Tuesday, May 30, 2017

The White House is proposing long-needed reforms that would fix a dysfunctional disability system that traps Americans in dependency.

About That ‘Gutting the Safety Net’: Runaway disability payments invite fraud and punish work. WSJ editorial. Excerpt:
"Critics are accusing President Trump’s 2018 budget of “gutting the safety net” with cuts to food stamps and disability insurance. In reality, the White House is proposing long-needed reforms that would fix a dysfunctional disability system that traps Americans in dependency.

The Trump budget proposes to reduce spending by $72 billion over 10 years on federal disability programs, the largest of which is Social Security Disability Insurance (SSDI). The cuts would be achieved by testing and adopting incentives for individuals to return to the workforce; reducing retroactive payments; tweaking the appeals process for denied claims; holding swindlers liable for overpayments; and other measures to make sure applicants are genuinely disabled.

The 1956 disability-insurance program offers payments to those who become disabled before retiring, and the cash transfer is financed by payroll taxes. Disability insurance pays out about $150 billion a year to nearly nine million Americans, who after two years of benefits are also eligible for Medicare. That runs another $80 billion.  

The number of disability-insurance recipients has tripled since the 1980s, when Congress relaxed requirements. (See nearby.) A worker can cite several smaller ailments, such as back pain, to illustrate an inability to work, as opposed to one debilitating condition. An applicant can appeal a denial up to four times, and most cases reach administrative-law judges, who are slammed with hearings and have an incentive to award benefits and move on.

Mark Warshawsky and Ross Marchand of the Mercatus Center report that administrative-law judges approved 70% of appeals on average in 2008. About 9% of judges approved more than 90%. The authors estimate that a decade of judicial failures will lead to lifetime mispayments of $72 billion. As it happens, that is the ballpark for Mr. Trump’s supposedly shocking 10-year cut. The budget proposes a probationary period on judges who currently enjoy lifetime appointments.

The disability program is among the most susceptible to fraud in the federal government, which is an achievement. In 2015 more than 100 New York City police officers were charged with defrauding the program by faking anxiety attacks and other maladies to receive up to 75% of their salary. A Senate report from 2013 detailed how trial lawyers in Kentucky colluded with doctors and steered appeals to one munificent judge.

The less-noticed harm is that a mere 1% of beneficiaries return to work every year, as Andrew Biggs has noted in these pages. Most benefits are terminated only when a person dies or is transferred to a retiree program. But by one study’s estimate, half of applicants age 30 to 44 will find a job again if they aren’t approved for benefits.

One reason so few return to the labor force is that payments are essentially a tax on work. A 55-year-old who previously earned about $30,000 a year at work could receive more than $15,000 a year in disability payments, plus health-care benefits and perhaps other cash transfers such as food stamps. That means any job would have to pay more than what he loses in subsidies, which typically phase out as income rises. These “inframarginal” tax rates that trap people in poverty are never mentioned in moralizing about the necessity of helping the disabled and the poor.

A dark irony is that disability insurance has expanded to cover mental-health issues, which may aggravate the ailments. The literature on mental health suggests that anxiety and depression can be alleviated in part by healthy routines like work and maintaining social connections. Members of Congress like to fret about mental-health policy, but permanent-disability payments contribute to cultural problems like the opioid crisis.

By the way, if you think the Trump budget cuts are heartless, wait until the fund becomes insolvent and can’t pay anyone, which will happen sooner than you might think. The disability trust fund was set to go bankrupt in 2016, but Congress raided another pot to delay the reckoning for a few more years. That gimmick won’t last, and Mr. Trump deserves credit for noticing that $1 trillion in automatic entitlement spending is bankrupting the federal fisc."

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