How disability benefits are creating a nation of dependent Julias (and Julians)

James Pethokoukis | September 4, 2013, 10:48 am

Roughly 11 million Americans — including workers and their family — now receive Social Security disability benefits, three times the number 30 years ago. Total economic costs, including both payments and loss of output, are more than $300 billion a year, according to JP Morgan. Economists David Autor and Mark Duggan trace the rapid expansion of SSDI more to an easing of eligibility rules than the aging baby boom generation or the declining health of US workers. Another reason: a decline in job opportunities for low-skill workers.
Just as alarming is how government is turning millions of kids into permanent wards of the state through the federal Supplemental Security Income program, which provides cash benefits to low-income families with a disabled child. As Richard Burkhauser and Mary Daly note in a new paper for the San Francisco Fed, about 1.3 million disabled children received benefits at a cost of $9.3 billion in 2011 vs. 71,000 children at a cost of $40 million when the program began in 1974.
“Program growth increased most rapidly immediately following the 1990 Supreme Court decision in Sullivan v. Zebley, which greatly expanded disability eligibility criteria for children,” the researchers write. “Welfare reform in 1996 tightened eligibility standards and slightly reduced the rolls for one year. However, since that time, recipients and expenditures have steadily increased.” Indeed, poor parents have an incentive to get their kids diagnosed with disability.

But, as Burkhauser and Daly ask, is this necessarily a bad thing? Although the program may be an inefficient method of income redistribution, money is flowing to the poor and near-poor. Unfortunately, there is a major negative unintended consequence: Lifetime dependency. Burkhauser and Daly:

Many beneficiary children from low-income families are so profoundly disabled that they would never be able to enter the workforce as adults. But others, especially the less clear-cut cases that have driven growth since the Zebley decision, might be able to hold a job with appropriate accommodation and training. However, once these children are on SSI, they rarely come off.
Hemmeter, Kauff, and Wittenburg find that nearly two-thirds of SSI disabled children beneficiaries move directly onto SSI disabled adult rolls. Very few attempt to work thereafter. Moreover, only about 60% of those who do not move directly onto SSI disabled adult rolls are employed at age 19.
Thus, most SSI disabled children beneficiaries graduate from the program into what is likely to be permanent status as an SSI disabled adult beneficiary. And, if they are denied these benefits, they turn to other forms of welfare. This outcome is unintended. But it is quite costly both for the beneficiaries, who live their lives at or near the poverty threshold, and for taxpayers, who fund lifetime benefits.

The paper doesn’t offer any reform ideas, although there have been plenty devised to reform SSDI which might be applicable, including the tightening of eligibility requirements, better differentiating between the profoundly and partially disabled, and extending private disability insurance to virtually all U.S. workers that would nudge companies into trying to keep disability rates low. Faster economic growth and tighter labor markets wouldn’t hurt, either.

http://www.aei-ideas.org/2013/09/how-disability-benefits-are-creating-a-nation-of-julias-and-julians/