6880.
13. House Ways and Means Committee, “Com-
mittee Staff Report on the Disability Insurance 36. Berkowitz, Disabled Policy, p. 150.
Program,” July 1974, pp. 108–109, www.ssa.gov/
history/pdf/dibreport.pdf. 37. SSA, “Annual Statistical Supplement to the
Social Security Bulletin, 2012,” Tables 2.F1 and
14. House Ways and Means Committee, “Com- 2.F2.
mittee Staff Report on the Disability Insurance
Program,” July 1974, pp. 109–10, www.ssa.gov/ 38. The Board of Trustees, Federal Old-Age and
history/pdf/dibreport.pdf. Survivors Insurance and Federal Disability Insur-
ance Trust Funds, Table V.C6, p. 138.
15. Ibid., pp. 109–10.
39. Budget of the U.S. Government, Fiscal Year
16. Ibid., p. 112. 2014, Table 13.1.
17. Berkowitz, Disabled Policy, pp. 73–77. 40. Ibid.
18. Berkowitz, America’s Welfare State, p. 165. 41. The Board of Trustees, Federal Old-Age and
Survivors Insurance and Federal Disability Insur-
19. Ibid., p. 166. ance Trust Funds, p. 2.
20. Ibid., p. 169. 42. Ibid., p. 64, www.ssa.gov/oact/tr/2012/tr20
12.pdf.
21. House Ways and Means Committee, p. 115.
43. SSA, Table 2. As of March 2013.
22. SSA, “A History of the Social Security Dis-
ability Programs,” January 1986, www.ssa.gov/ 44. SSA, Table 2. As of March 2013.
history/1986dibhistory.html.
45. 42 USC §423(d)(1)(A).
23. Berkowitz, America’s Welfare State, p. 176.
46. U.S. Census Bureau.
24. SSA, “Annual Statistical Supplement to the
Social Security Bulletin, 2012,” Table 3.C6.1, Feb- 47. Richard V. Burkhauser and Mary C. Daly,
ruary 2013. The Declining Work and Welfare of People with Dis-
abilities (Washington: AEI Press, 2011), p. 38.
25. SSA, “A History of the Social Security Dis-
ability Programs.” 48. David Autor and Mark Duggan, “The
Growth in the Social Security Disability Rolls: A
26. Berkowitz, Disabled Policy, p. 44. Fiscal Crisis Unfolding,” Journal of Economic Per-
spectives (2006): 71–94.
27. SSA, “A History of the Social Security Dis-
ability Programs.” 49. Richard Burkhauser, “Reforming Social
Security Disability Insurance,” Rippon Forum,
28. Berkowitz, Disabled Policy, p. 106. Spring 2011.
29. Ibid., pp. 114–22. 50. Nicole Maestas, Kathleen Mullen, and Alex-
ander Strand, “Does Disability Insurance Receipt
30. Citied in Berkowitz, ibid., p. 124. Discourage Work? Using Examiner Assignment
to Estimate Causal Effects of SSDI Receipt,” Uni-
31. Cited in Berkowitz, ibid., p. 125. versity of Michigan Retirement Research Center,
Working Paper no. 2010-241, August 31, 2012, p.
32. Berkowitz, Disabled Policy, pp. 128–36. 29.
33. Ibid., pp. 140–43. 51. See Chris Edwards and George Leef, “Fail-
ures of the Unemployment Insurance System,”
34. SSA, “A History of the Social Security Dis- Cato Institute, June 2011, www.DownsizingGov
ability Programs.” ernment.org.
35. David Autor, “The Unsustainable Rise of the 52. Congressional Budget Office, “Social Securi-
Disability Rolls in the United States: Causes, Con- ty Disability Insurance: Participation Trends and
15Their Fiscal Implications,” July 22, 2010, p. 7. p. 142. Data include concurrent applications for
Social Security Disability Insurance and Supple-
53. Richard J. Pierce, “What Should We Do mental Security Income (SSI); they do not in-
About Administrative Law Judge Disability De- clude SSI-only applications.
cisionmaking?” George Washington University
Law School Public Law Research Paper no. 573, 71. Ibid., Table 62, p. 148. Data include concur-
July 20, 2011, p. 4. rent applications for Social Security Disability
Insurance and Supplemental Security Income
54. Ibid., p. 4. (SSI); they do not include SSI-only applications.
55. Ibid., p. 4. 72. Burkhauser and Daly, The Declining Work and
Welfare of People with Disabilities (Washington: AEI
56. Ibid., p. 4. Press, 2011), p. 52.
57. Richard J. Pierce, “Errata,” Regulation 34, no. 73. Government Accountability Office (GAO),
4 (Winter 2011–2012): 7. “Social Security Disability: Management of Dis-
ability Claims Workload Will Require Compre-
58. James M. Taylor, Facilitating Fraud: How hensive Reporting,” GAO-10-667T, April 27,
SSDI Gives Benefits to the Able Bodied,” Cato 2010, p. 1; and SSA, “Performance and Account-
Institute Policy Analysis no. 377, August 15, ability Report for Fiscal Year 2012,” p. 182, www.
2000. ssa.gov/finance/2012/Full%20FY%202012%20
PAR.pdf.
59. Office of Inspector General, SSA, “The So-
cial Security Administration’s Listing of Impair- 74. Letter from D. Randall Frye, President, As-
ments,” A-01-08-18023, March 2009, p. 1. sociation of Administrative Law Judges to Caro-
lyn W. Colvin, Acting Commissioner, SSA, April
60. Ibid., p. 3. 9, 2013, www.aalj.org/system/files/documents/
colvin_letter_of_april_9_final_1.pdf.
61. Minority Staff Report, Senate Permanent
Subcommittee on Investigations, Committee 75. Office of Inspector General, SSA, “Full Med-
on Homeland Security and Government Affairs, ical Continuing Disability Reviews,” A-07-09-
“Social Security Disability Programs: Improving 29147, March 2010, p. 2.
the Quality of Benefit Award Decisions,” Septem-
ber 13, 2012, p. 88. 76. GAO, “Social Security Disability: Manage-
ment of Disability Claims Workload Will Require
62. See Jeffrey S. Wolfe and David W. Engel, Comprehensive Reporting,” p. 10.
“Restoring Social Security Disability’s Purpose,”
Regulation 36, no. 1 (Spring 2013). 77. Mark Duggan, “Understanding the Project-
ing the Rise in SSDI Enrollment,” presentation
63. See Umar Moulta-Ali, “Social Security Dis- to Social Security Advisory Board forum on SSDI
ability Insurance (SSDI): The Five-Month Wait- reform, March 8, 2013, slide 13, http://ssab.gov/
ing Period for Benefits,” Congressional Research Portals/0/2013Forum/Presentations/1.2%20
Service, RS22220, January 24, 2013. Duggan%20Forum%20slides.pdf.
64. Congressional Budget Office, “Policy Op- 78. SSA, “Performance and Accountability Re-
tions,” July 2012, p. III. port for Fiscal Year 2011,” pp. 73–74.
65. SSA, “Annual Statistical Report on the 79. Congressional Budget Office, “Social Securi-
Social Security Disability Insurance Program, ty Disability Insurance: Participation Trends and
2011,” Table 50, p. 126. Their Fiscal Implications,” 2010, p. 4.
66. Wolfe and Engel, pp. 52–53. 80. Office of the Inspector General, SSA, “Disabil-
ity Insurance Beneficiaries Convicted of Crimes
67. Ibid., pp. 53–54. against the Social Security Administration’s Pro-
grams,” A-06-06-16132, September 2007, p. 3.
68. SSA, www.ssa.gov/appeals/court_process.ht
ml. 81. Taylor.
69. SSA, “Annual Statistical Supplement to the 82. Office of the Inspector General, SSA, “San
Social Security Bulletin, 2012,” Table 6.C7. Diego Psychologist Admits Falsifying Social Se-
curity Disability Reports in $1.5 Million Fraud
70. SSA, “Annual Statistical Report” Table 59, Scheme,” August 2, 2012.
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