Senate Finance Committee Hearing
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Thank you, Chairman Wyden, Ranking Member Hatch and Members of the Committee for the invitation to appear before you today. My name is
The subject of today's discussion is of the utmost importance to all of us as Americans, because any of us could find ourselves in the position of needing to turn to
Imagine that tomorrow, while cleaning out your gutters, you fall off a ladder. You suffer a traumatic brain injury and spinal cord damage, leaving you paralyzed, unable to speak, and with significantly impaired short- and long-term memory. Unable to work for the foreseeable future, you have no idea how you are going to support your family. Now imagine your relief when you realize an insurance policy you have been paying into all your working life will help keep you and your family afloat by replacing a portion of your lost wages. It is our
I'm sure we can all agree that no one wants to see this important program weakened, or its basic but crucial benefits cut. The American people time and again have made clear their strong support for
I will make three main points today:
*
* Eligibility criteria are stringent and only workers with the most serious disabilities and illnesses qualify for benefits. According to the
* It's no surprise that action is needed to address the program's finances, and a traditional, routine step would put the entire
Today, nearly all Americans--91 percent of workers ages 21 to 64--are protected by
Both workers and employers pay for
Benefits are modest but vital to economic security
The amount a qualifying worker receives in benefits is based on his or her prior earnings. Benefits are modest, typically replacing half or less of a worker's earnings. The average benefit in 2013 was just over
For more than 80 percent of beneficiaries,
But without
Workers who receive
And there is good reason to offer disability insurance through a public program such as
Workers in industries such as retail, hospitality, and construction are among the least likely to have employer-provided long-term disability coverage, and coverage is highly concentrated among white-collar professions. nxiv Access is even more limited on the individual market.
While it is difficult to compare
"Coverage by private [disability insurance] carriers is certain to be restricted, because disability insurance confronts all the major impediments to widespread, affordable, and actuarially sound private insurance provision: adverse selection, moral hazard, and covariance of risks.... Many insurers write group policies, but they differentiate strongly between groups with high and low risks. Some groups are treated as essentially uninsurable. Where risks are high, prices are high as well. The result is that private disability insurance tends to be available only to those groups who need it least; others are priced out of the market"
Michael Graeti ana jerry Vdshaw. noied social insurance cxpe'ts anil coauthors of True Security*
Eligibility criteria are stringent and only workers with the most serious disabilities and illnesses qualify for benefits
Disabled workers face a steep uphill battle to prove that they are eligible for
The OECD describes the U.S. disability benefit system, along with those of
In practice, proving medical eligibility for
Most claims for
Beneficiaries have a wide range of significant disabilities and debilitating illnesses and many have multiple impairments
Disabled workers who receive
* 31.8 percent have a "primary diagnosis" of a mental impairment, including 4.2 percent with intellectual disabilities and 27.6 percent with other types of mental disorders such as schizophrenia, post-traumatic stress disorder, or severe depression.
* 29.8 percent have a musculoskeletal or connective tissue disorder.
* 8.7 percent have a cardiovascular condition such as chronic heart failure.
* 9.3 percent have a disorder of the nervous system, such as cerebral palsy or multiple sclerosis, or a sensory impairment such as deafness or blindness.
* 20.4 percent include workers living with cancers; infectious diseases; injuries; genitourinary impairments such as end stage renal disease; congenital disorders; metabolic and endocrine diseases such as diabetes; diseases of the respiratory system; and diseases of other body systems nxxiv
A fact not well captured by
The breakdown of impairment categories among
Most beneficiaries are older and had physically demanding jobs
Most beneficiaries of
Few are able to work at all
For beneficiaries whose conditions improve,
Yet, unsurprisingly given how strict the
If a significant share of beneficiaries were able to work, one would expect a sizeable percentage to take advantage of the previously described work incentives in order to maximize their earnings without losing benefits. But beneficiaries' work patterns indicate otherwise. Fewer than one-half of one percent of beneficiaries maintain a level of earnings just below the substantial gainful activity level. nxli Further underscoring the strictness of the
How does
The
By international standards,
The share of the U.S. working-age population receiving
In drawing international comparisons, it is well worth noting that in addition to more generous disability benefit systems with less rigorous eligibility standards, European nations tend to have universal paid leave policies, more generous health care systems, higher levels of social spending generally, and more regulated labor markets than
Growth in the program was expected and is mostly the result of demographic and labor market shifts
As long projected by
Due to the importance of these demographic factors,
Key drivers of the program's growth include:
* Aging population: The risk of disability increases sharply with age. A worker is twice as likely to be disabled at age 50 as at 40, and again twice as likely at age 60 as at 50. nlii Born between 1946 and 1964, Baby Boomers have now aged into their high-disability years, driving much of the growth in
* Increase in women's labor-force participation: Whereas previous generations of women had not worked enough to be insured in case of disability, women today have essentially caught up with men when it comes to being insured for benefits based on their work history. liii
* Population growth: The working-age population--ages 20 to 64--has grown significantly, by 43 percent between 1980 and 2013. nliv VThe Center on Budget and Policy Priorities estimates that population growth alone--even if the population were not aging--would have resulted in an additional 1.25 million beneficiaries in 2013 compared with 1980. nlv
* Women's catch-up in rates of receipt: Just as women have caught up with men in terms of having worked enough to be insured for
* Increase in
The Great Recession in context
It is important to note that while applications increased during the Great Recession, the award rate--the share of applications approved for benefits--declined, nlx indicating that applicants who did not meet the rigid disability standard were screened out. A study by
Moreover, a recent
No surprise that action is needed to address finances, and routine action would put the entire
It comes as no surprise--and presents no crisis--that action is needed to address
Furthermore, the present situation is nothing new. While the OASI fund and the
Since
1983
The last round of major changes to
The impact of these changes on the
In 1994, spurred by the worsening state of the
Traditional, routine step would put entire
As noted above, reallocation of payroll tax rates has been a traditional, noncontroversial action, occurring repeatedly, as needed, over the course of the six decades since
Calendar years Employees and employers each Self-employed
OASDI OASI Dl OASDI OASI Dl
2013 6.2 5.3 0.9 12.4 10.6 1.8
2014-15 6.2 4.8 1.4 12.4 9.6 2.8
2016 6.2 5.0 1.2 12.4 10.0 2.4
2017-19 6.2 5.1 1.1 12.4 10.2 2.2
2020-25 6.2 5.2 1.0 12.4 10.4 2.0
2026+ 6.2 5.3 0.9 12.4 10.6 1.8
While the combined trust funds are set to remain on sound footing for the next two decades, action will be needed sometime during that time period to ensure the long-term solvency of the overall
Looking past 2016, there are a number of options for ensuring the long-term solvency of the overall
Adequate administrative funding is needed to ensure program integrity
The
In recent years, the agency was significantly underfunded. It received more than
Adequate administrative funding is essential for SSA to make timely and accurate benefit payments nlxxxii and perform vital program integrity work. Continuing disability reviews are estimated to save some
Conclusion
In closing, I would like to underscore the importance of policymakers taking the traditional, routine step of rebalancing the
ni
nii In 1948, the
niii
niv Ibid.
nv Ibid. For veterans figure, see Bailey and Hemmeter, "Characteristics of Noninstitutionalized DI and SSI Program Participants, 2010 Update."
nvi The payroll tax cap is adjusted annually. It is
nvii
nviii
nix Bailey and Hemmeter, "Characteristics of Noninstitutionalized DI and SSI Program Participants, 2010 Update."
nx Authors' calculation based on Ibid.
nxi There are exceptions to the two-year waiting period for individuals with amyotrophic lateral sclerosis, or ALS, and end-stage renal disease. Beneficiaries with very low incomes and assets may qualify for
nxii
nxiii Ibid.
nxiv Ibid.
nxv This is the statutory definition of disability set forth in the Social Security Act, 42 U.S.C. 416 Substantial gainful activity is set at a different level for individuals who are blind. For 2014, this amount is
nxvi Code of Federal Regulations, title 20, sec. 416 (960)
nxvii
nxviii
nxix
nxx Estimates range as to how many claimants die while awaiting benefits. A 2008
nxxi
nxxii
nxxiii Table 6 of the
nxxiv Ibid.
nxxv
nxxvi
nxxvii
nxxviii See, for example,
nxxix
nxxx Ibid.
nxxxi Ruffing, "Social Security Disability Insurance Benefits are Vital to Workers with Severe Impairments."
nxxxii
nxxxiii Bailey and Hemmeter, "Characteristics of Noninstitutionalized DI and SSI Program Participants, 2010 Update."
nxxxiv Ibid.
nxxxv
nxxxvi
nxxxvii Expedited reinstatement involves a medical review to ensure that the individual meets the
nxxxviii This study counted beneficiaries as having worked if they did one hour of work or more at any point during the year.
nxxxix Ibid.
nxl Ibid.
nxli Maintaining a level of earnings just below SGA, such that a beneficiary receives both a full DI benefit and the maximum allowable amount of earnings without triggering suspension of benefits, is sometimes referred to as "parking." There is no evidence that even the less than one-half of one percent of beneficiaries who maintain earnings at this level are doing so intentionally.
nxlii
nxliii
nxliv
nxlv
nxlvi Ibid. Comparing Social Security Disability Insurance with other OECD member countries' equivalent programs, which OECD data refer to as "disability pensions."
nxlvii As discussed elsewhere in this brief,
nxlviii See, e.g.,
nxlix
nl
nli
nlii Ruffing, "Social Security Disability Insurance Benefits are Vital to Workers with Severe Impairments."
nliii
nliv
nlv Kathy Ruffing "How Much of the Growth in Disability Insurance Stems From Demographic Changes?" (Washington: Center on Budget and Policy Priorities, 2014), available at http://www.cbpp.org/files/1-27-14ss.pdf.
nlvi Ibid.
nlvii
nlviii
nlix Ibid.
nlx
nlxi
nlxii
nlxiii The
nlxiv
nlxv
nlxvi
nlxvii A common example of movement between programs is that
nlxviii
nlxix
nlxx Ibid.
nlxxi Ibid.
nlxxii Ibid.
nlxxiii Reno, Walker, and Bethell, "
nlxxiv
nlxxv U.S. Secretary of the Treasury
nlxxvi Most recently, a Pew survey released in
nlxxvii The most popular reform package, preferred to the status quo by seven in 10 individuals polled--across generations, income levels, and political affiliations-would: 1) Gradually, over 10 years, eliminate the cap on earnings taxed for
nlxxviii Examples include: the Strengthening Social Security Act of 2013, S. 567 and H.R. 3118, introduced by Sen.
nlxxix See Testimony of
nlxxx Ibid.
nlxxxi Ibid.
nlxxxii Adequate administrative funding is also needed for SSA to process beneficiaries' earnings reports and adjust benefits timely for beneficiaries who work. The agency reports that the average processing time for earnings reports is 270 days, which results in needless improper payments, and can be tremendously disruptive to beneficiaries who are all of a sudden--through no fault of their own -- hit with an overpayment that they are required to repay.
nlxxxiii Ibid.
nlxxxiv Testimony of
Read this original document at: http://www.finance.senate.gov/imo/media/doc/Vallas%20SSDI%20testimony%207%2024%202014.pdf
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