Social Security Disability Insurance Made Simple

Social Security Disability Insurance Made Simple

The cost of the Social Security Disability Insurance program has risen exponentially in recent years. Costs have ballooned so much that the $140 billion program was—until a November 2015 budget deal was reached—on pace to run out of money in 2016.

Despite the recent budget deal, which will reallocate payroll tax revenues to beef up the Social Security Disability Insurance fund, the program’s benefits and qualifications are by no means set in stone.

Here’s a bit more about how Social Security Disability Insurance works, and how big changes may still be on the horizon. The benefits of nearly 11 million people are at stake.

How Social Security Disability Insurance is funded

In government speak: OASI + DI = OASDI

The Social Security program, consisting of both retirement (Old-Age Survivors Insurance or OASI) and disability insurance (DI), is funded through separate payroll tax and self-employment tax contributions—not through regular federal income taxes.

The DI portion of the program is much smaller and less well known. Both are administered by the Social Security Administration. By law, these funds are maintained separately from the U.S. government’s general fund.

The contribution rate to these funds are set by Congress. The current contribution rate is 12.4 cents per dollar earned, up to a taxable maximum, which is currently $118,500. Employees have their contribution split equally between them and their employer, so it’s 6.2% each. (Self-employed individuals pay the full rate themselves.)

The funds are then allocated either to the retirement or disability program. Currently, 1.8 cents per dollar go to the disability fund, with the remaining 10.6 cents going to retirement.

Lingering effects of the post-2008 crash

Despite the cash infusion from the November budget deal, the Social Security Disability Insurance trust fund is still not inexhaustible. Have a look at the net decrease in assets since 2009 on this table (and keep in mind those numbers are in millions).

The depletion in the trust fund is simply caused by expenditures being higher than costs. While both have been rising steadily, expenditures have risen at a lower rate than revenues.

The fund had previously seen annual surplus from 1994 to 2008. At the end of 2008 the fund held nearly $216 billion in reserves. Since 2008 (and the brutal post-2008 recession), expenditures have exceeded revenue by an average of $25 billion a year.

Rising beneficiary numbers

The increase in expenditures has a simple explanation–more people receiving payments, or “beneficiaries.” This in turn is caused by the number of “new” beneficiaries exceeding the number who return to the workforce and stop receiving benefits. (The percentage of people who go on disability and then return to the workforce is quite low.)

During the post-2008 recession, the number of new beneficiaries rose sharply. The number of terminations also rose, but not at the same rate.

Since 2010, the number of new beneficiaries has been falling, but has still exceeded the number of terminations, and this means that the total number of beneficiaries has continued to rise, albeit at a slower rate. America’s aging workforce is a primary factor in the increase. In 1980, there were roughly 100 million workers covered by SSDI, and about 30 percent were over 45. In 2013, there were roughly 150 million covered workers, with 45 percent over 45. As we age, we tend to experience more health problems, and thus are more likely to file an SSDI claim.

What the future holds … who knows?

For those depending on Social Security Disability Insurance, or who one day will, the future is unclear. Will the government let the SSDI fund dry up a few years down the road? What happens then? Will our leaders make a move to avert such a situation?

The only certainty, really, is that there’s a lot at stake, and that some sort of change to the program is inevitable. So stay tuned, and stay informed!

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