How the Disability Program Really Works

Mark Miller, Morningstar columnist and expert on aging and retirement writes:

Most people think of Social Security as a retirement benefit, and that’s understandable. Among the 61 million Americans receiving Social Security at the end of 2016, 68%–44.3 million people–were retired.

But Social Security’s broad aim is to protect against the risk of lost income from work. The income loss might be due to retirement, disability, or to a survivor after the death of a family breadwinner. Last year, 14% of Social Security beneficiaries (10.6 million people) were disabled workers; the remaining 18% were survivors, spouses, or children of workers entitled to benefits.

Social Security Disability Insurance is an especially critical component of the program. Added to Social Security’s core benefit structure during the Eisenhower era, it works hand-in-glove with retirement benefits. A young person starting a career today has a 1 in 3 chance of dying or becoming disabled before reaching Social Security’s full retirement age, according to Social Security Administration data. Workers and employers alike contribute to the disability insurance fund through their payroll tax contributions. (Currently, 2.37% of the total 12.4% payroll tax goes into the disability fund, split evenly between workers and employers.)Disability benefits can serve as a sort of early retirement benefit for those who no longer can work. This year, 70% of disability beneficiaries are older than 50, and 35% are older than 60, according to the Social Security actuaries.

But that doesn’t mean SSDI is easy to get. You’ll see sensational headlines from time to time alleging massive fraud against the program by “freeloaders”–and certainly, some of that occurs. And, the number of people receiving SSDI has risen sharply in recent decades, but not mainly due to fraud. Instead, the causes were population growth, aging of the baby boomer generation, growth in labor force participation by women (thereby qualifying them to receive SSDI), and a higher full retirement age.

Some researchers have concluded that the business cycle affects application trends. For instance, applications jumped in the wake of the Great Recession of 2008-2010–but approval rates actually fell.

The reality is that SSDI is tough to get. In order to qualify, you must have worked at least 25% of your adult life (and five of the past 10 years); suffer from a severe physical or mental impairment that is expected to last 12 months or result in death; and be unable to perform “substantial gainful activity.”

Only about 4 in 10 of all applications are approved after all levels of appeals have been exhausted–a number that has been falling in recent years. What’s more, the program suffers from an appalling backlog in applications and appeals–the result of cuts to the Social Security Administration’s budget by Congress in recent years. People filing initial applications wait an average of 240 days to find out if they qualify to receive benefits. And, in August this year, people who received determinations on appeal had been waiting an average of 627 days.