Bryan Caplan  

Fun Facts on Disability Insurance

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The new Cato Policy Analysis on Social Security Disability Insurance is full of fun facts. (footnotes omitted)

The U.S. disability rate fell 25% between 1977 and 1987, then more than doubled.  The staunchest health care skeptics should be baffled.  Unless, of course, the availability of free money makes people sick to their stomachs...

disable.jpg

Getting on disability is pretty easy if you game the system:
Applicants who are denied benefits can appeal. Indeed, the appeals process has four levels, and at each level the individual receives another chance to convince a government official or judge to grant benefits. Thus, individuals with questionable claims of disability have up to five tries at receiving benefits and they just have to succeed once.

The process can be very cumbersome and costly. A rejected applicant can first ask the SSA for a "reconsideration" of his or her claim from a different group of SSA officials. If rejected again, the applicant can request a hearing before an ALJ. These hearings do not include a government representative to question the claim on behalf of taxpayers. Meanwhile, the SSDI applicant in the great majority of cases uses the services of lawyers working on a contingency fee basis. It is a process slanted in favor of program expansion and higher spending.

If the ALJ denies the claim, the quest for federal benefits is still not over. The SSDI applicant can request a review from the Social Security Appeals Council. If the council either denies the claim or decides against reviewing it, the applicant can then file a lawsuit in a federal district court. In 2011 over 14,000 new civil actions were filed.68 In 2010 there were 2.9 million total applications for SSDI benefits. Only 35 percent were awarded benefits. However, that figure includes applicants who were denied for technical reasons or where a final decision was still pending. The overall allowance rate based on medical decisions was 55 percent. For medical decisions made at the hearings level or higher, the allowance rate was 76 percent.
Officials have enormous discretion.  Most succumb to the natural human temptation to show pity at the taxpayers' expense:
One result of judges trying to expeditiously complete case loads is high approval rates of about 60 percent on average. In 2011, 130 ALJs awarded benefits in 85 percent or more of the cases heard. A judge in West Virginia awarded benefits in all but four of the 1,284 cases he tried in 2010.100 Overall, the Wall Street Journal found that in 2011, 1,334 judges made more awards than denials, while only 439 judges had the ratio the other way around.
An anecdote that redeems anecdotal evidence:
A single judge in Pennsylvania, for example, overruled the SSA on 2,285 benefit applications in a four-year period--applications that the SSA had declined. That single judge's actions have cost taxpayers more than $2 billion.
For practical purposes, the officially disabled can collect for life:
The SSA conducts periodic reviews to determine if a beneficiary is still disabled. The frequency of the reviews depends on how long an individual's condition is expected to last. In 2011, only 3.6 percent of workers on SSDI had their benefits terminated because of medical improvement. Almost 90 percent of people had their benefits stopped because they either died or reached retirement age. The data thus indicate that once workers get on the disability rolls, they rarely leave and go back to work.
The main thing I learned, though, was that both Carter and Reagan managed to get the disability problem under control despite populist pressures.  If you assume the decline was simply cyclical, note the straight-line rise since 1987.  Democracy makes drastic rollback unlikely, but marginal reform has happened before - and can happen again.


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COMMENTS (17 to date)
Mike W writes:

...but marginal reform has happened before - and can happen again.

You're dreaming...disability payments are not really about "disability". Read "Average Is Over".

Mark Brophy writes:

There are many more disabled people today than 30 years ago. As many people have gained weight, their bodies have cracked from the strain. Wheelchairs have probably been a growth industry and will continue as long as the government subsidizes unhealthy food such as wheat, corn, and dairy.

Pablo writes:

Does anybody know how many of the newly disabled are former veterans from our most recent wars?

Mark writes:

Let's not forget that when a case is heard before a judge, the Social Security Administration has no representation. The judge simply reads the case and then hears the plaintiff's side (by his or her lawyer trained in handling such cases). The judge then makes his or her decision based only on that testimony.

liberty writes:

There is another possible interpretation of the data on initial rejection and subsequent approval.

It may be that in order to save themselves work, but possibly cost the taxpayer more in administrative costs, the system is set up to base initial decisions on whether the individual has a clear-cut and easily provable disability -- for example a chronic disease that has kept them bed-ridden -- producing a high rate of false negatives. Many are rejected who are actually disabled and eligible for benefits. The next step offers them a more flexible process to prove their disability, so naturally many more are accepted in these later stages -- along with some who are indeed "gaming the system" of course.

8 writes:

Pablo,

There are many disabled veterans, but their payments come from the defense budget. I would guess the standards are stricter because the application process is controlled by the military.

Maurice de Sully writes:

I have heard it argued that subsequent to welfare reform in the mid-90s, disability was used to "cover" for people who had been on welfare but were then denied such after the reform.

That theory, and the period of the reform's implementation (96-97,) would seem to explain why- as opposed to the expansionary periods in the 80s- the expansionary period in the 90s (and in the aughts) did not lead to a decrease in the number of disabled persons.

However, that's only a theory I have heard. I have not been able to dig into it in any depth.

Glen S. McGhee writes:

Maurice is right. Bryan missed what was happening in the political context -- state workers were actively encouraging clients to apply for disability. There is a book about this. So much for Bill Clinton's miraculous cure for welfare. It was only a shell-game.

James B. writes:

Wheelchairs have probably been a growth industry and will continue as long as the government subsidizes unhealthy food such as wheat, corn, and dairy.

Wheat and corn I understand, but I was under the impression that the price of milk is propped up. My state has a mandated minimum price below which it is illegal to sell milk.

For a terrific EconTalk podcast on the subject, check out David Autor on Disability.

Chris H writes:

@Mark Brophy

The problem with that theory is that the rise in the obesity rate predates the rise in disability claims by over a decade. Indeed, in the face of rising obesity rates, disabilities claim awards dropped for a decade by Bryan's chart. This suggests government policy directly encouraging or opposing people going on disability is a more powerful factor than obesity. Though easy disability access may be an effective subsidy for behaviors increasing obesity.

Kevin Smith writes:

Reform could be sold like this ... we have limited money and we want to make sure disability covers those most in need. So what we are going to do is three things:

1) Fix the amount of disability money spent per capita.
2) Have all disability members ranked into three categories A. Severe and/or life expectancy less than 3 years (cancer pts getting chemotherapy, severe heart failure). This includes the very ill from active disease or the seriously disabled which require support for activities of daily living/bed or home bound. B. Moderate disability requiring some professional support but can perform some of their own activities of daily living. C. Everyone else.
3) Payments will go to group A, then B, then C until money runs out each year.

Then, continually emphasize 2 things: This is an important social trust to take care of the disabled and we want to protect those most vulnerable and protect the system by having it financially secure in these troubled times. Fix the payment to 2003 per capita and go forward accordingly.

The system growth will be legislatively
confined in expenditures and once group C people stop getting payments the incentive will die. Sure, wish wish. Entitlements are all legally created incorrectly. Ought to be ranked. I would see social security reform the same way - in order to preserve it we need to fix money and disbursements will depend on assets and wealth - backdoor means testing. Fix the amount of the pie spent instead of the benefit.

D writes:

I speak from personal experience. The offices that are adjudicating SSI/SSDI cases have a VERY, VERY strong cultural bias, assuming everyone who applies is hurting and needs our help. And we are to take them at their word unless they have blatantly contradicted themselves. Therefore, always give them the benefit of doubt and "allow" them (i.e.,determine they're disabled) if you can possibly get away with it.

And get this: an office's "quality rating" is not determined by how many decisions were found to have been adjudicated improperly. It is determined by how many cases were done improperly AND were not decided in favor of the claimant. If they were improper and decided in favor of the claimant, no problem. Doesn't count against the office.

How's that for some perverse incentives?

MingoV writes:

I'm a pathologist with severe bipolar disorder, and I had to quit my job (that I liked a lot) in 2007. I didn't apply for disability, because I hoped for successful treatment. My hope was unrealized, and I applied for disability in 2012. My claim was rejected. A Social Security disability case worker told me that claims were skyrocketing (mostly from people who were no longer eligible for unemployment benefits). Among new applicants, the most commonly claimed disability was either bipolar disorder or severe depression--they bumped chronic back pain from the #1 spot. The absurdly high number of bipolar disorder claims was why my case had to be appealed.

It is much harder to fake severe bipolar disorder than back pain, so there must be thousands of clinical psychologists and psychiatrists who are misdiagnosing bipolar disorder or misstating its severity. This reminds me of the continuing problem of deliberately incorrect medical assessments for worker's compensation claims.

Margaret C. McVey writes:

[Comment removed pending confirmation of email address. Email the webmaster@econlib.org to request restoring this comment. A valid email address is required to post comments on EconLog and EconTalk.--Econlib Ed.]

Hazel Meade writes:

There is a loophole in the disability system.
If you get on disability before retiring then you can collect SS benefits early, without reducing your full retirement benefit at 70.
This incentivizes people in their 50s and early 60s to get on disability, which is easy to do because many people in their 50s and 60s have developed health problems that can theoretically qualify as disabilities.

Tori H writes:

This is argument that I will not deny. It is no secret that some Americans collecting disability benefits are abusing the system. However considering that the amount of abusers outweighs the number of Americans that actually need it; is unimaginable to me. On average, according to the novel "The Myth of Meritocracy"; around ten percent of people abuse their disability benefits. Furthermore, disability benefits are not as simply achieved as explained. It is an ongoing process of continuos investigations and questioning and can be revoked from you at anytime; with your only notification by mail.

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