In 2015, a significant shift occurred in the landscape of Social Security Disability Insurance (DI) benefits. For the first time in two decades, the number of individuals receiving these benefits started to decline (see Figure 1). This intriguing trend prompted my colleagues to delve into the underlying reasons behind this sudden change.
Initially, they focused on determining whether the decline was caused by more people leaving the program or by fewer people joining it. A closer examination revealed that the number of individuals leaving the program – primarily due to reaching retirement age – had been steadily increasing over the years (see Figure 2). However, during the same period, the number of new DI awards had also been rising, leading to a net increase in recipients. This dynamic changed in 2010 when new DI awards started to decline and, by 2015, fell below terminations. Consequently, the DI rolls began to shrink.
The aging population may have contributed to a reduction in DI applications, as workers increasingly chose to claim their retirement benefits instead.
The post-Great Recession period witnessed a robust economy, making DI less appealing to potential applicants who possessed some capacity to work.
Notably, policy changes implemented by the Social Security Administration played a role in altering DI dynamics. These changes included the closure of field offices and the retraining of Administrative Law Judges (ALJs) to lower the rate of benefits awarded on appeal. Consequently, applying for DI became more challenging, resulting in a reduced acceptance rate among applicants.
Overall, this study sheds light on the factors influencing the evolution of Social Security Disability Insurance benefits. By better understanding the complex interplay between population dynamics, economic conditions, and policy changes, policymakers can make informed decisions to ensure the long-term sustainability and effectiveness of this crucial program.
Factors Affecting Incidence Rate of Disability Insurance
Specifically, for population aging, researchers calculated age-specific incidence rates to construct a counterfactual incidence rate if all factors, except aging, had remained at their 2010 levels. The impact of a strong economy was analyzed using regression analysis based on state data over time. The researchers estimated how a 1-percentage-point change in the unemployment rate affects the DI application rate. Policy changes were also taken into account by considering estimates from academic literature regarding the impact of closing field offices. Any remaining difference between the actual incidence rate and the counterfactual incidence rate was attributed to the effect of ALJ retraining.
Factors Influencing Incidence Rate
Figure 4 illustrates the contribution of each factor to the 0.25-percentage-point drop in the incidence rate. It shows that between 2010 and 2019, population aging would have increased the incidence rate by 0.02 percentage points if all other factors had remained constant. On the other hand, the impact of the business cycle is depicted by the red bar, indicating a decrease in the incidence rate by 0.14 percentage points. The first gray bar represents the influence of field office closures, which led to a slight decline of 0.01 percentage points. Lastly, ALJ retraining is estimated to have significantly reduced the incidence rate by 0.13 percentage points.
Key Factors Driving Down Incidence Rate
Ultimately, it is evident that the business cycle and a stricter process for awarding benefits on appeal are the two most important factors driving down the incidence rate in recent years.
Reevaluating the Goals of Disability Insurance
These findings raise important questions regarding whether, with the finances of DI now on a strong trajectory, the time has come to rebalance the goals of DI. It prompts us to consider shifting focus from solely protecting the program to also safeguarding vulnerable individuals.
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