[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
               FIRST IN A HEARING SERIES ON SECURING THE

                FUTURE OF THE SOCIAL SECURITY DISABILITY

                           INSURANCE PROGRAM

=======================================================================


                                HEARING

                               before the

                    SUBCOMMITTEE ON SOCIAL SECURITY

                                 of the

                      COMMITTEE ON WAYS AND MEANS

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                            DECEMBER 2, 2011

                               _________

                            Serial 112-SS11

                               __________

         Printed for the use of the Committee on Ways and Means





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                      COMMITTEE ON WAYS AND MEANS

                    SUBCOMMITTEE ON SOCIAL SECURITY

                      SAM JOHNSON, Texas, Chairman



KEVIN BRADY, Texas                   XAVIER BECERRA, California
PATRICK J. TIBERI, Ohio              LLOYD DOGGETT, Texas
AARON SCHOCK, Illinois               SHELLEY BERKLEY, Nevada
RICK BERG, North Dakota              FORTNEY PETE STARK, California
ADRIAN SMITH, Nebraska
KENNY MARCHANT, Texas

                       Jon Traub, Staff Director

                  Janice Mays, Minority Staff Director


                            C O N T E N T S

                               __________
                                                                   Page
Advisory of December 2, 2011 announcing the hearing..............     2

                               WITNESSES

  Stephen C. Goss, Chief Actuary, Social Security Administration.    18
  Virginia P. Reno, Vice President for Income Security Policy, 
    National Academy of Social Insurance.........................    31
  Andrew G. Biggs, Ph.D., Resident Scholar, American Enterprise 
    Institute....................................................    43

                       SUBMISSIONS FOR THE RECORD

Allsup, Statement................................................    58
Consortium for Citizens with Disabilities, Statement.............    61
Home Dialyzors United, Statement.................................    66


     FIRST IN A HEARING SERIES ON SECURING THE FUTURE OF THE SOCIAL


                 SECURITY DISABILITY INSURANCE PROGRAM

                              ----------                              


                        FRIDAY, DECEMBER 2, 2011

             U.S. House of Representatives,
                       Committee on Ways and Means,
                           Subcommittee on Social Security,
                                                    Washington, DC.

    The subcommittee met, pursuant to call, at 10:34 a.m., in 
Room B-318, Rayburn House Office Building, the Honorable Sam 
Johnson [Chairman of the Subcommittee] presiding.
    [The advisory of the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

               Chairman Johnson Announces the First in a

              Hearing Series on Securing the Future of the

              Social Security Disability Insurance Program

December 2, 2011

    U.S. Congressman Sam Johnson (R-TX), Chairman of the House 
Committee on Ways and Means Subcommittee on Social Security, today 
announced a hearing series on Securing the Future of the Social 
Security Disability Insurance (SSDI) Program. The first hearing of the 
series will focus on the history of the disability insurance program, 
the income security it provides and its financing challenges. The 
hearing will take place on Friday, December 2, 2011, in B-318 Rayburn 
House Office Building, beginning at 10:30 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Subcommittee and 
for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    The Social Security Act Amendments of 1956 (P.L. 84-880) created 
the SSDI program to provide protection against economic insecurity 
resulting from a disabled worker's loss of earnings. The SSDI program 
pays benefits to those who have worked in the past but are determined 
to be unable to work because of a severe medical condition that is 
expected to last more than a year or result in death.
    Monthly cash benefits are payable to disabled workers and their 
families after a five month waiting period. These benefits currently 
average $1,070 per month for disabled workers. Social Security is an 
important source of income to SSDI beneficiaries. According to the 
Social Security Administration (SSA), almost half of families receiving 
SSDI benefits rely on Social Security for the majority of their family 
income.
    After a two year waiting period, most SSDI beneficiaries are also 
eligible for Medicare. On average, each disability benefit award is 
valued at $250,000 in SSDI and Medicare benefits over a beneficiary's 
lifetime.
    In September 2011, $9.7 billion in benefits were paid to 8.5 
million disabled workers and 2.0 million of their spouses and dependent 
children. According to the Congressional Budget Office (CBO), the cost 
of Medicare benefits for those receiving SSDI benefits in fiscal year 
2009 totaled about $70 billion.
    SSDI benefits are primarily financed through the Social Security 
payroll tax, but the Disability Insurance Trust Fund also receives 
income from the partial income taxation of SSDI benefits, and interest 
earnings on its assets. Of the total tax rate of 12.4 percent (or 6.2 
percent paid by employers and employees, each), 1.8 percentage points 
are allocated by law to the Disability Insurance Trust Fund, while the 
rest funds the Old-Age and Survivors Insurance Trust Fund. In their 
2011 Annual Report, the Social Security Trustees project that the 
Disability Insurance Trust Fund will become exhausted in 2018, at which 
point revenues will cover only 86 percent of benefits.
    According to CBO, between 1970 and 2009, the number of people 
receiving disability benefits more than tripled from 2.7 million to 9.7 
million. During the same period, inflation-adjusted expenditures for 
the SSDI program, including administrative costs, climbed from $18 
billion to $124 billion. The reasons for this apparent growth are 
complex, and demographic changes play an important role. During this 
same four-decade period, the size of the overall workforce has grown, 
the large baby-boom generation has aged into its most-disability-prone 
years, women have entered the workforce and become insured for benefits 
should they become severely disabled, and Congress has periodically 
revised eligibility guidelines. In addition, wage levels--which are the 
basis for both the program's financing and its benefit levels--have 
also risen substantially.
    In announcing the hearing series, Social Security Subcommittee 
Chairman Sam Johnson (R-TX) said, ``Disabilities have a devastating 
effect on individuals and their families, and Social Security 
Disability Insurance benefits provide important income security that 
they rely on. Yet in just seven years the disability program will be 
unable to pay full benefits unless changes to the law are made. Through 
this hearing series the Subcommittee will lead a much-needed 
conversation about the challenges facing this vital program and 
solutions that can meet the needs of those with disabilities and the 
workers who support the program through their hard-earned tax 
dollars.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on the history of the SSDI program, the 
importance of its benefits, the growth of the program and the drivers 
of that growth along with program's current and future financing 
challenges.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``Hearings.'' Select the hearing for which you would like to submit, 
and click on the link entitled, ``Click here to provide a submission 
for the record.'' Once you have followed the online instructions, 
submit all requested information. ATTACH your submission as a Word or 
WordPerfect document, in compliance with the formatting requirements 
listed below, by the close of business on Friday, December 16, 2011. 
Finally, please note that due to the change in House mail policy, the 
U.S. Capitol Police will refuse sealed-package deliveries to all House 
Office Buildings. For questions, or if you encounter technical 
problems, please call (202) 225-1721 or (202) 225-3625.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. A supplemental 
sheet must accompany each submission listing the name, company, 
address, telephone, and fax numbers of each witness.

    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://www.waysandmeans.house.gov/.

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TDD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman JOHNSON. This hearing will come to order.
    Good morning to all of you.
    The Social Security Disability Insurance program has been 
the source of great debate before and since its cash benefit 
program was signed into law in 1956 by then-President 
Eisenhower.
    Soon after Social Security was established in law in 1935, 
serious discussion emerged whether to expand the program to 
workers who became permanently and totally disabled before age 
65 and to their dependents. While some urged action to 
establish these benefits, others were concerned about the 
subjectivity in determining whether a person was truly 
disabled.
    Not surprisingly, this debate came to a head in a post-
World War II society. In the mid-20th century, still living in 
a world created by the American industrial revolution, if the 
sole breadwinner was disabled, there were few options.
    The world in 1956 is a far cry from the world we live in 
today, where we are connected not just by highways but by 
bandwidth, where the Internet has redefined our idea of our 
local neighborhoods, where modern medicine has extended our 
lifespan well beyond anything conceived by our grandparents, 
and where technology has opened up opportunities that are as 
life-altering as the Model T was in the beginning of the last 
century.
    I had a Model A. I tried to get them to put that in there.
    The global economy has changed too. Like Europe, we need 
foreigners to buy our debt in order to finance our government. 
Today, 46 percent of our debt is held by investors outside the 
United States. The debt crisis facing Europe, where bond buyers 
refuse to buy more debt, is forcing many in the European Union 
to make changes to their social benefit programs. Greece and 
other European nations remind us of the price America will have 
to pay if we delay reform.
    Against this backdrop, the disability debate still rages 
on. And, today, the Social Security Disability Insurance 
program pays benefits to individuals with a disability that 
meet certain medical criteria as long as they worked long 
enough and paid Social Security taxes.
    The continuing growth of the program is striking. At a time 
when workers paying into the system has increased nearly 70 
percent between 1970 and 2010, the number of people receiving 
disability benefits increased by almost 300 percent, from 2.6 
million to nearly 10 million. By 2020, the number of 
beneficiaries will continue to increase by 18 percent, to 11.8 
million. By then, total benefits paid will reach $188 billion. 
That is a 52 percent increase over the $124 billion paid in 
benefits just last year.
    Experts tell us the program's growth is due to the changing 
workforce, including the aging of the baby boomers, changes in 
disability policy, and the still struggling economy. That 
continued growth is putting a massive strain on the Social 
Security Disability Insurance program.
    According to the 2011 Trustees Report, without 
congressional action, the Disability Insurance Trust Fund will 
be unable to pay full benefits beginning in 2018. That is only 
6 years from now. The path we are on is unsustainable, and we 
are putting individuals with disabilities at risk if we don't 
act soon.
    This subcommittee, through this hearing series, will lead a 
much-needed conversation about the challenges facing this 
important program and solutions that can meet the needs of 
those with disabilities and workers who support the program 
through taxes on their hard-earned wages.
    We begin today with an examination of the history of the 
Disability Insurance program, the income security it provides, 
and its financing challenges. Through future hearings, we will 
explore the inner workings of the program, including 
vulnerabilities to fraud, the criteria used to determine 
benefit eligibility, how decisions are made in the appeals 
process, and the good thinking that is taking place about 
possible solutions.
    At a time when Washington doesn't seem to be able to agree 
on much, I know that all the members of this subcommittee agree 
on the importance of coming together to ensure that this 
program stays strong for those who truly cannot work.
    [The prepared statement of Chairman Johnson:]
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    I thank you again for being here.
    And I now recognize the ranking member of the Subcommittee 
on Social Security, Mr. Becerra, for his opening statement. You 
are recognized for 5 minutes.
    Mr. BECERRA. Mr. Chairman, thank you very much for calling 
this hearing.
    Today, nearly every working American and his or her family 
is protected against the devastating consequences of premature 
death, career-ending disability, and insufficient retirement 
savings. They have earned the protection; they paid for it. It 
is called Social Security. The benefits, they are basic. Nobody 
gets rich from Social Security. But they are reliable, and they 
are part of why America's families in the middle class grew so 
strong.
    Today we are beginning a series of hearings focused 
specifically on Social Security Disability Insurance, or DI. I 
am glad that we are because I believe in the program. It is 
vital. It provides irreplaceable economic security to those who 
have paid in but are no longer able to work through no fault of 
their own.
    At the same time, let's be as honest as we are human. There 
is always room for improvement. And that, Mr. Chairman, is the 
operative word for these hearings, ``improvement.''
    Are we here today as representatives of those American 
workers to strengthen Social Security's DI program, to re-
enforce that can-do optimism flowing through our own DNA? Or 
are we signaling retreat--retreat from the protections, retreat 
from the services and benefits Americans paid for?
    Without Social Security, about half of Americans who 
receive its benefits would be living in poverty. This is 
particularly true for Americans who have become severely 
disabled and who often have families to care for.
    Remember, workers paid for their benefits. Over its 
lifetime, Social Security has taken in $14.6 trillion and so 
far has only had to pay out to contributing Americans $12 
trillion. That is pretty good surplus.
    Let's be clear. It is not easy to qualify for disability 
benefits, and rightly so. DI is usually only for people who 
have paid into the system--not usually, it is only for people 
who have paid into the system. And it is only available to 
those with the most severe impairments--Americans who are dying 
or who genuinely can't earn a living wage and whose 
disabilities are disabling for at least a year.
    When considering whether you can work, the Social Security 
Administration looks at whether you can do any job in the 
economy, even if it is not in your profession or pays a lot 
less than your old job or requires you to move to a different 
city. In fact, most people with illnesses and disabilities do 
not receive DI benefits; only the sickest people do. How sick? 
About one in seven Americans dies within a few years of 
becoming eligible for benefits. The benefits are not overly 
generous either, averaging about $13,000 a year.
    If you simply compare the number of people getting DI 
benefits 40 years ago to the number getting benefits today, it 
seems large, but that is a loaded way of looking at it. A lot 
has changed in 4 decades.
    For starters, women have entered the workforce in large 
numbers. In 1975, there were about 37 million women in the 
workforce; today, 72 million.
    Baby boomers--we all know about the baby boomers. I 
certainly do; I am one of them. We are not at the age of 
eligibility for retirement benefits yet, but, more and more, my 
cohort is beginning to become disabled or ill. A 50-year-old 
today is roughly twice as likely as a 40-year-old to be 
severely disabled, and a 60-year-old today is twice as likely 
to be disabled as that 50-year-old.
    In addition, we have had this great recession. Some people 
who held a job in spite of very severe illnesses and disability 
have lost those jobs and have not been able to secure 
employment since.
    Once you take into account these demographic changes--a 
larger workforce, an older population, more working women--the 
rate at which newly disabled workers begin receiving benefits 
today compared to the working population is below what it was 
in the mid-1970s.
    Having said all this, SSA needs to have enough people and 
technology to do a good job of managing the DI system. 
Unfortunately, today SSA is operating under a budget that this 
Congress cut imprudently. The result? The number of disabled 
Americans awaiting a decision from SSA on their application for 
earned benefits is again on the rise, despite previous years of 
progress in reducing the backlogs. Today, more than 1.5 million 
Americans are awaiting a decision on their application for 
benefits.
    Some Americans have lost their homes, their families, and 
even their lives waiting for the benefits they have earned. An 
Army veteran in Maryland became homeless and in dire need of 
medical care because her hearing was not held. A gentleman in 
Texas had to file for bankruptcy during the 6 years it took 
before he received the benefits he had earned.
    Mr. Chairman, we have a lot to do. And there are a lot of 
good people who paid into the Social Security system. For the 
smallest share of those Americans who are disabled, whose 
cancer, traumatic brain injury, or arthritis is so severe that 
they cannot work, we have a Social Security disability 
benefit--benefits workers can pay for while working and count 
on when they can't work.
    And for that reason, the operative word for these hearings 
really should be ``improvement,'' improvement of the Disability 
Insurance program.
    I yield back, Mr. Chairman.
    [The prepared statement of Mr. Becerra follows:]
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    Chairman JOHNSON. The gentleman's time has expired. Thank 
you, Mr. Boomer.
    As is customary, any Member is welcome to submit a 
statement for the hearing record.
    Chairman JOHNSON. Before we move on to our testimony today, 
I want to remind our witnesses to please limit their oral 
statement to 5 minutes. However, without objection, all written 
testimony will be made a part of the hearing record.
    We have one panel today, and our witnesses who are seated 
at our table are: Steve Goss, who is the chief actuary at the 
Social Security Administration--thank you for being here; 
Virginia Reno, vice president for income security policy at the 
National Academy of Social Insurance; and Andrew Biggs, 
resident scholar at the American Enterprise Institute.
    Thank you all again.
    Mr. Goss, welcome, and you may proceed.

 STATEMENT OF STEPHEN C. GOSS, CHIEF ACTUARY, SOCIAL SECURITY 
                         ADMINISTRATION

    Mr. GOSS. Thank you very much, Chairman Johnson, Ranking 
Member Becerra, Members of the Committee. It is a pleasure to 
be here, and thanks for the opportunity to come and talk to you 
today about the Social Security Disability Insurance program.
    I would like to talk to you about a couple of things today.
    First of all, as has been stated, the Social Security 
Disability Insurance program provides benefits to almost 9 
million workers today, a total of 11 million beneficiaries, 
including their family members, to the tune of about $130 
billion of expenditures--essential benefits for people who have 
been found to be quite severely disabled and not able to work.
    It is clearly true that the administration of the 
Disability Insurance program, of any disability insurance 
program, is a challenge and is difficult. It is not like a 
retirement program, where we know when you reach 62. It is not 
like a life insurance program; we know when you die. Disability 
insurance is inherently more difficult to administer. And I am 
not here to be a cheerleader, but I would suggest that, in the 
years of experience I have seen, the Social Security 
Administration and the State disability determination services 
are doing a pretty good job of administering this program.
    There are lots of challenges, though. I would like to talk 
to you about two things. One is the actuarial status of the 
Disability Insurance Trust Fund, and the other is the drivers 
that have really driven the cost of the program to be what it 
is today.
    I have a slide, Figure 1 in the written testimony, which 
gives an illustration of what the trust fund levels are 
projected to be for the Social Security Disability Insurance 
program.
    As Chairman Johnson mentioned, we are projecting about 2018 
will be the year at which the trust fund will become exhausted 
for the Disability Insurance program. However, at that time, 
continuing tax income will still be sufficient to pay 86 
percent of scheduled benefits. And, more important, that 
percentage does not decline very much. By the year 2085, we 
project we will still have enough tax income in to cover 83 
percent of scheduled benefits. So the program is on a 
sustainable course; it is just a little shy of funding.
    In order to fully finance the program, we would have to 
have as much as a 16 percent reduction in benefits over the 
next 75 years or a 20 percent increase in revenue or some 
combination of the two.
    This next slide, which is Figure 3 in the written 
testimony, puts in perspective what has happened with the 
Disability Insurance program. And it is the first look at what 
the drivers of the cost of the Social Security program are. We 
can break those into two kinds of drivers for the cost of the 
Social Security program.
    One is the basic demographic drivers, which we have all 
talked about. We have heard mention of the baby boomers. The 
baby boomers are coming up into our retirement system over the 
next 20 years. But the real news to the Disability Insurance 
program is that they are already here. The baby boomers have 
already had maximum impact as of today for the cost of the 
Social Security Disability Insurance program. From 1990 to the 
year 2010, over that 20-year period, the baby-boom generation 
moved from ages 25 to 44, where not many people are disabled, 
to ages 45 to 64, where disability is highly prevalent. So we 
have already moved into the worst of times in terms of 
disability problems. The boomers are there.
    And, thereafter, you can see on this chart that the cost of 
the Social Security Disability Insurance program as a 
percentage of our gross domestic product is about level, in 
fact even declining slightly. So we are at the peak of cost of 
Social Security now, and, actually, the cost goes down 
somewhat. We are at a shortfall, so it is something that needs 
to be addressed, but at least it is not projected to be getting 
worse.
    So why is this? Well, we know on the basic demographic 
driver of population, we have already reached the worst. So 
where do we go from here? The next driver that is really worth 
looking at that is more disability-specific is one that is 
related to something that Mr. Becerra mentioned. More women 
have been working over the last 20 years, but, more 
importantly, more women have been working consistently enough 
to be insured for benefits under the Disability Insurance 
program.
    And you can see on this chart, from 1970 to 2010, the 
percentage of women in our population who are insured for 
disability benefits should they become disabled has jumped from 
35 percent to 70 percent. It has doubled. For men, the 
percentage has stayed about the same. And, at this point, men 
and women are very close together, and, therefore, we do not 
expect a lot of change in the future. We have had a massive 
increase in the number of women who are insured for disability. 
Men have stayed about the same. And, in the future, we expect 
this to be basically stable.
    A second driver that we can look at for the cost of the 
program that has had a lot of influence over time is, of 
course, becoming disabled. If you are insured, the next step 
is, have you become disabled? We look at the number of people 
who become disabled each and every year.
    You can see in this chart how up and down the numbers have 
been in the past, our percentage of people in the population 
that become disabled. They bounce around quite a bit between 
1975 and 2010. But if you look at the line for the males, they 
have been around, 5 per 1,000 over the past 20 years, on 
average, and that is about what we project it will be in the 
future. So we don't expect a lot of change for the probability 
of becoming disabled amongst men.
    Women, however, used to be much less likely to become 
disabled at any given age than men, but they have moved up. 
Just like with the insurance status, women have moved toward 
parity with men. We are reaching a point where women and men 
are now similar. And, going to the future, we expect stability 
on this too.
    We have a chart here that gives some explanations of why we 
have moved up and down so much in terms of the disability 
incidence rates or the probability of becoming disabled. There 
are many factors: economic recessions; changes in policy that 
we will be talking more about.
    But getting back to the basic drivers that have driven what 
has happened in the past, we have had the basic population, the 
tendency to become disabled, and the insured status, and when 
we put all those together, they explain a lot of why the female 
percentage of the population that is disabled, the probability 
of being disabled, has risen so much over the last 20 years.
    Chairman JOHNSON. Can you sum up?
    Mr. GOSS. Absolutely, yes. Virtually done. Thank you very 
much.
    One additional change has occurred, that explains why even 
males have increased their percentage of the population that is 
disabled over this time. We have had a shift in our probability 
of becoming disabled toward younger ages for both men and 
women. Hopefully that is something we can talk more about.
    These are the basic drivers that have driven the cost of 
Social Security up over the last 20 years. And we expect that 
it will be relatively stable in the future.
    Thank you very much.
    [The prepared statement of Mr. Goss follows:]
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    Chairman JOHNSON. Thank you.
    We are facing a vote here in about 10 or 15 minutes. And 
what we intend to do is go ahead with your testimony, and, 
should a vote be called, it will be a long one and we will not 
continue this hearing. What we will do is ask our members to 
submit questions to you in writing, and hopefully you all will 
be able to answer them.
    Mr. BECERRA. And, Mr. Chairman, to clarify, we will go as 
long as we can before the votes are----
    Chairman JOHNSON. Yes, of course.
    Ms. Reno, welcome. Please go ahead.

   STATEMENT OF VIRGINIA P. RENO, VICE PRESIDENT FOR INCOME 
     SECURITY POLICY, NATIONAL ACADEMY OF SOCIAL INSURANCE

    Ms. RENO. Thank you. Thank you, Chairman Johnson, Ranking 
Member Becerra, and other Members of the Committee. I am 
delighted to have the chance to talk to you today about the 
Disability Insurance program.
    I will make the following points very quickly. First, the 
growth in the program is due largely to demographics, and I 
will skip over that because Steve Goss has covered that very 
well. Second, people who get the benefits rely very heavily on 
them, and, as a society, we need this protection. Third, the 
eligibility rules for getting benefits are very strict, and 
they do not appear to have become more lenient over time. 
Lastly, the program does appear to be affordable out into the 
long-term future, as the actuarial projections show, if we are 
willing to pay for it. And, yes, there is room for improvement.
    On the question, ``do people need the benefits?,'' benefits 
are an essential lifeline to those who receive them. That is 
nearly 9 million Americans. Nearly half of the people who get 
benefits rely on those benefits for almost all their income.
    The benefits, yet, are modest: an average of less than 
$13,000 a year for a disabled worker, which is a little more 
than the poverty threshold for one living alone. For a disabled 
worker with eligible children, the average benefit is under 
$20,000 a year. That is a little more than the poverty 
threshold for a family of three, but not much. But the 
disability program helps account for the fact that Social 
Security lifts over 5 million working-age people out of 
poverty.
    This is insurance that people pay for through premiums that 
come out of their paychecks. And the fact that it is insurance 
is critically important. People simply can't save enough on 
their own to cover the risk of disability. This is a risk that 
absolutely requires insurance, because few of us do become 
disabled but the results are devastating when it happens.
    This insurance is also most efficient if it is universal 
through Social Security. We all need it and it is important to 
preserve this.
    On the eligibility rules, they are very strict: inability 
to engage in any substantial gainful activity by reason of an 
impairment that, as determined by medical evidence, is expected 
to last at least a year or result in death. ``Substantial 
gainful activity'' in this context means ability to earn a 
$1,000 a month or more.
    The test considers your capacity to do any work that exists 
in the national economy, not just work you have done before. So 
this test is stricter than in private disability insurance 
systems, in most cases. It is stricter than workers' 
compensation and veterans' compensation, which pay partial 
benefits for partial disabilities. And it does require clear 
medical evidence to document the existence of the condition and 
the functional limitations imposed by that condition.
    As partial evidence of the strictness of the rules, we have 
looked at research over the years about what happens to people 
who are denied benefits. A new RAND study issued just this year 
looked at people denied benefits and found that 20 to 30 
percent of those who had been denied did engage in substantial 
gainful activity.
    What does this mean? It means that, for that 20 or 30 
percent, Social Security's decision to deny the benefits was 
correct. They can, in fact, work, according to the rules of the 
program. But, at the same time, 70 to 80 percent of the people 
turned down for benefits did not go back to work. This suggests 
that many people who have applied for benefits and are being 
denied do, nonetheless, have significant impediments to work. 
This does not necessarily mean we should be liberalizing the 
rules, but it is simply a cautionary tale about the notion that 
the program is becoming too lenient.
    A blue-ribbon panel of the National Academy of Social 
Insurance reviewed all past studies of the program of denied 
applicants for disability insurance benefits from 1964 to the 
1990s. It found that fewer than half of denied applicants later 
worked. The nonworking denied applicants were generally poor; 
they relied mainly on income of other family members or limited 
welfare payments.
    So, to recap, the history of our DI outlays, as Steve Goss 
pointed out, shows that, by and large, the program is keeping 
up with our growing workforce and our aging workforce, as 
boomers are passing through their high disability years. 
Clearly, people need the benefits, and, as a society, we need 
the protection. The rules for getting benefits appear to be 
very strict. The program is affordable and sustainable going 
forward if we are willing to pay for it. And, yes, there is 
room for improvement.
    [The prepared statement of Ms. Reno follows:]
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    Chairman JOHNSON. Thank you, ma'am.
    Dr. Biggs, you are recognized for 5 minutes.

STATEMENT OF ANDREW G. BIGGS, PH.D., RESIDENT SCHOLAR, AMERICAN 
                      ENTERPRISE INSTITUTE

    Mr. BIGGS. Thank you very much.
    Chairman Johnson, Ranking Member Becerra, Members of the 
Committee, thank you for the opportunity to testify today with 
regard to the future of the Social Security Disability 
Insurance program, which pays benefits to almost 9 million 
disabled Americans and, perhaps more importantly, provides 
protection against disability to over 150 million workers.
    Much of the increase in Disability Insurance costs, as 
documented by Steve Goss, are attributable to the aging of the 
population, as individuals shift into the years in which they 
are most likely to become disabled. But much of the cost 
increase is attributable to increases in disability over and 
above what an aging population would imply.
    These increases are puzzling, given that self-reported 
disability rates recorded by the Census Bureau have remained 
roughly constant over the past 3 decades. Given the aging of 
the population, these self-reported disability rates, in which 
individuals report whether they suffer from a disability that 
impairs their ability to engage in work--given the aging of the 
population, these self-reported rates should have risen. So we 
have a puzzle. This implies that the age-adjusted disability 
rates likely have fallen in terms of self-reported rates--the 
opposite of what we have seen in terms of program allowances.
    Lower self-reported disability rates makes sense, though, 
when you consider higher incomes, improved technologies in 
health, and less physically demanding jobs. Remember that in 
the past many Americans worked in factories, mills, and mines, 
which exacted a significant cost to their health. If there is 
an upside to this shift to a service economy, it is that the 
health of workers should improve.
    Whatever the causes, the data seem to reflect improving 
health and lower self-reported disability among working-age 
Americans, and yet caseloads continue to increase. The 
percentage of Americans with self-reported disabilities who are 
in the workforce today dropped by almost half since 1980.
    The key to reform is incentives for employers to provide 
rehabilitation and accommodation rather than to shift disabled 
employees out of the workforce and onto the DI rolls. Under 
current law, a disabled employee represents a cost to employers 
that can be eliminated if the employee goes on DI. SSA, 
likewise, cannot provide re-employment assistance until after 
an individual has been approved for DI, a process that can take 
years, during which time the worker's skills and motivation 
decline. At the crucial time in which a disabled worker might 
be helped to remain a worker, no one really has the incentive 
to do so.
    Proposed reforms are designed to give employers greater 
incentives to keep workers working. Disability reforms passed 
in the Netherlands over the past decade or so have worked from 
this model and have helped reduce what was among the highest 
disability rates in the world to levels that are comparable to 
those in the United States.
    The lesson is that reform cannot think solely in terms of 
the program's finances--of finding a combination of tax rates 
and benefit levels that keep the system solvent over the long 
term. A sustainable solution goes beyond simply saying ``no'' 
to DI applicants but finding ways to keep Americans with 
disabilities on the job and integrated into society.
    Thank you very much.
    [The prepared statement of Mr. Biggs follows:]
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    Chairman JOHNSON. Thank you, sir. I appreciate your 
testimony.
    I am not sure that we have time to go into questions. I 
think we are voting.
    Mr. BECERRA. What if we agree to just, all of us, agree to 
just 2 or 3 minutes instead of 5?
    Chairman JOHNSON. That is okay with me. Can you all agree 
to 2-minute questions? Ask one question? We will try to do 
that.
    Thank you. I appreciate you all being here.
    Mr. Goss, let me ask you, on page 1 of your testimony, you 
say the 3.6 percent cost-of-living adjustment for December 2011 
was larger than expected and wages grew slower than expected, 
both of which may cause the trust fund reserves to exhaust 
earlier than is currently expected.
    Can you tell me how much earlier?
    Mr. GOSS. Yes, I think I can, Chairman Johnson. Our 
projection in the 2011 Trustees Report was that we would be 
solvent, that we would still have trust fund assets in the DI 
program into 2018, but only just barely.
    The level of our trust fund assets was projected to be only 
5 percent of annual program cost at the beginning of 2018. So 
it doesn't take much of a shortfall to bring us back into 2017. 
And it looks as though the higher-than-expected cost-of-living 
adjustment, which provides higher benefits to all of our 
beneficiaries, would be sufficient in and of itself to bring us 
into 2017.
    I might also mention that OMB and CBO are both, at this 
point, projecting 2017 for the exhaustion date. But, again, at 
that point, we would still have enough tax revenue coming in to 
pay 86 percent of benefits.
    Chairman JOHNSON. Yes, there is not as much payroll tax 
going into that system these days.
    Mr. Becerra, you are recognized for 1 minute.
    Mr. BECERRA. Chairman, thank you very much. And thank you 
for indulging us here.
    Mr. Goss, a question. Dr. Biggs pointed out the issue of 
self-reporting. As an actuary, are you and those who work with 
you to come up with these estimates estimating that we are 
going to see a drop in the number of people who are 
classifiable as disabled over the years as the baby-boom 
generation ages into that range?
    Mr. GOSS. Well, we are not really projecting that. And I am 
sure that Dr. Biggs would agree, self-reporting is a tricky 
issue, especially when you are looking over a period of 
decades. The way people view disability and whether or not you 
are disabled can change at a societal level over periods of 
time.
    When we look at the disability incidence rates that we were 
talking about before, the probability of becoming disabled, we 
have seen that it has been really quite stable for men on an 
age- and sex-adjusted basis over time. And for women, the rates 
of becoming disabled have risen quite substantially, but only 
just up to about the level of men.
    So we feel fairly confident that, given that men have been 
pretty stable for a long period of time in their tendency to 
become disabled and women, who used to have a much lower 
tendency, have moved up to be similar to men in their 
likelihood of becoming disabled, that they will probably 
continue to be marching at about the same rates into the 
future. And we are not expecting surprises.
    Mr. BECERRA. Thank you very much.
    I yield back, Mr. Chairman.
    Chairman JOHNSON. Thank you.
    Mr. Schock, you are recognized.
    Mr. SCHOCK. I will yield back.
    Chairman JOHNSON. One minute?
    Mr. SCHOCK. No, I am good.
    Chairman JOHNSON. Are you?
    Mr. SCHOCK. Yep.
    Chairman JOHNSON. You don't question the disability system 
at all?
    Mr. SCHOCK. I got so many questions that----
    Chairman JOHNSON. Okay----
    Mr. SCHOCK. Why don't we start with----
    Chairman JOHNSON. Wait a minute. Are you going to ask a 
question now?
    Mr. SCHOCK. Well, I mean, with 1 minute, I will just yield. 
I needed 20 minutes.
    Chairman JOHNSON. Mr. Marchant, can you question?
    Mr. MARCHANT. Mr. Biggs, in your testimony, you say that 
disability is a subjective condition and that government isn't 
good at making subjective judgments, leaving room for 
discretion, error, and variability. What do you mean by this?
    Mr. BIGGS. Well, disability covers a range of infirmities 
that can go from a slight impairment of your ability to work to 
a total impairment. And, ultimately, Congress has to decide 
where on that spectrum they are going to draw the line and say 
that people on one side of that line are going to qualify for 
benefits and people on the other side of the line are not going 
to qualify for benefits. So it is a subjective judgment, where 
to draw that line. And, obviously, opinions can differ with 
that.
    One of the difficulties, though, is in applying this in 
practice, that we see variability in acceptance rates from 
examiner to examiner. So it means that, even given the rules 
set down by Congress, there is subjectivity in terms who is 
accepted and who is denied. I don't think you can get rid of 
that. It is just the nature of what we are looking at.
    But one of the points I make in my written testimony is 
that Congress has to be very aware that it is the ones that 
makes the decisions. The Congress has been elected to decide 
how we are going to run this program. And so it should try to 
be as concise and specific as it can be in laying out the 
criteria by which people will be accepted for DI benefits so 
that we are not simply passing that off to SSA or to examiners 
or to ALJs, because I think that is not their job. And so I 
think Congress should give them as much specific guidance as 
they can based on the values and judgments that it comes to in 
terms of where we draw that line.
    Mr. MARCHANT. Thank you.
    Chairman JOHNSON. Mr. Schock, you may question.
    Mr. SCHOCK. I have a question for any of the three 
panelists. I am curious if any of you have studied the effect 
of claims for disability benefits based on economic conditions. 
In other words, when there is higher rates of unemployment, 
more joblessness, you could speculate that perhaps more people 
decide that they are unemployable because of a disability.
    Mr. GOSS. Well, we certainly have seen with the most recent 
recession, which started in 2008 and reached the bottom of the 
recession in mid-2009, a significant increase in the number of 
claims for disability for both the Title II DI program and for 
the Title XVI, as you might expect.
    There are a substantial number of people in our population 
who have medically determinable impairments, and many of these 
people, through force of will, through just being very, very 
determined, work anyway. But, clearly, the nature of the 
program is such that people who are in that position have very 
strong medically determinable impairments. If they lose their 
job, they will have a greater opportunity than somebody who 
does not have a medically determinable impairment to come and 
apply for benefits and perhaps get them.
    The other thing that I think is really important to keep in 
mind about the Disability Insurance program and medically 
determinable impairments is that most of these impairments are 
things that do progress over time. If a person has a medically 
determinable impairment to a certain degree, which, as Dr. 
Biggs indicates, may not cross the threshold of qualifying for 
disability, a year or 2 later it may, in fact, cross that 
threshold. That is probably why through the determination 
process sometimes people get allowed a year or 2 after they 
first apply when they were not allowed initially.
    But, certainly, at a time of recession--and on some of the 
charts we have, we show this--the number of people who file for 
disability benefits and end up getting benefits clearly rises. 
This is in large part just because when employment is good, 
when employers are trying to employ lots of people, people with 
impairments and everybody else find it relatively easy to get a 
job. When we hit a strong recession, as we have now 
unfortunately, with lots of people out of work, people will 
still look for a way to put bread on the table. And Social 
Security disability benefits are available for those who would 
qualify.
    But I would hasten to say that I do not think that anybody 
would suggest that the criteria used at Social Security, at the 
DDS examiners, and elsewhere is modified at all at time of 
recession. It is really just a matter of having more people 
apply who would qualify in any case.
    Mr. SCHOCK. So is it your estimation that the same criteria 
is used to determine whether or not they qualify, but those who 
wish to apply goes up because they are out of work?
    Mr. GOSS. Exactly.
    Mr. SCHOCK. Is this one form of receiving assistance?
    Mr. GOSS. I would suggest, I think it is clear that 
everybody in our population--the United States has a very 
strong work ethic if we compare ourselves to many other 
countries, especially on the other side of the Atlantic. And 
given that strong work ethic, virtually everybody in this 
country, given the opportunity for a good-paying job versus 
taking benefits from Social Security, will take the good-paying 
job. So----
    Mr. SCHOCK. I agree.
    Mr. GOSS [continuing]. People who really find their ways 
onto the disability rolls, I think, in general, as Virginia 
Reno indicated, are people who really are having a very hard 
time finding a job, and for a very good reason: because they 
qualify with a medically determinable impairment for----
    Chairman JOHNSON. Thank you for your testimony.
    Mr. SCHOCK. So I am hearing you say you don't think 
Americans are lazy?
    Mr. GOSS. I would concur with that completely.
    Mr. SCHOCK. I agree. Thanks.
    Chairman JOHNSON. Thank you all for bearing with us. We are 
in a little bit of a time compression today. And thank you for 
your testimony.
    And the Members will have some time to write questions, if 
you all will answer them.
    Chairman JOHNSON. And so I thank you for being here, and I 
look forward to working with you and our colleagues as we 
continue to examine the challenges facing this program and 
solutions.
    With that, the committee stands adjourned.
    [Whereupon, at 11:12 a.m., the subcommittee was adjourned.]

                                 

    [Submissions for the Record follow:]

                           Allsup, Statement
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          Consortium for Citizens with Disabilities, Statement
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                    Home Dialyzors United, Statement
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