Close Close

Retirement Planning > Social Security > Social Security Funding

Could employers help cut SSDI claims?

Your article was successfully shared with the contacts you provided.

Congress should think carefully before trying to lower Social Security Disability Insurance (SSDI) benefits costs by giving employers “more skin in the game.”

Joyce Manchester, an analyst at the Congressional Budget Office (CBO), made that argument today at a hearing on the SSDI program organized by the House Ways and Means Social Security subcommittee.

Stephen Goss, the chief actuary at the Social Security Administration (SSA), testified that the Disability Insurance Trust Fund trustees expect fund reserves to be adequate until 2016. If the reserves run out, the program should have enough tax revenue to pay 79 percent of scheduled benefits starting in 2016, Goss said.

Because the current SSDI budget problems are caused mainly by a one-time, well-understood event — the drop in the birth rate that started in 1965 — “restoring sustainable solvency for the DI program will not require continually greater  benefit cuts or revenue increases,” Goss said, according to a written version of his testimony posted on the Ways and Means website.

“A one-time change to offset the drop in birth rate and past  shifts in other ‘drivers’ is all that is needed to sustain the DI program for the foreseeable future,” Goss said.

Manchester noted that many policymakers would like to try to get some of the needed improvement in SSDI’s financial position by reducing the number of workers who need SSDI benefits, rather than solely by increasing payroll taxes and holding down the amount of benefits paid to the workers who need the benefits.

One way to reduce the number of workers who need SSDI benefits in the first place would be to encourage employers to do more to keep workers healthy and support workers who do develop disabilities, Manchester said.

Federal law already requires employers to make reasonable accommodations for workers with disabilities, Manchester said.

Employers with private group disability plans may find that the private insurers give them strong financial incentives to keep workers with disabilities working.

But the SSDI program is funded through a flat-rate payroll tax on employers and employees.

Because of the flat-rate funding system, “employers do not bear the costs associated with a disabled worker who stops working and becomes [an SSDI] beneficiary,” Manchester said.

European countries are giving employers an incentive to keep workers at work by transfer some of the cost of providing disability benefits to employers, Manchester said.

In the Netherlands, for example, employers are responsible for paying the benefits for two years, Manchester said.

The goal is to convert disability programs that have focused on paying out streams of cash benefits into worker rehabilitation programs, Manchester said.

U.S. employers could cope with a shift to a European-style system by making more use of private short-term disability (STD) insurance, Manchester said.

The SSDI program also could follow the example of the Swiss disability program, Manchester said.

In Switzerland, the government disability income program charges higher rates for employers that fail to offer private STD programs and lower rates for employers that do offer private STD coverage.

In some countries, Manchester added, the government disability plans raise rates for employers with poor disability experience.

“Experience rating provides a financial incentive for employers to engage in practices that promote continued work by people with disabilities,” and the U.S. government unemployment insurance program already uses an experience rating approach, Manchester said.

“One criticism of experience rating is that it could discourage employers from hiring people with disabilities, potentially increasing growth in the number of beneficiaries in the [SSDI] program,” Manchester reported. “That type of behavior is illegal and would come with significant costs if it was discovered, but uncovering and prosecuting such behavior might be difficult.”

See also:


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.