Trouble for Social Security's other fund

Unless Congress acts, the Social Security Disability Insurance fund will run dry in three years and cause benefit cuts for nearly 11 million Americans. Critics say the disability insurance dampens people's incentive to work. 

As a disabled man, Matthew Rini of Harwood Heights, Ill., struggles to survive on sporadic earnings as a tour guide in Chicago and about $400 a month from the Social Security Disability Insurance (SSDI) program. His live-in companion, Maria, helps with household expenses.

But even as Mr. Rini grapples with a deteriorating ability to work, he and millions of others face another potential woe: a looming insolvency of the SSDI trust fund, whose reserves are set to run dry in three years. Unless Congress acts, disability benefits would then be cut 20 percent.

For some SSDI recipients, the result could be grim, requiring cutbacks in food purchases or other daily necessities. But as the 2016 deadline draws near, remedies for fixing SSDI are stirring up debate, complicating the path toward a resolution and highlighting the polarized views among Americans about government-run social programs. Politically, it's a trial run for the debate over shoring up Social Security, whose combined funds are expected to be depleted in 2033.

The SSDI program helps people who cannot work because of a medical condition. Nearly 11 million Americans, including almost 8.8 million disabled workers, plus their children and spouses, receive benefits. Disabled workers get an average $1,129.51 per month. Some conservatives deem the SSDI program bloated and want to undo at least some of a 1984 reform that effectively expanded the kind of disabilities covered by the program. Advocates are pushing to fortify the SSDI's finances, but they're divided over how to make that happen.

Some SSDI advocates think Congress should tackle the big picture, making the overall Social Security program solvent for the long term. Many others see too little time to reach that goal by 2016 and urge a shorter-term fix: allocating a slightly larger portion of Social Security's payroll tax revenues to its disability fund and a slightly lowered portion to its Old Age and Survivors Insurance (OASI) retirement fund. That maneuver could keep both funds solvent until 2033.

That fix has been made before. The OASI and SSDI are the two Social Security programs with dedicated trust funds financed mainly by payroll taxes. (In contrast, Social Security's Supplemental Security Income program for low-income elderly, blind, or disabled people is funded out of general tax revenues.)

"Reallocation, which Congress has done 11 times in the past, is a short-term solution that gives Congress time to fix the Social Security system," says Lisa Ekman, federal policy director of Health & Disability Advocates, a nonprofit national group based in Chicago.

Not everyone agrees. "Just reallocating assets pushes the solvency problem down the road," says Charles Blahous, a public trustee of the Social Security Trust Funds. "If we can't get comprehensive reform by 2016, it suggests Congress won't be able to fix the current structure at any point."

If the SSDI trust fund dwindles to nothing – and Congress doesn't act – benefits would have to be paid out of current Social Security taxes, presumably causing a benefit cut. A similar situation awaits the combined trust funds if their surplus runs out in 2033. If lawmakers delay action on fixing Social Security, they'll face stark last-minute choices: cutting benefits or sharply boosting Social Security taxes. If Congress is unwilling to take one of those steps, they might change Social Security's current funding structure and subsidize benefits through the government's general fund. In that case, Social Security would have to compete for funding with other programs, making benefits more subject to change, says Mr. Blahous, who is also a senior research fellow at the Mercatus Center at George Mason University in Fairfax, Va.

Conservatives and other critics say many SSDI recipients have ill-defined problems, such as back pain or mental disorders, a direct result of 1984's loosened eligibility requirements. Moreover, the program caps the amount recipients can earn not including SSDI at $1,040 per month, which can discourage working and getting off the program. "With SSDI, there really isn't a lot of incentive to pursue work," says Pamela Villarreal, senior fellow at the National Center for Policy Analysis, a nonprofit policy research organization in Dallas.

Various ideas have sprung up to tighten or "retool" SSDI. Among them: a private disability insurance plan, proposed by Mark Duggan of the University of Pennsylvania's Wharton School and David Autor of the Massachusetts Institute of Technology. Their plan would require employers to buy private disability insurance and allow them to charge employees for as much as 40 percent of the cost of their coverage. Disabled workers could get as many as two years of benefits from the private plan, after which they could transition to SSDI. However, that idea would include incentives to encourage staffers with limited ability to work because of a disability or other issue to stay employed, if possible.

That and other plans have yet to evolve into congressional bills. For now, there's just the rising debate over SSDI's looming insolvency – and its possible spillover effect on the public. "Lack of bipartisan agreement over SSDI creates a lot of uncertainty and risk" for workers and disabled people, says Blahous. "Without action, SSDI's benefits will be cut 20 percent."