Saturday, July 28, 2012

Social Security Disability Insurance: Admit What It Is and Adjust To Reality

The Truth Really Isn’t That Scary

The SS Disability Program and the SS Old Age and Survivors Program have separate trust funds.  So, there is some acknowledgment of the fact that they’re different.  However, the extent of the differences is something we fail to acknowledge. 

Disability claims (and thus the disability trust fund’s balance) are driven by unemployment.  Thus, they’re no more predictable than unemployment.  Planning for disability benefits involves preparing for surprises.  By contrast, Old Age and Survivor benefits (and its trust fund’s balance) are driven by demographics.  Although politicians like to pretend they’re surprised by failures to fund old age benefits, there are no surprises involved.  Planning only requires responding to highly predictable realities. 

There is no reason to believe the same funding method, a wage tax, is appropriate for the two very different programs.  They have totally different planning requirements.  Thus, it isn’t surprising that current and historical data demonstrate very different funding requirements.  Some minor changes in the funding of old age benefits were discussed last month.  By contrast, disability benefits require a total rethink. 

There are two options.  1)  If disability benefits are going to continue to be treated as a policy variable, they should be brought back into the budget process and be funded out of general revenue.  2) If they are going to be a response to disability, they should be fixed at a given level with a glide path toward zero as jobs continue to become safer, the antidiscrimination act is enforced, and medicine improves rehabilitative treatments. 

The use of SS disability benefits to conceal a failed economic policy is probably unavoidable.  To expect otherwise would be to expect a degree of frankness among pundits that just isn’t realistic.  Nothing better illustrates politicians’ willingness to consider putting expediency above common sense than the insane proposal to merge the two trust funds.

Since SS Disability is more like Unemployment Insurance (UI) than the Old Age and Survivors Program, it would be more logical to merge SS Disability and UI trust funds.  Since “regular” UI programs are state programs, the role of any federal government program would be analogous to the role federal emergency extended benefits currently plays.  This would be a logical way to address the role SS Disability plays and legitimize the SS Disability Program’s claim on the budget.  It might even stir politicians into thinking about prefunding emergency benefits (i.e., actually funding benefits they promise).

It is important to address disability from the macro, aggregate, perspective.   Trying to develop an overall policy by building up from individual cases has failed and always will.  The failure is apparent in the data.  It results in data that only makes sense under ridiculous conditions.  The increase in disability claims could only be valid if medical research is proceeding backwards and medical rehabilitative capabilities are declining; vocational rehabilitation programs are failing or aren’t being used to rehabilitate; the Americans with Disabilities Act’s antidiscrimination clauses are backfiring, and unemployment causes disabilities.   Even if any of those were true, SS Disability benefits wouldn’t necessarily be an optimum response. 

People are all unique so the SS Disability option undoubtedly has a role in the policy mix.  However, increased expenditures for research on rehabilitation would seem a more humane response.  The objective of our policy toward disability should be to enable as many people as possible.  It should not the current administration’s focus on promoting dependence on government.

Friday, July 27, 2012

Social Security Disability Insurance Reality Three: It’s Personal

How Is It That Everyone Knows the Answer Yet They Still Don’t Agree?

We all have different abilities or strengths.  By definition, therefore, we all must have non-strengths or non-abilities.   At some point, non-abilities are called disabilities.  Every non-ability and disability is relative to some fictional definition of normally enabled, (i.e., normal ability).  No one knows if they are disabled because there is no such thing as normally enabled. 
To illustrate just how subjective disability is consider a few examples.  We recently had a one day media flap (something that has become a fixture of the 24-7 news cycle).  It was about an Olympic sprinter who will be running on prosthetic legs.  Does the absence of legs constitute a disability?  The sprinter felt not and the Olympic Committee agreed.   
Consider Stephen Hawking, a paraplegic and winner of a Nobel Prize in Physics.  Einstein was probably dyslexic. Thomas Edison was deaf or nearly so in at least one ear and his eating disorder went beyond eccentric.  Moving away from science, we’ve had well-known Presidents who were “disabled” (e.g., hard of hearing and almost wheelchair bound).  It isn’t at all hard to list many “disabled” people who made historic contributions to just about every field. They were able to contribute because they didn’t accept the idea that they weren’t able. 
Now that seems harsh since the implication is that there is no such thing as disabled.  So, a disclosure is in order.  This isn’t all theoretical because I’m officially (i.e., by SS standards) disabled.  It is a difficulty I had to overcome my entire working life, but curiosity got the better of me, so, I checked.  My conclusion is that self-identification plays a huge role in disability. 
Disabilities are real, but whether they are disabling in a career/employment sense is quite subjective, subjective enough for economic conditions and political objectives to swamp medical reality.  I don’t consider myself dumb, but according to the SS Administration, I wasn’t smart enough to know I was disabled my entire career.  The alternative interpretation is that the SS Administration is unqualified to assess disability.  More than likely neither the disabled nor the government is qualified to make the judgment. 

Thursday, July 26, 2012

Social Security Disability Insurance Reality Two: A Convenient Way To Cover Up a Failed Policy

Get Them Out of the Labor Force and the Unemployment Picture Looks Better.

From a politician’s perspective, TDI (discussed yesterday) has a drawback.  The recipients are still attached to the labor market even though they are temporarily not counted.  Social Security Disability Insurance fixes that for politicians who are experiencing a policy failure. 

Data for the month of June presented a very good example of how effectively Social Security Disability Insurance can be used to paint over failed policies.  However, it’s just one illustration of what has been going on for a while.  Interestingly, John MerlineJOHN MERLINE12655 Beatrice Street
Los Angeles
 of INVESTOR'S BUSINESS DAILY noticed it.  In “Disability Ranks Outpace New Jobs in Obama Recovery,” he points out how effectively the Obama administration has used it. Investor's Business delivers unique stock investment research, education and stock tips for new or seasoned investors, combined with daily business and financial news.askibd@investors.com310-448-6600WilliamO'Neil12655 Beatrice StreetLos AngelesCA90066USA12655 Beatrice StreetLos AngelesCA90066USA

“More workers joined the federal government's disability program in June than got new jobs, according to two new government reports, a clear indicator of how bleak the nation's jobs picture is after three full years of economic recovery….The economy created just 80,000 jobs in June, the Bureau of Labor Statistics reported Friday. But that same month, 85,000 workers left the workforce entirely to enroll in the Social Security Disability Insurance program, according to the Social Security Administration.”

It goes on to note that: “The disability ranks have outpaced job growth throughout President Obama's economic recovery. While the economy has created 2.6 million jobs since June 2009, fully 3.1 million workers signed up for disability benefits….In other words, the number of new disability enrollees has climbed 19% faster than the number of new jobs created during the sluggish recovery. (Even after accounting for people who left the disability program because they died or aged into retirement, the disability ranks have climbed more than 1.1 million in the past three years.)”

It notes that: “…the ‘labor force participation rate’ — the number of people who have jobs or [are] actively looking for one compared with the entire working-age population — is now 63.8%, down from 65.7% in June 2009. This participation rate is lower than it's been in 30 years. In previous recoveries, the labor participation rate has almost always risen, not fallen.”  Once these people are out of the labor force, they stop being counted as unemployed.  Thus, the unemployment rate looks lower. 

Given Obama’s complete lack of understanding of how the economy works, this isn’t surprising. It’s a success from his perspective.  They’re not unemployed.  They’re disabled.  Can’t blame Obama for that, can you?  However, one sure can see a trail leading right to his failed policies; but will voters follow the trail?  Alas, each new recipient is a new defender of his or her disability and his or her entitlement to benefits.  So, the response to the policy failure builds its own constituency.  Neat trick. Yet, as will be discussed tomorrow, it would be wrong to blame the recipient.

Wednesday, July 25, 2012

Social Security Disability Insurance Reality One: At the National Level Disability Is Unemployment Insurance By Another Name

What’s Old Is New and What’s New is Old

My first exposure to disability insurance was building simulators (mathematical models) for a few states’ Temporary Disability Insurance (TDI) funds.  It was long ago, back when states took funding their trust funds seriously. The TDI funds were added as an afterthought to a project to build simulators for selected states’ Unemployment Insurance (UI) funds.
The UI simulator was quite simple.  As expected, unemployment was the primary explanatory variable and the only one useful for forecasting.  The historical analysis showed the impact of shifts to industries that were less cyclical and seasonal.  However, their effect was minor and dependent on how industry mix was measured.

What was surprising was that TDI claims paralleled UI claims.  Unemployment was the primary explanation for cycles in TDI claims.  Although the cycles were milder, clearly at the aggregate level, claiming disability was a response to a weak labor market. 

More telling was a trend in the frequency of TDI claims.  Although not a steep increase, there was a statistically significant increase in the frequency of claims.  Neither changes in labor force participation rates nor industry mix seemed to explain the trend.  In fact, the states involved were actually attracting industries with lower injury rates.  Casual inspection of the TDI data gave the appearance that each cyclical downturn produced about the same increase in claims when adjusted for their severity, but recoveries didn’t produce as large a decline in claims. One would almost believe rehabilitative medicine had taken a step backward. 

So, “long, long ago in a galaxy far, far away” it was apparent that, at the aggregate level, disability was driven by economics, not physical condition.  It’s still true and politicians know it.  How politicians respond explains the trend. That will be tomorrow's focus.

Tuesday, July 24, 2012

Social Security Reform: Disability Insurance Benefits

Reality should be hard on policy failures

As discussed in last month’s postings, the Old Age and Survivors Benefits component of Social Security could be made viable by voluntary individual actions.  It only requires adjusting the program to reflect twenty-first century reality. The adjustments have no financial cost and minimal political cost, but they require encouraging longer work lives necessitated by increased life expectancies. A major obstacle to responding to reality seems to be that it would mean those politicians who want to run on class warfare-based lies would have to leave Social Security out of their rhetoric.  Some politicians find changing their rhetoric difficult, but others would quickly recognize that there are other ways to take advantage of the politics of envy.
Fixing the Disability Insurance component is more complicated.  Disability is an interesting phenomenon.   At the aggregate level it’s easy to analyze and identify, and as will be discussed tomorrow, it has almost nothing to do with disability.  It’s a different story at the individual level.  It’s extremely hard to analyze and identify, and usually has everything to do with perceived disabilities.
As a consequence, Disability Insurance is too convenient as a way for politicians to hide policy failures.  It is just so darn easy to get away with contradictory positions.  It’s apparent nothing related to disability is ever questioned.  For example, we pay lip service to providing the disabled with equal opportunities.  Simultaneously we provide Social Security Disability Insurance on the assumption the “disabled” can’t work.  Yet, we see no contradiction.  Further, we embrace advances in medicine that improve the ability to diagnose disabling conditions while ignoring medical advances that improve the treatment (e.g., we will have an Olympic sprinter running on prosthetic lower legs).  The reason is that the more government uses SS Disability Insurance to offset economic policy failures (lack of growth and the resulting high unemployment), the more popular it becomes.  
Meanwhile, the public is wise to the game and plays along.  Yet, the public shouldn’t be blamed.  We acknowledge that individuals aren’t always capable of assessing their own capabilities.  However, we fail to realize the same situation all too often applies to disabilities.  We completely ignore the role of motivation as an influence on ability and disability.  We pretend experience doesn’t influence an individual’s perception of disability.  Further, we totally overlook the role of an individual’s economic circumstances in defining disability.  Finally, we concede the judgment of what constitutes a disability to the faceless bureaucracy of government while ignoring the additional complications introduced by the bureaucrat’s prejudices.
The solution is so obvious, but it requires major changes in programs.  Most importantly, treat disability as a policy issue and totally separate it from Social Security.  Perhaps eliminate it as a component of the SS program.  There is no logical reason to complicate a program driven by demographics by folding in a program driven by business cycles. As administered by government, SS Disability Program is more like Unemployment Insurance than Old Age and Survivors benefits.