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Both Social Security Disability Insurance and the Supplemental Security Income disability program have grown dramatically over the past decade. Congress has responded to that growth by enacting several measures designed to reduce the size of those programs. At the request of Congressman Sam M. Gibbons when he was the ranking minority member of the Committee on Ways and Means, this memorandum examines the policy of time-limiting federal disability benefits as another option to reduce caseloads and promote increased work effort among people with disabilities. In accordance with the Congressional Budget Office's (CBO's) mandate to provide objective and impartial analysis, the memorandum contains no recommendations.

Daniel M. Mont of CBO's Health and Human Resources Division prepared this paper under the direction of Joseph R. Antos and Ralph E. Smith. The estimate of the budgetary effects from the illustrative policy option was prepared by Kathy Ruffing under the direction of Paul R. Cullinan.

CBO gratefully acknowledges the cooperation and assistance of Mary E. McKay, Charles Scott, Denny Vaughan, and Bernie Wixon of the Social Security Administration. Within CBO, valuable comments were offered by Paul R. Cullinan, Theresa J. Devine, Kathy Ruffing, Paul N. Van de Water, and W. Pete Welch. Carol Frost provided computer assistance. Julia Matson prepared the figures. Sherry Snyder edited the manuscript, and Ronald Moore and Sharon Corbin-Jallow prepared it for publication.
 
 

SUMMARY

DISABILITY PROGRAMS ADMINISTERED BY THE SOCIAL SECURITY ADMINISTRATION

• Social Security Disability Insurance
• Supplemental Security Income
• Recent Growth in Federal Disability Programs

DISABILITY AND WORK BEHAVIOR

• Different Definitions of Disability
• Work Behavior of Adults with Disabilities
• Disability Benefits and Work Behavior
• Family Support for Working While Disabled
• Health Insurance as an Incentive for Not Working

TIME-LIMITING FEDERAL DISABILITY BENEFITS

• Illustrative Budgetary Effects of Time-Limiting Disability Benefits
• Advantages of Time-Limiting Benefits
• Disadvantages of Time-Limiting Benefits
• Increased Continuing Disability Reviews as Another Option

SUMMARY

The past decade has been a time of dramatic growth in federal disability programs. Both Social Security Disability Insurance (DI) and the Supplemental Security Income (SSI) disability program have experienced substantial increases in their caseloads and expenditures. The number of people receiving benefits in the DI program and the real value of the sum of all benefits, which are paid to people with disabilities who have worked enough to obtain insured status, grew by nearly 58 percent between 1985 and 1995. SSI, a means-tested program, saw its caseload of people with disabilities grow more than 92 percent and its total payments increase by more than two-thirds in constant dollars.

The Congress responded to that growth by considering a variety of proposals aimed at reducing the size of those programs. The 104th Congress enacted four such measures--denying disability benefits to drug addicts and alcoholics on the basis of their substance abuse, encouraging increased funding for continuing disability reviews (CDRs) of current recipients to determine whether they should still be receiving benefits, eliminating SSI benefits for most legal aliens, and tightening the eligibility for SSI benefits for some disabled children.

The Congress may also consider placing a time limit on benefits as a way to slow the growth in, or actually reduce, federal spending. That policy, if applied to disability payments, would halt benefits to participants in DI and the SSI disability program after a certain period unless they successfully reapplied to those programs.

The Congressional Budget Office (CBO) estimates that time-limiting disability benefits for future recipients ages 18 to 50, starting in 1998, could save $1.6 billion over the 2001-2006 period. Under the time-limiting policy used to construct that estimate, certain applicants would be awarded benefits for only three years. After that period, they would have to reapply for benefits. The estimate assumes that the Social Security Administration (SSA) would follow an aggressive schedule of continuing disability reviews in accordance with recent legislation authorizing increased funding for that purpose. In other words, CBO made the savings estimate in comparison with a policy of having all beneficiaries who were classified as "medical improvement expected" or "medical improvement possible" undergo a CDR every three years. Compared with past practices, the savings associated with a time-limited policy would be higher.

Proponents of this approach believe that many people with disabilities could return to work if they were encouraged to do so, especially if there was an adequate financial incentive. In fact, a number of studies have shown that many people who report themselves as being disabled, some of whom have conditions that could qualify them for benefits, do work. According to the Survey of Income Program and Participation, about 44 percent of nonelderly adults with disabilities were employed in 1992, and almost two-thirds reported that they were capable of working. Evidence suggests, however, that the previous work behavior of new recipients of disability benefits is intermittent. Moreover, according to a study by the General Accounting Office (GAO), fewer than half of those who apply for benefits and are unsuccessful return to work. The extent to which disability benefits reduce work effort is therefore limited. Nevertheless, researchers have suggested that about 10 percent to 15 percent of the recent drop in labor force participation among older men can be attributed to recent increases in disability benefits.

In the long run, requiring certain recipients of disability benefits to reapply every three years could lower participation in SSI and DI by at most 3 percent and increase the labor force participation of older adults by less than 1 percent. Although those effects are not trivial, they would not completely counter the high rates of growth that federal disability programs have experienced in recent years.

Another reason to place a time limit on benefits, according to proponents, is that a permanent period of recipiency sends a strong antiwork message to applicants. Emphasizing that benefits are not considered permanent could create the expectation that people with disabilities should take steps to reenter the workforce. That message might change people's attitudes about returning to work and even their own self-worth.

The disadvantages of moving to a time-limited strategy stem from the added administrative work it would impose. The total number of reviews processed would rise significantly in an administrative system that is already overburdened. One result could be a rise in the number of applicants who were falsely denied or falsely granted benefits. According to GAO, more than 30,000 applicants in 1992 were either mistakenly denied or mistakenly granted federal disability benefits. If an increased administrative burden led to more mistaken denials, then more disabled people would be unable to obtain benefits but would still not be able to find work. Although a small percentage of recipients would be in that position, evidence indicates that most of them would end up in poverty and about one-fourth of them would have no health insurance.

Alternatively, increasing the burden on the present system for determining disability could result in an increase in the number of awards. During the 1970s, approving borderline cases was common practice. Limiting benefits might produce a similar outcome.

A larger problem could be gaps in coverage for those readmitted to the program or recertified if provisions are not made to continue benefits during the reapplication process. About 100 days elapse from the time applicants file for benefits until they receive them, but that period can extend to well over a year for those who are initially denied benefits and then obtain them on appeal. Continuing benefits during the application process could create problems with overpayments that would then have to be recouped from people whose denials were not overturned on appeal. A related concern is the impact on the appellate process and workloads.

Another option for trying to encourage recipients of disability benefits to work would be to expand the use of CDRs even further. In fact, the Contract with America Advancement Act of 1996 (P.L. 104-121) authorizes a substantial increase in funding for CDRs and allows for adjustments to discretionary spending caps to accommodate increased funding. Indeed, extra funding was appropriated for CDRs following the passage of that law for 1996 and 1997.

An advantage of conducting more CDRs is that it eliminates the problem of gaps in coverage. The drawback is that the message sent about the expectation of recovery and return to work may be weaker. Also, as experience indicates, funding shortages can create large backlogs in CDRs. Under a policy of time-limiting benefits, recipients' benefits would automatically end unless they successfully reapplied. Processing the new applications would place the agency under more pressure than would keeping up to date with CDRs, since not processing new applications would cause many eligible people to not receive benefits. Failing to conduct a full complement of CDRs would not result in anyone's failing to receive benefits and so might not engender as much protest.

Another drawback of conducting more CDRs is that such a policy might remove a smaller percentage of recipients from the rolls than would placing a time limit on benefits. Under current law, the SSA cannot terminate benefits as a consequence of a CDR unless it can demonstrate that the recipient's medical condition has improved. The "medical improvement" rule presumably would not matter for reapplications; thus, the reapplication process under a policy with time-limited benefits might have a slightly higher termination rate than the current CDR process.

Time-limiting benefits or increasing CDRs in DI and SSI would probably decrease the caseloads and expenditures in both programs. Such a decrease, however, would not be sufficient to reverse the recent and substantial growth in federal disability benefits.

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