Monday, April 29, 2019

Did Disability Insurance Just Fix Itself?

Back in 2015, the trust fund for the Social Security Disability Insurance Trust Fund was in deep trouble, scheduled to run out of money by 2016. A short-term legislative fix bought a few years more solvency for the trust fund, by moving some of the payroll tax for other Social Security benefits over to the disability trust fund, but the situation continued to look dire. For some of my previous takes on the situation, see this from 2016, this from 2013, or this from 2011. Or see this three-paper symposium on disability insurance from the Spring 2015 Journal of Economic Perspectives, with a discussion of what what going wrong in the US system and discussions of reforms from the Netherlands and the UK.

Well, the report of the 2019 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and the Federal Disability Insurance Trust Funds was recently published. And it now projects that the Disability Insurance trust fund won't run out for 33 years. In that sense, Disability Insurance looks to be in better shape than Medicare or the retirement portion of Social Security. What just happened?

This figure from the trustees shows the "prevalence rate" of disability--the rate of those receiving disability per 1,000 workers. The dashed line shows the actual prevalence of disability. The solid line shows the change after adjusting for age and sex. You can see the sharp rise in disability prevalence over several decades leading up to about 2014, which was leading to the concerns about the solvency of the system mentioned above. And then you see a drop in the prevalence of disability--both in the gross and the age-sex-adjusted lines.

As Henry Aaron writes: "What happened next has stunned actuaries, economists, and analysts of all stripes. The number of people applying for disability benefits dropped…and kept on dropping. Some decline was expected as the economy recovered from the Great Recession and demand for workers increased. But the actual fall in applications has dwarfed expectations. In addition, the share of applicants approved for benefits has also fallen. ... And if the drop in applications persists, current revenues may be adequate to cover currently scheduled benefits indefinitely."

Of course, the disability rate can fall for a number of reasons, some more welcome than others. To the extent that employment growth and a low unemployment rate has offered people a chance to find jobs in the paid workforce, rather than applying for disability, this seems clearly a good thing. But if this shift resulted from tightening the legal requirements on disability, then we might want to look more closely at whether this tightening made sense. The trust fund actuaries don't make judgments on this issue, but here are some bits of evidence.

The Center for Budget and Policy Priorities publishes a "Chart Book: Social Security Disability Insurance," with the most recent version coming out last August. The first figure shows that applications for disability have been falling in recent years. The second figure shows that the number of applications being accepted have also fallen since about 2010 at all three possible stages of the process: initial

It's not easy to make a judgement on these patterns. A common concern among researchers studying this issues is that the standards for granting disability, and the resulting number of disabled workers, seem to vary a lot across different locations and decision-makers. For example, the CPBB report offers this figure showing differences across states:

A report from the Congressional Research Service, "Trends in Social Security Disability InsuranceEnrollment" (November 30, 2018), describes some potential causes of the lower disability rates.

Since 2010, new awards to disabled workers have decreased every year, dropping from 1 million to 762,100 in 2017. Although there has been no definitive cause identified, four factors may explain some of the decline in disability awards.
  1. Availability of jobs. The unemployment rate was as high as 9.6% in 2010 and then gradually decreased every year to about 4.35% in 2017. ...
  2. Aging of lower-birth-rate cohorts. The lower-birth-rate cohorts (people born after 1964) started to enter peak disability-claiming years (usually considered ages 50 to FRA [federal retirement age]) in 2015, replacing the larger baby boom population. This transition would likely reduce the size of insured population who are ages 50 and above, as well as the number of disability applications. ...
  3. Availability of Affordable Care Act (ACA). ... Yhe availability of health insurance under the ACA may lower the incentive to use SSDI as a means of access to Medicare, thus reducing the number of disability applications. ...
  4. Decline in the allowance rate. The total allowance rate at all adjudicative levels declined from 62% in 2001 to 48% in 2016. While this decline may in part reflect the impact of the Great Recession (since SSDI allowance rates typically fall during an economic downturn), the Social Security Advisory Board Technical Panel suspects that the declining initial allowance rate may be a result of the change in the SSDI adjudication process.
The Social Security actuaries are projecting that the share of Americans getting disability insurance isn't going to change much over time. But given the experience of the last few years, one's confidence in that projection is bound to be shaky.