New Research on the Economics of Disability Insurance Awards
January 25, 2023
More and more research is coming out showing off the unfairness, economic loss, and excessive cost of the current outdated rules governing the disability programs in the US. In this blog, I summarize a recent careful and comprehensive study by Professors Maestas, Mullen, and Strand (MMS) published in the July 2021 volume of the Journal of Public Economics examining the effect of unemployment during the Great Recession (December 2007 to June 2009) and subsequent years on the number of claims to and awards for Social Security Disability Insurance (SSDI). The results in particular point to the relative ease many middle-age workers have in qualifying for DI benefits, even with lesser disabilities, because the rules presume that their work experience and skills do not transfer to other available work in the economy. The results also highlight the illogic of current policy that one can apply for SSDI, claiming that one cannot work, while simultaneously getting unemployment insurance benefits, which generally require an active search for work.
MMS looked at all SSDI applicants from 2006 through 2012 and tracked their outcomes through the appellate level. They estimated that the Great Recession led 1.4 million workers to apply for SSDI during 2008 to 2012; nearly three-quarters would not have applied but for the recession and accounted for about an eighth of all applications during this period. Note that while applying for SSDI one cannot work (although one can get unemployment insurance benefits) and the adjudication process through levels of appeals can take several years, even if no award is ever made. MMS show that recession-induced applicants have lower average levels of disability and greater work capacity than average applicants and cite other research that this is particularly so when compared to those applying during economic expansions. But despite their lesser disabilities, of the 1 million recession-induced applicants, over 400,000 were awarded benefits, mostly at the appeal level and on vocational grounds with no transferrable skills presumed rather than on the basis of severe medical impairment. This group made up nearly a tenth of all new beneficiaries during the 2008–2012 period.
On the fiscal side, MMS estimated that recession-induced applicants cost SSA nearly $3 billion in administrative costs. Because relatively few SSDI beneficiaries ever return to work, and the average age of the recession-induced awardees was 53 years old, getting SSDI benefits for an average of 13 years, MMS estimated that the Great Recession added $58 billion to SSDI benefit obligations in present value, or $97 billion if Medicare benefits are included (DI beneficiaries are eligible for Medicare after 27 months on the rolls). These costs do not include additional SSI and Medicaid benefits.
Looking more closely at the characteristics of recession-induced SSDI awardees, MMS discover that allowances for hard-to-verify musculoskeletal and mental impairments particularly increased with unemployment. They also note that recession-induced awardees tended to be in their 50s and 60s (before normal retirement age), with much smaller, marginally significant increases for younger ages. As I have explained elsewhere, under current rules, many applicants at these middle-ages get the filing advantage that their work experience and skills are legally assumed not to transfer to other work in the economy, even if it is widely available and appropriate for their educational and physical and mental conditions. Also, as clued by their increased likelihood to concurrently apply for SSI, a poverty program, recession-induced SSDI awardees had low prior earnings.
I believe most would agree that SSDI should not be a long-term unemployment insurance program. Middle-aged low-wage workers with functional capacity who are temporarily unemployed should not be implicitly encouraged to permanently leave the labor force and enter poverty, applying for (and in many cases depending largely on) Social Security and Medicare benefits. Rather, their exclusive temporary support during recessions should come from unemployment insurance, employment training and other similar programs, and Medicaid.