Stephen C. Goss Presentation for Mercatus Center SSDI Panel
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The presentation discusses the current and projected actuarial status of the Social Security Disability Insurance Trust Fund, highlighting that 155 million workers are insured against disability, with 9 million currently receiving benefits. It addresses the rising costs associated with the disability insurance program and the effects of economic cycles on incidence rates, suggesting that adjustments are necessary to ensure long-term solvency. Potential solutions include reallocating tax rates, increasing scheduled revenue, and adjusting benefits to manage costs effectively.
Stephen C. Goss Presentation for Mercatus Center SSDI Panel
- 1. The Current Projected Actuarial StatusThe Current Projected Actuarial Status of the Social Securityof the Social Security Disability Insurance Trust FundDisability Insurance Trust Fund Presentation by Stephen C. Goss, Chief Actuary,Presentation by Stephen C. Goss, Chief Actuary, Social Security AdministrationSocial Security Administration Mercatus Center and CRFB DiscussionMercatus Center and CRFB Discussion Rayburn House Office Building B-340Rayburn House Office Building B-340 May 12, 2015May 12, 2015
- 2. 2 Social Security Disability Insurance 155 million workers under age 66 are insured against becoming unable to work 9 million workers now receive DI benefits • 2 million “dependents” - mostly children Many more protected from loss of insured status • And from lower retirement benefits Benefits replace 40% to 45% of career earnings on average • 76% for very-low earner, 27% for steady maximum earner
- 3. 3 DI cost as percent of GDP has peaked, but scheduled income is too low DI Cost and Income as Percent of GDP 1975-2090 2013 Trustees Report Intermediate Assumptions 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 Baby Boomers reach ages 45-64 in 2010 Baby Boomers reach ages 25-44 in 1990 DI Cost DI Income Note: Recession raised DI Cost/GDP by 15% for 2010
- 4. How DI Compares to other Countries— Disabled Worker Gross Prevalence: Burkhauser/Daly 2014 Note that the US DI program costs 0nly 1/3 as much as Netherlands
- 5. 55 Rising cost as percent of GDP and Payroll Aging population—increased DI cost 1990-2010, increasing retirement cost now through 2030-35 Age Distribution of the Population Age 25+, 1940 to 2100 (2014TR) 0 10 20 30 40 50 60 70 80 90 100 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 PercentofPopulationatAges25+ 25-44 45-64 65-84 85+ Boomers become 25-44 Boomers become 45-64 Boomers become 65-84
- 6. 6 Was Rise in Cost Foreseen? Except for Recession, Cost is lower than projected in 1995! Mature cost took time– disabled under 50 not fully reflected until after 2005 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1995 2000 2005 2010 2015 2020 2025 2030 Actual and Projected Cost of DI as Percent of GDP: 1995TR versus 2013TR 1995TRadj 2013TR Recession
- 7. 7 Economic cycles and policy changes fluctuate, and DI incidence rates also vary Applications have been declining since 2010 0 1 2 3 4 5 6 7 8 9 10 11 12 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 UnemploymentrateandDisabledworkerincidenceperthousandexposed Calendar year Age-sex-adjusted disabled worker incidence rate Civilian unemployment rate Historical Estimated Recession and SSI 1974 Recession Recession Recession 1980 Amendments: PER, CDRs, EPE, Lowered Family Max 1984 Amendments: Multiple Impairments Medical Improvement Mental Listings 1996 Amendments: Drug Addiction & Alcohol CDR Plan 1996-2002 SSI Outreach 1970-74 Large Benefit Increases Recession
- 8. 8 Additional disabled worker beneficiaries are a small fraction of reduced employment Changes in Disabled Worker Beneficiaries and in Covered Workers from 2008 TR to 2013 TR 0 2,000 4,000 6,000 8,000 10,000 12,000 2007 2008 2009 2010 2011 2012 2013 ChangeinThousands Increase in Disabled Workers Reduction in Covered Workers
- 9. 9 Most of the recession effect is from less GDP, not more DI cost Change in DI Benefit Cost and in GDP Between 2008 TR and 2013 TR 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 2010 2011 2012 2013 Increase in DI Benefit Cost Reduction in GDP Increase in DI Benefit Cost/GDP
- 10. 10 When applications go up in a recession, allowance rates go down 0 2 4 6 8 10 12 0 10 20 30 40 50 60 70 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 UnemploymentRate AllowanceRate Year of Filing Claim Ultimate Allowance Rate for Disabled-Worker DDS Claims by Filing Date, Versus Unemployment Rate in Year-2 Total Allowance Rate Unemp Rt in Yr Unemp Rt in Yr-2 Initial DDS Allowance Rate
- 11. 11 So, Adjustments are needed soon: for DI, 20% lower cost, or 25% more revenue
- 12. Changes for DI alone are not likely to make a big difference for the long run • Time Limited benefit entitlement? – Coburn proposal would save less than 1/3 of the projected DI long-term shortfall • Change the vocational grid ages? – Coburn proposal would save only about 10% of the long-term DI shortfall • Offset DI for UI? – Saves only 3% of of LR DI shortfall • Increase Normal Retirement age? – Increases DI long-term shortfall.
- 13. How to Fix Social Security (OASDI) • First: Help DI soon---reallocate tax rate? • Second: Address the long-term solvency of the OASDI program; –Raise scheduled revenue by about 33%: increase revenue from 4.6 to 6.0% of GDP –Reduce scheduled benefits by about 25%: lower benefits to what 4.6% of GDP will buy –Or some combination of the two 13
- 14. Ways to Lower Cost • Lower benefits for retirees—not disabled? – Increase normal retirement age (lowers OASDI cost, but shifts a greater portion to DI) – Can exempt long-career low earners • Lower benefits mainly for high earners? – Reduce PIA above some level – Often combined with increasing PIA below some level, subject to work year requirements • Lower benefits mainly for the oldest old? – Reduce the COLA – Increase in COLA also proposed 14
- 15. Ways to Increase Revenue • Raise tax on highest earners? –Increase taxable maximum amount –Some tax on all earnings above the maximum • Tax employer group health insurance premiums? –Affects only middle class if taxable maximum remains • Maintain larger trust fund reserves? –Added interest can lower needed taxes 15
- 16. For More Information Go To---- http://www.ssa.gov/oact/pubs.html • There you will find— –Current and all prior OASDI Trustees Reports –Detailed single-year tables for recent reports –Our estimates for comprehensive proposals –Our estimates for the individual provisions –Actuarial notes; including replacement rates –Actuarial Studies; including stochastic –Extensive data bases –Congressional testimonies 16