Disability Payments in Jeopardy as Trust Fund Set to Run Dry Next Year

It’s not easy to live on $944 per month, especially if you are disabled.

But $944—less than the federal poverty level—is what the average disabled worker’s benefit will fall to if Congress does nothing before the Disability Insurance (DI) Trust Fund runs dry at the end of 2016.

According to the Social Security Trustees 2015 annual report, released today, the Disability Insurance Trust Fund will run out of money next year.

Over the next 10 years, it faces a $256-billion shortfall—a gap that would require a roughly 17-percent increase in the Disability Insurance tax rate or a 19-percent cut in benefits to fill.

Although Social Security’s retirement, or Old Age and Survivors, Trust Fund is not projected to run dry until 2035, its long-run financial shortfalls are even larger—both in absolute dollars and as a percentage of program costs—than those of the Disability Insurance programs.

Closing Social Security’s retirement shortfall would require a roughly 23-percent tax increase or 20- to 25-percent cut in benefits.

With a combined unfunded liability of $13.5 trillion, both Social Security’s retirement and Disability Insurance programs are broken.

Robbing one broken program to prolong another—through a payroll tax reallocation—would prevent necessary reforms and increase the unfunded obligations of Social Security’s retirement program, pushing it to an earlier insolvency date.

Despite the lack of Social Security retirement or Disability Insurance reforms to date, making these programs solvent over the long run does not require rocket science.

On the retirement side, policymakers should use the chained Consumer Price Index for inflation adjustments, index the early and normal retirement ages to life expectancy and shift to a flat benefit that targets those individuals who need the benefit the most.

For the Disability Insurance program, policymakers should consider a whole host of reforms, including a flat benefit above the poverty level and indexed to the chained Consumer Price Index, a partial private Disability Insurance option, time limits based on condition, adjudication process reforms, eliminating the outdated medical-vocational grid and reducing incentives to use the disability program as an early retirement program.

With the Disability Insurance Trust Fund’s exhaustion looming near, legislative action is necessary to prevent a 20-percent across-the-board cut in benefits.

Rather than kick the can down the road and raid the Social Security retirement program, Congress should take the opportunity to implement comprehensive Social Security and Disability Insurance reforms that will restore both programs to their original intent and make them financially solvent for the long run.