Social Security Disability

Lecture 16

Disability in SS Reform Debate

It is important to keep in mind that workers and retirees are not the only ones affected by reform debateAnother key aspect of Social Security program is disability insurance (DI)How will disabled workers be affected by reform? 30% of all workers between 20 & 65 become disabled!Disabled 2 yrs…Medicare Eligibility

Eligibility for DI today

Must have worked long enough – and recently enough – under Social Security

At age 62, you need 40 credits, 20 of which were earned in the 10 years preceding the onset of disabilityYounger workers qualify with fewer credits

Must meet the definition of disability

Eligibility Based on Work Credits

Before age 24: You must have 6 credits in the 3-year period before disabilityAge 24 – 31: You must have worked half the time between age 21 and onset of disability. Ex: If become disabled at 27, you would need 3 years / 12 quarters of creditAges 31 – 42: Need 20 quarters over 10 years42 – 62: # quarters increases gradually to 40 at age 62+

Definition of DisabilityInability to engage in “substantial gainful activity”

SGA =$980/month 2009; $1,640/month if blind

Only pays for total disabilityUnable to do the work you did before and SSA decides you cannot adjust to other work because of your medical conditionDisability must last, or be expected to last, at least one year or result in your death

How SSA Decides if you are Disabled1. Are you working and earning > $980 / month?

If yes, you are not disabled. If no, go to 2.

2. Is your condition severe? Must interfere with work related activities

3. Is your condition on list of disabling activities?If so, and if severe, then disabled. If not, go to 4

4. Can you do work you did previously?If yes, then denied. If no, then go to 5.

5. Can you do any other type of work?Consider medical conditions, age, education, work experience and skills. If yes, then denied

Continuing EligibilityCan receive benefits for as long as disabled

If health improves, may lose benefitsIf you go back to work, you may lose benefitsMax. Individual Benefit: $2323 or 85% of pre-disability salary; Family: 150% x individual Benefit

Periodic reviewsIf improvement is expected, you will be reviewed 6 – 18 months after benefits startIf improvement is possible, you will be reviewed no sooner than three yearsIf improvement is not expected, then you will be reviewed no sooner than seven years

Out of every 100 ApplicationsAbout 57% of claims eventually approved40 allowed upon initial claim / 60 deniedOf the 60, 25 will appeal for reconsidration, and 4 of these acceptedOf the 21 denied again, 19 appeal to a hearing, and 12 are approvedOf the 7 denied at hearing, 5 appeal to appeals council review, and 1 is approvedFewer than 1 case in 100 enter Federal court

Further Discussion of DI Balancing Act

Want to help those who are truly disabledBut do not want to inefficiently subsidize those who are able to work (moral hazard)

Disability determination is a time consuming and resource intensive processIf reform Social Security, how will DI beneficiaries be affected?

Reducing replacement rates may make more sense for retirement than for disabilityHow integrate a system of personal accounts with DI?