Social Security Disability Insurance: Participation Trends and Their Fiscal Implications

July 22, 2010

This morning CBO released a brief about the Social Security Disability Insurance (DI) program. The DI program pays cash benefits to nonelderly adults (those younger than age 66) who are judged to be unable to perform “substantial” work because of a disability but who have worked in the past; the program also pays benefits to some of those adults’ dependents.

Between 1970 and 2009, the number of people receiving DI benefits more than tripled, from 2.7 million to 9.7 million. At the same time, the average inflation-adjusted cost per person receiving DI benefits rose from about $6,900 to about $12,800 (in 2010 dollars). As a result, inflation-adjusted expenditures for the DI program, including administrative costs, increased nearly sevenfold between 1970 and 2009, climbing from $18 billion to $124 billion (in 2010 dollars). Most DI beneficiaries, after a two-year waiting period, are also eligible for Medicare; the cost of those benefits in fiscal year 2009 totaled about $70 billion.

The jump in participation, which significantly outpaced the increase in the working-age population during that period, is attributable to several changes—in characteristics of that population, in eligibility criteria, and in opportunities for employment. For example, the aging of the workforce and an increase in the number of women working have boosted the number of people receiving DI benefits. Older workers are more likely to suffer from debilitating conditions and are more likely to qualify for DI—and between 1970 and 2009, the share of working-age women who had worked enough to qualify to apply for disability insurance rose from 41 percent to 72 percent.

Developments in federal policy have also contributed to the growing number of DI beneficiaries. Legislation enacted in 1984 eased the medical eligibility requirements, and limited funding has caused backlogs in reviewing cases to determine whether beneficiaries are still eligible for DI benefits. Participation also grows when economic conditions are weak and employment opportunities are scarce, as occurred during and immediately following the recessions in the early 1990s, in 2001, and over the past few years.

Under current law, the DI program is not financially sustainable. The program’s expenditures are drawn from the Disability Insurance Trust Fund, which is financed primarily through a payroll tax of 1.8 percent; the fund had a balance of $204 billion at the end of 2009. CBO projects that by 2015, the number of people receiving DI benefits will increase to 11.4 million and total expenditures will climb to $147 billion (in 2010 dollars). However, tax receipts credited to the DI trust fund will be about 20 percent less than those expenditures, and three years later, in 2018, the trust fund will be exhausted, according to CBO’s estimates. Without legislative action to reduce the DI program’s outlays, increase its dedicated federal revenues, or transfer other federal funds to it, the Social Security Administration will not have the legal authority to pay full DI benefits beyond 2018.

A number of changes could be implemented to address the trust fund’s projected exhaustion. Some would increase revenues dedicated to the program; others would reduce outlays. One approach to reducing expenditures on DI benefits would be to establish policies that would make work a more viable option for people with disabilities. However, little evidence is available on the effectiveness of such policies, and their costs might more than offset any savings from reductions in DI benefits.

This brief was prepared by Molly Dahl and Noah Meyerson of CBO’s Health and Human Resources Division.