Great news on the stability of the Social Security Trust Fund for Disability payments. Unsurprisingly, it is tied to the low unemployment rate. More people can find work, fewer are desperate enough to apply for disability benefits.
In 2015, the trustees warned the DI fund’s reserves might not be able to cover 100 percent of expected benefits in 2016; now they see them as sufficient to cover all obligations until 2052. This comeback is cause for celebration — and reflection.
The first lesson has to do with the reasons for improvement. In theory, DI does not grow or shrink according to the business cycle’s ups and downs. In practice, though, the long-term jobless tend to use it when their unemployment benefits run out in recessions, such as the one that hit in 2008-2009. The pessimistic 2015 forecasts reflected the then-recent upsurge in disability applications and awards because of that unusually severe downturn. They failed to anticipate subsequent events: an extended period of tight labor markets and low unemployment rates, which has brought many formerly disabled people back into the labor force. As the report says: “Disability applications have been declining since 2010, and the number of disabled-worker beneficiaries . . . has been falling since 2014.” Spending has been flat at roughly $140 billion per year for the past half-decade, while employed workers’ payroll contributions continue to rise, enabling reserves to accumulate. Meanwhile, modest and, for workers, generally painless administrative reforms — retraining of judges to make more accurate benefit-award decisions; accelerated work on a backlog of disability reviews — also helped contain program growth. And the existence of expanded health care for the working poor under Obamacare reduced an incentive to go on disability, which includes health insurance.
The second lesson, therefore, is that one of the many reasons to pursue sustained, and sustainable, economic growth is its positive effect on federal entitlement programs — even without major legislative changes. Yet the final lesson is that forecasts are inherently uncertain, apt to surprise on both the upside and the downside. Given the chance of an unhappy surprise, the wise response to DI’s reprieve is to make necessary structural changes just in case the wolf does come back to the door.