Are Disability Rates Increasing?

(This is the first of six blog posts on disability insurance.) The Social Security Disability Insurance (SSDI) program is set to be the next big battle in Republicans’ long campaign to dismantle Social Security. Congressional Republicans are trying to block a routine reallocation of funds to the SSDI Trust Fund, insisting that they will only allow reallocation if “reforms” to SSDI are implemented. The intellectual underpinning for their demands is that there is an unfolding fiscal crisis caused by workers who are able to earn a living but are instead choosing to claim disability benefits. A chief proponent of this view, Stanford economist Mark Duggan, testified before the Senate Budget Committee earlier this year, claiming that disability benefits are increasingly attractive to lower-wage workers, who respond by leaving the labor force. According to Duggan, a key piece of evidence supporting this claim is an increase in the share of beneficiaries suffering from musculoskeletal disorders and other “subjective” health conditions who have a “substantial” employment potential. Claims like these have become a mainstay of attacks on the disability program. However, a closer look at the evidence shows that SSDI benefits have become, if anything, less generous. Moreover, even research cited by critics shows SSDI receipt has a negligible impact on work effort because few applicants, including marginal applicants who were denied benefits, are able to earn a living afterward. Meanwhile, there are good explanations for the increase in the share of beneficiaries suffering from musculoskeletal disorders, including an aging population, rising obesity rates, and fewer workers able to retire early when their health deteriorates. These topics will be discussed in later blog posts. This post will focus on whether disability incidence has increased in the first place. The evidence shows that while “raw” or unadjusted incidence–the number of new awards per thousand insured persons–increased as the large baby boomer cohort aged into the peak disability years before retirement, age-adjusted incidence hasn’t trended upward over the past 20 years, though it increased during periods of high unemployment. However, incidence has fallen in the wake of the Great Recession and as older baby boomers become eligible for Social Security retirement benefits, including disabled boomers who automatically transition to retirement benefits as they reach the normal retirement age. It’s natural to assume that where there’s smoke there must be fire. But when it comes to Republicans claiming that “financial incentives” are fueling a rise in disability, we should look for smoke and mirrors. As researchers at the Center on Budget and Policy Priorities have laid out in detail, Duggan and other critics have made much of a growth in enrollment that is mostly due to demographic and other identifiable factors that have nothing to do with people gaming the system. These include population growth, an increase in women’s labor force participation, an increase in Social Security’s normal retirement age from 65 to 66, the aging of the large Baby Boomer generation, and an increase in life expectancy at older ages. Only the last two–which resulted in an older insured population and longer benefit receipt–pose a challenge, while other trends have benign or even beneficial implications for Social Security’s finances. The increase in women’s labor force participation, for example, increased the share of beneficiaries who paid into the system as opposed to being eligible based on spousal contributions. Is Social Security on an unsustainable course? The Social Security actuaries project that costs will decline and then level off below 0.8 percent of GDP as the Baby Boomers age out. Underlying this projection is an assumption that age-adjusted incidence isn’t increasing, an assumption Duggan challenged when he served on the 2011 technical panel of the Social Security Advisory Board (SSAB). Recently, however, Harvard economist Jeffrey Liebman presented evidence to the current SSAB technical panel showing that there had been no upward trend in age-adjusted incidence over the past 20 years after demographic and cyclical effects are taken into account. Rather, Liebman found a modest decrease in men’s incidence and a modest “catch-up” increase in women’s incidence that offset each other. A later version published in the Journal of Economic Perspectives (and edited by Duggan, according to an April 21 Politico Pro article available only to subscribers) termed men’s adjusted incidence “steady” rather than declining based on an analysis of data through 2007, though Liebman’s charts show a decline in age- and unemployment-adjusted incidence between 2007 and 2010. Extending the analysis to 2013 (see Figures 1 and 2) confirms that men’s adjusted incidence has trended downward even as unadjusted incidence increased in the Great Recession and weak recovery. Figure 1 Age-adjusted disability incidence, men, 1985-2013 Observation Predicted age-adjusted value* Actual age-adjusted value Time trend 1985/01/01 5.5 5.8 5.0 1986/01/01 5.6 5.6 1987/01/01 5.6 5.5 1988/01/01 5.6 5.4 1989/01/01 5.7 5.4 1990/01/01 6.0 5.8 1991/01/01 6.6 6.2 1992/01/01 7.2 7.5 1993/01/01 7.0 7.3 6.7 1994/01/01 6.7 7.0 1995/01/01 6.4 6.8 1996/01/01 6.3 6.2 1997/01/01 6.1 5.5 1998/01/01 5.9 5.6 1999/01/01 5.7 5.6 2000/01/01 5.6 5.3 2001/01/01 5.8 5.7 2002/01/01 6.1 6.2 2003/01/01 6.2 6.3 2004/01/01 6.0 6.2 2005/01/01 5.8 6.3 2006/01/01 5.6 5.8 2007/01/01 5.5 5.8 2008/01/01 5.9 6.2 2009/01/01 7.0 6.9 2010/01/01 7.3 7.3 2011/01/01 7.1 7.0 2012/01/01 6.7 6.6 2013/01/01 6.4 5.9 5.9 Chart Data Download data The data below can be saved or copied directly into Excel. The data underlying the figure. *Based on unemployment and time trend