Wednesday, June 25, 2014

The First Social Program Bankruptcy is Upon Us

In May, the Fiscal Times reported that Social Security Disability is in financial trouble. Hardly news, that has been heard for years and has been either ignored or given lip service. No real solutions have been brought to the table. Unfortunately, in America issues with disability programs like Social Security and workers' compensation tend to get attention when there is a crisis.

What is news is that the sky is perhaps falling more rapidly than they predicted. The Fiscal Times says that the SSDI cash flow will run dry in 2016. Their prediction leads to the conclusion that this is no longer a problem that can be kicked down the road to the next group of elected representatives. The insolvency will either be dealt with or the repercussions felt in the next Congress. 

According to the Fiscal Times in May 2014, eleven million Americans are receiving Social Security Disability (SSDI). According to Census.gov the U.S. population is about 318 million, so about three percent of the population is receiving SSDI. 

The average SSDI recipient is drawing $1,129.51 per month. So the program is consuming about $12.4 billion per month, about $150 billion annually just in disability benefit payments. There are likely additional resources consumed by the administrative burdens of processing and adjudicating SSDI claims, as well as the normal business of making and keeping track of payments. 

Also according to Census.gov 23.5 percent of the population is under 18 and 13.7% are over 65. So the full-time working population can be estimated at about 62.8%, or about 200 million people. Thus, each full-time worker in the country, if contributing equally, would need to pay about $750.00 per year to support the current population of SSDI recipients.

SSDI is a program that affects many who are injured on the job. It is not uncommon for individuals to receive both workers' compensation and SSDI benefits. The concurrent receipt was predictable and Congress acted to address it in 1981 according to workers' compensation guru Jon Gelman. Therefore, there is a provision of the federal law that allows Social Security to "offset" amounts received from workers' compensation. This allows Social Security to reduce its payment based upon how much the beneficiary receives from workers' compensation.

In a legislative grace, that calculation, referred to as the Social Security Offset, is not applicable if the state workers' compensation law provides for a reduction in workers' compensation based upon what is received from Social Security. In other words, Social Security reduces its payments unless the workers' compensation payments are reduced under state law. The states that have adopted this reduction in workers' compensation benefits are referred to generally as "reverse offset" states. Mr. Gelman characterizes this as Social Security "subsidizing a select group of states."

He identifies the "reverse offset states" as "California, Colorado, Florida, Louisiana, Minnesota, Montana, Nevada, New Jersey, New York, North Dakota, Ohio, Oregon, Washington and Wisconsin." The largest states for workers' compensation are California, New York, Illinois, Pennsylvania, Florida, Washington, Ohio, New Jersey, and Texas (see, How Huge is it?). Note that of the ten largest workers' compensation states, six are "reverse offset states." Not only are the states "select" as Mr. Gelman describes, they include some of the largest programs in the country.  

There is also a paradox alleged in which Social Security and unemployment compensation interact, or don't depending on perspective. These seem in-congruent. Unemployment would presumably be a benefit for those who can work, but cannot locate employment and SSDI would be for those who cannot work due to disability. 

The Fiscal Times reported in September 2012 that "many Americans have simultaneously relied on disability and unemployment insurance," and that such payments are "allowed under the programs' different eligibility requirements."  They say that about "117,000 Americans double-dipped" using the two programs simultaneously "during the height of the jobs crisis." The Times claims that this cost the American taxpayer about $856 million in 2010. 

Why is the SSDI insolvency impending so soon? The Times reports in the May 2014 article that the volume of beneficiaries has increased by 73% since 2000. Experts prognosticate that the increase is the result of population growth, "the aging population," and the "larger number of working women eligible for the program." The article notes that others believe the increase results from 1984 policy that "expanded the qualifications for disability."

Whatever the cause, an increase of 73% is statistically significant. Anecdotal evidence reveals that some have suggested that the increase may be a result of decreasing benefits available under state workers' compensation programs, leaving some populations of the disabled with SSDI as their only support, thus increasing applications.  Whatever the cause, it appears that SSDI will be the first of the Social Security programs to become bankrupt.

In July 2012, the Fiscal Times reported that "both the Obama administration and congressional Republicans say that they are weighing reforms to salvage the finances of the disability system before the politics of the issue harden along partisan lines." 

It is almost two years later, and "weighing reforms" appears to be ongoing. During the next Congressional term the first of the Social Security bankruptcies, SSDI, will occur. When will reform be addressed, and what form will it take? 

Will eligibility be restricted based upon the disability causes that are included? Will the monthly benefits available to each beneficiary be reduced? Will taxes on working Americans be increased to fund the current recipient volume and extent or even more so to fund the increased volumes that could be predicted based on the recent significant growth rate? Will the legislative grace of the "reverse offset" be eliminated, shifting more burden back to the "select" states involved? Will there be some offset or exclusivity between the unemployment and disability programs? Are there other solutions, partial or total?

Is there some magical solution in which everyone gets all they want and there is no tax increase? If there is, I have not heard it yet. 

If there were some magical solution to the conundrum of limited resources and unlimited potential beneficiaries, it seems someone would have tried to legislate it by now. What we do know is that the situation will soon come to the end of the "what if" and "weighing reforms" stage and will have to progress into some solution. What is as likely is that no one will be completely satisfied with that solution. Unfortunately, situations in which everyone is completely satisfied simply do not occur very often in the realm of taking resources from some and giving them to others.