Wednesday, August 5, 2015

Time for that Bake Sale?

In June 2014 I penned The First Social Program Bankruptcy is Upon Us. The math in that analysis interested me. The Social Security Disability program is consuming about $12.4 billion per month, or $150 billion annually. There are 200 million Americans working full time, so each needs to pay about $750.00 annually to support this program. 

Bob Wilson at suggested at that time that there may be multiple reasons for the growth in the volume of disability recipients in recent years. The total is currently over 11 million Americans receiving these benefits. That is about 5% of the working-age population (200 million) cited in my Bankruptcy article. Mr. Wilson suggested that we hold a bake sale to raise money for the Social Security system. He proposes that we have "5.5 million people, baking, say 6 dozen cookies each, and selling them for $5.00 a dozen to raise about $165 million dollars." He then admits this would fund the Disability program for about 9 hours. 

I do not know how many people read Mr. Wilson's analysis, but my story drew almost 20,000 readers. By far, it was the most read Internet post I have ever written. 

With little fanfare (I noticed this story on only one of the national news sites I frequent), a story came out in early June 2015 titled Social Security Overpaid Nearly Half Receiving Disability Benefits in Past Decade. The story says that over a ten year period, "Social Security overpaid beneficiaries by nearly $17 billion."

According to The Hill, this figure is based upon a random sampling study performed by the inspector general. The audit revealed that "45 percent of the beneficiaries were overpaid at some point during the decade." Payments were made "to people who either were no longer disabled or earned too much money to qualify. Some payments went to people who were in prison or had died." US News says that Social Security has been able to recover about "$8.1 billion, but it often took years to get the money back." 

The Hill notes that the report on overpayment woes comes "just a year before the Social Security Disability Trust Fund is projected to be exhausted" (in 2016). It reports that "lawmakers on Capitol Hill are divided over how to handle the shortfall." The default solution, should Congress fail to take action, appears to be a "nearly 20 percent cut in benefits" for those receiving Social Security Disability. 

Some advocate diverting more funds from Social Security retirement benefit programs to cover the shortfall in the disability program. But, there is an argument that Social Security retirement is likewise going bankrupt, though not as rapidly. A recent article recites that "nearly a quarter of Americans expect to receive no benefits from Social Security. That article says that the retirement "trust fund reserves will run out in 2034." If money were diverted from that program to fund the near-term shortfall in the disability program, it would seem likely that this could hasten the bankruptcy of the retirement program. Some might argue this is a short-term solution to a larger problem. 

Some disagree about Social Security retirement solvency. John T. Harvey in a Forbes article argues that Social Security could never go bankrupt. That is an interesting read. These arguments, for and against the retirement program being used to bail out the disability program, are interesting. The bottom line in both is essentially that more money is required to keep the disability payment levels where they are. Rather than raising (taxes) or finding (divert from other programs like retirement) more money for the disability program, some advocate "integrity initiatives to weed out fraud and abuse to find savings." That is, becoming more efficient with the use of the funds that the disability program already has, and putting more of the existing money to good use. 

According to US News "a spokesperson for the Social Security Administration says the agency has a high accuracy rate for its payments and a comprehensive debt collection program for over payments." But, the Auditor report says that nearly half (45%) of beneficiaries received over payments. Of that total over payment volume of $17 billion, the agency has recovered less than half, about 48%. So the agency makes errors with just less than half of their beneficiaries and recovers almost half of their mistaken payments. Some may question whether half represents "high accuracy" or effectiveness. 

From a mathematical standpoint, that $17 billion in overpayments represents about $85.00 each for the 200,000 million working-age Americans. If that $17 billion were all collected, it would fund almost one and one-half months of the Social Security Disability payments ($12.4 billion paid out monthly). So, $17 billion is a significant amount of money, but eradicating overpayments will not cover the shortfall that looms in 2016. 

The U.S. Department of Labor is interested in the overall subject of disability; it was recently in the news. The DOL is considering national policy issues related to disability. It says that disability is a subject worthy of broader discussion and proposes two questions it finds pertinent: (1) "how can we establish widespread recognition that paid work is a positive life outcome following a health challenge" and "how can we ensure that the parties with the most direct influence become more accountable for delivering positive SAW/RTW (stay at work/return to work) outcomes?"

The suggestion seems to be that involvement of the federal government is the (or "a") solution to the broader disability question. The "stakeholders" are called to action, described as "health care professionals, health insurers, employers, and the workers' compensation and private disability insurance industries" that "operate in a fragmented system that does not encourage coordination or collaboration." The suggestion seems to be that these stakeholders can change disability in America, if there were less fragmentation and more leadership. 

Bob Wilson blogged about the current initiative in The Feds are Looking to Act on Disability and RTW. He notes that one of the policy recommendations is to "designate a responsible federal entity." His remarks on the subject are interesting, and worth time to read. The online dialogue says that this "designation" means to "direct an existing federal entity or establish a new one to be responsible for leading an interagency effort to prevent adverse secondary consequences of health problems and chronic conditions, such as avoidable impairment and disability, job loss, and workforce withdrawal . . .." In other words, the leadership that is needed, according to the DOL, is federal leadership. 

The idea of the federal government involvement, in light of the 50% success of Social Security disability may be curious to some. WorkCompCentral reported on the policy proposals in the online dialogue. It cites statistics from "the Mathmatica Center for Studying Disability Policy" that support some portion, perhaps 13%, of those drawing Social Security Disability "are able to engage in substantial gainful activity but don't."

Does that mean that 13% of the $150 billion spent annually on Social Security Disability could be saved instead? That would mean almost $20 billion annually. If that 13% of recipients were not receiving disability, would the savings be sufficient to keep the current level of benefits for other recipients, without a tax increase, and avoid the "nearly 20 percent cut in benefits" for those receiving Social Security Disability that looms in 2016?

Mark Walls was interviewed for that WorkCompCentral story. He contends that the job done by Social Security in managing disability may not be the best exemplar for others to follow. He says that system is marked by "lax investigations, low standards for eligibility, and . . . little to no effort to assist workers receiving these benefits in seeking employment." he closed with the thought that "getting a federal agency involved is never the right answer."

So a year later, and a year closer to the insolvency of the Disability program, the questions remain. Will America raise taxes to provide the current level of disability payment to the current population of disabled? Will America decrease the benefit level for disability to avoid raising taxes? Will America defer the decision by diverting remaining "reserves" from a retirement program that is already projected to itself be insolvent in 19 years? Will America address the definition of disability and refocus efforts on retaining those individuals in the workforce? Is there some solution other than tax more, spend less per beneficiary, decrease eligibility or borrow?

Will other disability programs like workers' compensation be further regulated or directed by federal policy? Will a new agency be formed, or an existing one be designated to lead a federal charge to address disability, and if so will that be a specific or broadly scoped effort? Will that federal effort be more effective than the Social Security program that allegedly awards disability to a significant volume who are able to engage in "substantial gainful activity but don't." Will that effort produce better performance than the 50% performance of Social Security Disability in making payments?

There will be questions as this discussion moves forward. These are some of them, but I expect there will be others. Can America do a better job dealing with disability in its broadest context? Can Social Security Disability do a better job with making proper payments in a greater volume of cases, and collecting overpayment in a greater percentage than it currently does? It will be an interesting discussion to watch. This is likely to be on the minds of the marketplace as we gather for #WCEC2015 in Orlando this month.


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