Insolvency Looms as States Drain US Disability Fund
Tuesday, March 22, 2011
Insolvency Looms as States Drain US Disability Fund
By: Damian Paletta, Wall Street Journal
CAGUAS, Puerto Rico-This mountainside town is home to a
picturesque cathedral, a tobacco museum and a Wal-Mart Supercenter.
Another defining feature: Caguas's 00725 zip code has more people
who receive a disability check than any other in the U.S.
Puerto Rico has emerged in recent years as one of the easiest
places in the U.S. to get payments from the Social Security
Disability Insurance program, created during the Eisenhower
administration to help people who can't work because of a health
problem. In 2010, 63% of applicants there won approval, four
percentage points higher than New Jersey and Wyoming, the
most-generous U.S. states. In fact, nine of the top 10 U.S. zip
codes for disabled workers receiving benefits can be found on
Puerto Rico.
The SSDI is set to soon become the first big federal benefit
program to run out of cash-and one of the main reasons is U.S.
states and territories have a large say in who qualifies for the
federally funded program. Without changes, the Social Security
retirement fund can survive intact through about 2040 and Medicare
through 2029. The disability fund, however, will run dry in four to
seven years without federal intervention, government auditors
say.
In addition to the uneven selection process, SSDI has been
pushed to the brink of insolvency by the sour economy. A huge wave
of applicants joined the program over the past decade, boosting it
from 6.6 million beneficiaries in 2000 to 10.2 million in 2010. New
recipients have come from across the country, with an 85% increase
in Texas over 10 years and a 69% increase in New Hampshire.
Over the years, Puerto Rico's dependence on SSDI has grown
particularly stark, exacerbated by the closure of factories and
U.S. military installations, an exodus of skilled workers and a
number of corruption scandals.
Seated next to a wooden statue of an angel in his office, Pedro
Torres-Morales, a doctor in the south Puerto Rican town of Maunabo,
described the situation as "a political problem, an economic
problem, a health problem, a social problem."
To others, it's mainly a matter of abuse. "The mentality is that
it's 'big, rich Uncle Sam's money,"' said Ivan Gonzalez-Cancel, a
prominent Democrat and cardiac surgeon in San Juan who is planning
to run for governor in 2012 for the New Progressive Party. He said
the system is rife with corruption, something local and federal
officials deny.
Unlike Medicare or the Social Security retirement fund, which
provide benefits mostly based on age, SSDI decisions are based in
large part on medical opinions, which can vary from doctor to
doctor, state to state.
Because someone else pays the bills, local officials have little
incentive to keep the numbers low. The feds have tried to enforce
consistency, but the process relies heavily on the judgment of
doctors and administrative law judges who hear appeals.
Benefits can be modest: In 2009, they averaged $1,064 a month.
But the program opens up access for recipients to other government
programs, multiplying the ultimate cost to taxpayers.
Anyone who spends two years on SSDI qualifies for the Medicare
health program, which usually is available only for those 65 years
old and older. SSDI recipients tend to remain tethered to the
program for years, and the government's lifetime financial
commitment averages $300,000 per person, estimates David Autor, an
SSDI expert who teaches at the Massachusetts Institute of
Technology. "The system has profound problems," Mr. Autor said.
SSDI's financial woes pose a major test for the White House and
Congress, which have been reluctant to tackle the budget-busting
costs of entitlements.
Analysts who track the program say the only short-term way to
save it without raising taxes would be to fold it into the fund
that pays Social Security. That would likely force retirees to face
benefit cuts two or three years sooner than they otherwise would
have done, because SSDI costs would diminish retirement funds.
Supporters say SSDI serves a vital need for millions of people
who have paid into the system, qualify for the benefits and depend
on the income. Some contend its problems can be fixed by raising
taxes or by diverting money from the Social Security fund for
retirees.
"This is a program of crucial importance to every working
American and his or her family," said Nancy Altman, co-director of
Social Security Works, a group that fights cuts in Social Security
benefits.
Critics have raised concerns about the solvency of the program,
backed by a report last year from the nonpartisan Government
Accountability Office alleging that the government was paying
benefits to some people who didn't deserve them.
Millions of Americans fund the program through a portion of the
Federal Insurance Contributions Act tax that's tied to their
income.
The disability insurance trust fund was created in 1957 to
provide a backstop to people who worked several years before
suffering a debilitating illness or injury. Disability
beneficiaries can now include those with cancer, chronic back pain,
persistent anxiety and schizophrenia.
Applicants should no longer be able to work in a substantial,
gainful way, and must provide medical records affirming the
likelihood the applicant won't be able to work for at least another
year, or that their health problems would eventually result in
death.
The program has been a feature in agricultural, manufacturing
and urban communities across the U.S., particularly where
unemployment rates are high. As a percentage of total population,
more SSDI money flows to West Virginia than anywhere else,
according to government data. Experts attribute high concentrations
there to unemployment and health problems related to manual
labor.
Still, West Virginia has one of the
highest rejection rates of applicants anywhere in the country,
with just 36.7% of applicants making it into the programs on their
initial applications last year, compared to a national average of
46.9%.
In 2005, SSDI began spending more money than it brought in
through tax receipts. In 2010, the number of beneficiaries grew by
489,488, the largest one-year increase ever. It is projected to
spend $153 billion on benefits and other costs in 2015, $22 billion
more than it brings in through tax revenue and other income. Its
surplus funds built up over the years are expected to be
extinguished in four to seven years.
Puerto Rico has long had an outsize reliance on disability
benefits. The island has had a double-digit jobless rate for most
of the past 30 years, settling at 15.7% at the end of December.
Doctors here say as people find it harder to get a job, they apply
for disability benefits.
Even though Puerto Rico's population fell in the past 10 years,
from 3.8 million people in 2000 to roughly 3.7 million today, the
number of people on SSDI rose 25% from 2000 through 2009 to
188,298. The Social Security Administration sent roughly $163
million a month in SSDI benefits to Puerto Rico in 2009, the last
available full-year data, accounting for 2% of the program's total
spending.
In 2006, just 36% of applicants in Puerto Rico were approved for
benefits. By 2010, the rate had rocketed. In December, 69% of
applicants were approved, the highest one-month approval rate by
any state or U.S. territory since 2002.
On a recent weekday, 20 people waited for their names to be
called inside the Social Security Administration's third-floor
office in Caguas under framed portraits of President Barack Obama,
Vice President Joseph Biden and SSA Commissioner Michael
Astrue.
The pale-blue room looked like any other government office, with
22 customer-service windows and a white SSA seal on the glass
door.
Twenty-seven miles away is the zip code with the second-most
SSDI beneficiaries- 00767-home to the coastal town of Yabucoa and
its 22% unemployment rate. At the end of 2009, 3,385 people, about
15% of its residents, received SSDI benefits.
Lissette Franceschi, from PeƱuelas, Puerto Rico, lost her job as
a hospital nurse during a round of layoffs in 2008. The 54-year-old
fell into a depression that she said required psychiatric help. "I
had panic attacks, I couldn't go out alone, I couldn't drive," she
said. "There was no way I could work."
Seven months after her layoff, in late 2008, she applied for
SSDI and was denied for "insufficient information." Later, a bone
scan detected she had an incipient form of arthritis, and she
applied again in early 2009. In November 2010, she told her story
to a judge, detailing her layoff, the depression and her arthritis.
She was granted $1,084 a month in benefits, retroactive to when she
filed in early 2009.
Marcos Rodriguez-Ema, chief of staff to Puerto Rico Gov. Luis
Fortuno, said he couldn't explain why the island's approval rate
has spiked. He speculated more people were pursuing cases because
it was harder to find jobs and decent health care. He said it
wasn't the result of any change in policy on the island.
Beatrice Disman is in charge of the Social Security
Administration's New York region, which oversees operations in
Puerto Rico. She said the island has to follow national
regulations. "They are not free to do things on their own," she
said. "How you make a disability decision is the same in Puerto
Rico as is it in New York, and they must follow the same
rules."
She said a routine external review found that cases in Puerto
Rico were decided accurately 99% of the time in 2010. One reason
the approval rate has increased is that the government has hired
more people in recent years to process applications for benefits,
which has expedited the process, Ms. Disman said.
Government officials say there are a number of checks in place
to prevent inconsistencies, including backup screenings conducted
remotely, meant to stop people from obtaining benefits who don't
meet federal standards.
Doctors, lawyers, and others say standards are left to the
interpretation of the many officials involved in the process, which
makes it easier for people to get into the system. The
$1,000-a-month SSDI check can pay almost as much as a low-wage job
in Puerto Rico, and it comes with access to health care.
Administrative law judges in Puerto Rico, who make decisions in
cases that are initially rejected or need further review, approved
full or partial benefits in 80% of the cases they reviewed in
fiscal 2010, according to data reviewed by The Wall Street Journal.
One judge in San Juan, Manuel del Valle, approved 98% of the cases
brought to him during that span, according to data reviewed by The
Wall Street Journal. Mr. del Valle, through a Social Security
spokesperson, declined to comment.
Doctors in the area say applicants are still pouring into the
system. Several said the SSDI program has become so large, and in
some cases so dependent on medical opinions, that patients have
worked out which doctors and government officials are less
stringent, a phenomenon that lawyers in the U.S. said is also
occurring in different parts of the country. They say this explains
the high concentrations of beneficiaries in certain areas.
"I tell my secretary that I won't see someone in my office just
to fill out forms for the Social Security Administration," said
Carlos G. Diaz Silva, a doctor from the southern town of Ponce, who
until recently headed the Puerto Rico chapter of the American
Psychiatric Association. "It makes me very uncomfortable because
there's already an economic consideration."
-Keith Johnson contributed to this article.