Jul 21, 2015

A Solution For The Disability Trust Fund?

     I've been looking into the question of what happens if Congress is deadlocked, as it may be, on a fix for the possible exhaustion of the Social Security Disability Insurance Trust Fund. I'm encountering some interesting issues. If we actually go over the precipice and the Disability Insurance Trust Fund runs out of money, it's going to be a mess. The shortfall in the Disability Insurance Trust Fund will vary from month to month since FICA collections vary from month to month. One or two months a year there may be little or no shortfall and some other months there may be a 30% or greater shortfall. There is also the substitution problem. I'll go into this in much more detail later but recipients of Disability Insurance Benefits (DIB) who are 62 or older are also entitled to Retirement Insurance Benefits (RIB). They don't get paid both, just the higher amount. Normally, the DIB is higher than the RIB but if the DIB is reduced because the Disability Insurance Trust Fund is short of money, the RIB will often be larger. That would be a messy computational problem since the number of people affected by this would vary from month to month and because shifting them to RIB would itself have an effect upon the amount available to pay everyone eligible for DIB. I'm sure that computers could solve this problem but it wouldn't be easy since the computers have never been programmed for the task and the agency isn't brimming with computer programmers who have nothing else to do.
     What I wonder is whether Social Security could start routinely charging benefits in a dual eligibility situation first against the Retirement Insurance Trust Fund and only paying the difference out of the Disability Insurance Trust Fund. That would significantly reduce the amount paid out of the Disability Insurance Trust Fund.
     The interesting thing is that the Social Security Act really doesn't speak to the question of how benefits are to be charged between the Disability and Retirement Insurance Trust funds when a claimant is dually eligible. To this point, normally 100% has been charged to the Disability Insurance Trust Fund but I don't think the statute requires that result. This is the closest that the Social Security Act comes to dealing with the issue:
42 U.S.C.A. §402 ...
(k)(3)(A) If an individual is entitled to an old-age or disability insurance benefit for any month and to any other monthly insurance benefit for such month, such other insurance benefit for such month ... shall be reduced, but not below zero, by an amount equal to such old-age or disability insurance benefit (after reduction under such subsection (q) of this section)....
(k)(4): Any individual who, under this section [which has to do with benefits paid from the Retirement Insurance Trust Fund] and section 423 [DIB], is entitled for any month to both an old-age insurance benefit and a disability insurance benefit under this title shall be entitled to only the larger of such benefits for such month, except that, if such individual so elects, he shall instead be entitled to only the smaller of such benefits for such month.
     This section uses the word "entitled" in contradictory ways. It first talks of a person being "entitled" to both RIB and DIB but then says that such a dually "entitled" person is only "entitled" to one benefit. How can you be dually "entitled" if you're only "entitled" to one benefit? The only reasonable way to interpret this is that that the word "entitled" was used in two different ways, which is poor legislative drafting but we have to deal with the statute as it is. At first, the word "entitled' is used to mean "eligible for" but at the end it is used to mean "paid for." The intent is that a person does not receive both the RIB and the DIB, only the higher of the two benefits even though he or she is technically entitled to both.
     Because the most the claimant can receive is the higher of the two benefits, does that mean that the benefits must be paid 100% out of the trust fund of the higher benefit? I don't think the statute speaks to this question. The statute speaks to how much the claimant is paid, not how is charged against each trust funds.
     When Social Security first started to implement this provision, mainframe computers were in their infancy. All of Social Security's computers at that time put together probably had less computing power than my cell phone does today. In the late 1950s, splitting the benefit payment between two different trust funds might have required manual computation on a case by case basis. The simpler thing to do was to charge the benefits solely against the Disability Insurance Trust Fund.
    One might think that if an individual is paid reduced RIB before their full retirement age that they must receive reduced RIB for the rest of their life but that's not the way Social Security's has interpreted the Act. To the best of my knowledge, there's only one situation now in which the dually eligible are paid the RIB first. That's done where a person eligible for DIB is over 62 and has a workers compensation offset. The workers compensation offset would reduce the DIB but not the RIB. The claimant can take the early retirement benefit. We call this the RIB-DIB election. The retirement benefit is 25% less per month than the full DIB but in most cases it's still more than the DIB would be after the workers compensation offset. After a claimant who has made the RIB-DIB election reaches full retirement age, they're no longer subject to the 25% reduction in their retirement benefits because they went on early RIB. The dual eligibility eliminates the 25% actuarial reduction. This has been Social Security's practice for decades.
     If you're not really familiar with Social Security law, you might object that there's no way a person can be dually eligible for DIB and RIB without filing a claim for each benefit. However, this objection is easily dealt with. The claim form for DIB says at the top: "I apply for a period of disability and/or all insurance benefits for which I am eligible under Title II and Part A of the Social Security Act, as presently amended." Thus, a claim for DIB is also a claim for RIB. But what if the claimant was ineligible for a retirement benefit at the time he or she filed the claim for disability benefits because he or she was less than 62 at the time? The Social Security Act says:
42 U.S.C. §402(j)(2): An application for any monthly benefits under this section filed before the first month in which the applicant satisfies the requirements for such benefits shall be deemed a valid application (and shall be deemed to have been filed in such first month) only if the applicant satisfies the requirements for such benefits before the Commissioner of Social Security makes a final decision on the application ...
     If a claim for DIB is also a claim for RIB and there has been no "final decision" on that RIB application, there's no problem with saying that the RIB claim remains alive and can be acted upon at a later date. The award certificate issued at the time a DIB claim is approved does say "This benefit is the only benefit you can receive from us at this time" but that's hardly a final determination denying a retirement claim. What I'm suggesting here is Social Security's practice. When a person who is drawing DIB reaches full retirement age, Social Security doesn't waste time contacting him or her to take a claim for RIB. The claimant is automatically transferred to RIB since they filed a claim for RIB at the same time they filed a claim for DIB. (By the way, there's an interesting technical question about whether a person remains entitled to DIB after achieving full retirement age but let's leave that issue for another day.)
     The bottom line here is that this is simply a question of how one construes statutory language that's a lot less than crystal clear. When the statute uses the key word "entitled" in two different ways in the same sentence it's hard to say there's any plain meaning to that sentence. I don't think that what I'm talking about does any violence to the Social Security Act. It's just an interpretation. I won't belabor it but I've looked at the legislative history and I didn't see anything that explains how Congress intended that benefits would be charged to differing trust funds in dual eligibility situations.
     What I'm suggesting can be done without changing any of Social Security's regulations since they don't speak to the issue. All that would be required would be some minor changes in Social Security's POMS manual, some changes in Social Security's bookkeeping programs which probably wouldn't be that difficult since something close to this is already being done when there's a RIB-DIB election, and a press release.
     If Social Security did this, could Congress or someone else sue and get it overturned? They could try but they would have a real standing problem, that is, the Courts would ask, in effect, "Who are you to sue over this? How have you been affected?" Merely saying "I don't like what you're doing" or "I think what you're doing is illegal"  or "I'm a member of Congress" or "I'm on Social Security retirement benefits and maybe someday this will make the Retirement Trust Fund run out of money" probably won't enough to give one standing. Even if a Plaintiff gets past the standing issue, they have to get past an even bigger problem, the deference required under the Chevron doctrine for an agency's reasonable interpretation of a statute. Is the interpretation I'm suggesting unreasonable or is it just one of at least two possible interpretations of an ambiguous statute? This wouldn't be easy to challenge.
     Congress could try to pass a bill blocking this interpretation but such a bill could be filibustered in the Senate or vetoed by the President.
     There's a real problem that I haven't discussed so far. It may not be enough to solve the Disability Insurance Trust Fund's problem. The predicted shortfall in the Disability Trust Fund under the Intermediate projection is about 20% while only 24% of DIB payments are made to those between 62 and 66 (doublecheck my math since the only figures given are the number at each age and the average benefit amount for each age). However, paying the RIB first still leaves the Disability Trust Fund responsible for at least 25% of the total benefit paid for claimants who go on disability benefits at or before age 62. If they go on disability benefits after they turn 62, the reduction is less. However, what I've talked about so far isn't the only dual eligibility situation. There are other claimants who are eligible for DIB plus one or more other benefits paid out of the Retirement and Survivors Insurance Trust Fund, such as widows and widowers benefits, husbands and wives benefits, mothers and fathers benefits and disabled adult child benefits. I doubt that those other dual eligibility situations would completely take up the slack but I just don't know. I don't think anyone will know unless Social Security's actuaries run the numbers. Also, the Intermediate projection for the Disability Trust Fund is just that, a projection. Last year and so far this year, the numbers are a bit better than the projection. Even a modest improvement over the projection might be enough. Of course, any worsening of the numbers would take things in the opposite direction. There's also the issue of whether any change would be applied only prospectively. If the change I'm suggesting were applied retrospectively, even for a few years, the change in the Disability Insurance Trust Fund balance would be dramatic.
     I can't say what the political effects would be if Social Security did this. Certainly, Congressional Republicans would protest but I don't know if even Fox News could get traction on this issue. It's so damned technical. I wonder how many readers have gotten this far in reading this blog post and can really follow what I'm saying. I wonder if Congressional Republicans would even be unhappy if this issue was taken off the table. It's not like it's an issue that their base really cares about. The ideas they have put forward so far on the Disability Insurance Trust Fund seem vague and confused.
     I hope the Administration has the audacity to do this. The Disability Insurance Trust Fund may not be at the top of the agenda for the President or Congress at this moment but a year from now it probably will be. If you think about what a mess it will be if the Disability Insurance Trust Fund runs out of money, what I'm suggesting may start to sound reasonable.

13 comments:

Anonymous said...

I know one thing that will happen. Any congressperson from my district that goes along with letting disability benefits be cut, even for a short period of time, will not only lose my vote, but I will significantly contribute to his or her opponent next election. Any congressperson who holds vulnerable people hostage and makes them suffer for their own political ends deserves to be sacked.

Anonymous said...

Poor rural voters who elect republicans will be outraged. Republicans have a delicate balancing act to perform. Which is how do they(republicans)satisfy the wealthy conservatives without offending the poor republican voter?

Anonymous said...

It is so simple to fix, raise the cap and be done with it. Any other fix is tantamount to wanton disregard for the most vulnerable people in our society.

Anonymous said...

What about ending disability benefits at 62 when a person becomes eligible for RIB as a part of the fix. This would be going forward of course.

Anonymous said...

You don't even have to raise the cap: just require FICA to be paid on capital gains. However, with Republicans controlling Congress, anything even resembling raising taxes will never see the light of day. That's why Charles' idea makes sense. While Republicans will just complain that this kicks the can down the road, it does solve the issue during an election year. And because it's a technical accounting issue, most people wont' pay attention as to how the problem was fixed. Although some are trying to distinguish between the "good" Social Security retirees and the "bad" Social Security disability claimants, I don't think most people see the difference. Do they really want to be the party that cuts Social Security benefits when people are getting ready to vote? Charles may be right: they may secretly be happy that the issue could just go away.

Anonymous said...

@ 7:48

you really underestimate the prevalence of the uniquely American phenomenon of self-loathing when one does not live up to the American Dream. I saw an interview and read another recently that chronicled such Americans--down and out, on disability or UIB, etc., but conservative as all get out and quick to be in favor of cutting social benefits (even ones they receive) out of a sense of loathing for the undeserving recipients.

It is nothing short of amazing how well our culture does at making people who do not live up to the (largely unattainable and illusory) American Dream believe their failures are 100% their fault.

Anonymous said...

@9:07 am:

People don't become eligible for retirement benefits at age 62. They become eligible for reduced retirement benefits. Any cut in disability at age 62 is a cut in benefits. Don't cut benefits. Raise the cap.

Anonymous said...

...yes, and that should be 62, when they become eligible to file for retirement.

Anonymous said...

Well done, Charles. After some 30 years in the SSA world, policy and budget, I think you are quite correct that the statute says nothing about how the various trust funds are to be "charged" in dual entitlement situations. It's a matter left to the agency, and the agency's policy ought to have Chevron deference. Now, that doesn't solve or address the political problem--if, as you wonder, there is a political problem. Hmm, how do we get The Donald to weigh in on this???

Anonymous said...

I think we should consider coming at it from the other end. Those who are dually entitled to SSI and DIB should get the SSI first and then the rest from DIB.

Anonymous said...

11:07, why? They should get what they're insured for from the trust fund, and then if they are still poor enough to qualify for welfare (SSI) they should get it. Concurrent beneficiaries paid into the system and should get what they qualify for out of the trust fund.

Otherwise, it's like saying Walmart employees should all get the maximum amount of food stamps and then the company can top them up with wages.

Of course, if there is a 19% DI benefit cut, concurrent beneficiaries will start getting more SSI. And there will be many people who become concurrent beneficiaries.

Anonymous said...

On the one hand, I agree with Charles. On the other hand, I filed an online application for disability benefits at the age of 62, with an AOD two years prior. I was specifically asked whether I wanted to apply for retirement benefits via a pop up box and I declined. Think about that for a moment...I knowingly declined because I would have chosen to live off the funds in my retirement accounts rather than accept a reduced RIB. Due process issue? Ugh.

Regardless, I can see where Charles's idea might work...or at least shake up those who are intent on destroying the Disability program.

Anonymous said...

11:07 to 12:03. Many who qualify for both SSI and DIB have paid very minimally into the system. For example a teenager who has worked for a couple of summers can meet the specially insured status. I do not begrudge them the money whatsoever. However there are many aspects that are more typical of a welfare program than an insurance program. As such it does not seem fair to put the whole burden of paying them on the sector of the population that pays into SSA And earns below a certain amount. Under the current system those who are quite wealthy, those who are self-employed etc are exempted from paying their fair share for the severely disabled..such as those who meet 12.05B. For example
11.07 The busted