posted on 25 June 2016
from the Congressional Budget Office
In 2015, Social Security Disability Insurance (DI) benefit payments totaled $143 billion. CBO examines approaches that could improve the financial sustainability of the DI program and delay exhaustion of the DI trust fund past 2022.
The Social Security Disability Insurance (DI) program pays cash benefits to nonelderly adults who have worked in the past but are judged to be unable to continue performing substantial work because of a disability. The program also pays benefits to some of those adults' dependents. In 2015, the DI program paid a total of $143 billion, or about 0.8 percent of gross domestic product (GDP), in benefits to almost 9 million disabled beneficiaries and about 2 million of those beneficiaries' spouses and children. Disabled beneficiaries generally are entitled to Medicare after a two-year waiting period; the cost of those benefits in 2015 was around $85 billion, or about 0.5 percent of GDP, CBO estimates.
How Have Enrollment and Spending Changed Since 1970?
Between 1970 and 2014, the share of working-age people who receive DI benefits as a result of their own disability and whose DI benefits are calculated on the basis of their own disability and work history more than tripled, increasing from 1.3 percent to 4.5 percent, before declining slightly in 2015. The increase in DI beneficiaries since 1970 is attributable to changes in the characteristics of the working-age population, in federal policy, and in employment.
Between 1970 and 2015, average annual benefits in the DI program rose from $5,100 to $12,200 (in 2015 dollars). That growth resulted from changes in the formula used to compute benefits and increases in overall average earnings.
As a result of the increases in the number of DI beneficiaries and in spending per beneficiary, spending on DI benefits, excluding the effects of inflation, grew more than 10-fold between 1970 and 2015 and nearly tripled as a share of GDP.
What Are CBO's Projections for the Program Under Current Law?
Under current law, CBO projects, the number of DI beneficiaries would rise by 0.8 percent per year over the next decade; excluding the effects of inflation, the average benefit would rise by 0.9 percent per year and total spending on benefits would rise by 1.9 percent per year, on average. Benefits are paid from a trust fund financed primarily by receipts from payroll taxes; the trust fund's balance is the difference between cumulative income and cumulative spending.
The projected exhaustion date for the DI trust fund was recently delayed by enactment of the Bipartisan Budget Act of 2015. That legislation reallocated a share of payroll tax revenues from the trust fund for Old-Age and Survivors Insurance (OASI) to the DI trust fund for calendar years 2016 through 2018, leading to an increase in the projected income to the DI trust fund.
Even though CBO projects that the DI caseload will grow at a more modest rate over the coming decade than in the years before the most recent recession, under current law spending would exceed income after 2018, and the trust fund would be exhausted in 2022, according to CBO's projections (see figure below). If that balance fell to zero and current income was insufficient to cover the benefits specified in law, the Social Security Administration (SSA) would no longer be permitted to pay full benefits when they were due. After the exhaustion of the trust fund, annual outlays would be limited to annual income. As a result, DI spending would have to be reduced by about one-fifth under current law.
How Might Policymakers Delay or Avoid Exhaustion of the Program's Trust Fund?
To further delay - or avoid altogether - exhaustion of the program's trust fund, policymakers could implement changes to improve the financial sustainability of the DI program. For example, they could increase income for the DI trust fund by raising payroll taxes. Alternatively, they could strengthen incentives for people with disabilities to continue to work or for employers to retain workers with disabilities, thus reducing the number of workers who apply for benefits. They also could reduce the benefits paid to beneficiaries. However, changes made with the intent of lowering the DI program's spending might have other consequences for the federal budget by, for instance, increasing spending for other means-tested programs.
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