[Senate Hearing 113-532]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 113-532

                   SOCIAL SECURITY: A FRESH LOOK AT 
                     WORKERS' DISABILITY INSURANCE

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



                                HEARING

                               before the

                          COMMITTEE ON FINANCE

                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 24, 2014

                               __________

                                     
                                     

            Printed for the use of the Committee on Finance



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                          COMMITTEE ON FINANCE

                      RON WYDEN, Oregon, Chairman

JOHN D. ROCKEFELLER IV, West         ORRIN G. HATCH, Utah
Virginia                             CHUCK GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
DEBBIE STABENOW, Michigan            PAT ROBERTS, Kansas
MARIA CANTWELL, Washington           MICHAEL B. ENZI, Wyoming
BILL NELSON, Florida                 JOHN CORNYN, Texas
ROBERT MENENDEZ, New Jersey          JOHN THUNE, South Dakota
THOMAS R. CARPER, Delaware           RICHARD BURR, North Carolina
BENJAMIN L. CARDIN, Maryland         JOHNNY ISAKSON, Georgia
SHERROD BROWN, Ohio                  ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado          PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania
MARK R. WARNER, Virginia

                    Joshua Sheinkman, Staff Director

               Chris Campbell, Republican Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee 
  on Finance.....................................................     1
Hatch, Hon. Orrin G., a U.S. Senator from Utah...................     3

                               WITNESSES

Goss, Stephen C., Chief Actuary, Social Security Administration, 
  Baltimore, MD..................................................     5
LaCanfora, Marianna, Acting Deputy Commissioner, Office of 
  Retirement and Disability Policy, Social Security 
  Administration, Baltimore, MD..................................     8
Vallas, Rebecca D., associate director, Poverty to Prosperity 
  Program, Center for American Progress Action Fund, Washington, 
  DC.............................................................    10
Burkhauser, Richard V., Ph.D., professor, Cornell University, and 
  visiting scholar, American Enterprise Institute, Washington, DC    12

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Burkhauser, Richard V., Ph.D.:
    Testimony....................................................    12
    Prepared statement...........................................    35
    Responses to questions from committee members................    53
Goss, Stephen C.:
    Testimony....................................................     5
    Prepared statement with attachment...........................    58
    Responses to questions from committee members................    75
Hatch, Hon. Orrin G.:
    Opening statement............................................     3
    Prepared statement...........................................    88
LaCanfora, Marianna:
    Testimony....................................................     8
    Prepared statement...........................................    90
    Responses to questions from committee members................   102
Vallas, Rebecca D.:
    Testimony....................................................    10
    Prepared statement...........................................   139
    Responses to questions from committee members................   157
Wyden, Hon. Ron:
    Opening statement............................................     1
    Prepared statement...........................................   167

                             Communications

American Federation of Labor and Congress of Industrial 
  Organizations (AFL-CIO)........................................   169
Consortium for Citizens with Disabilities........................   171
National Committee to Preserve Social Security and Medicare......   180
National Employment Network Association (NENA)...................   183

 
                   SOCIAL SECURITY: A FRESH LOOK AT 
                     WORKERS' DISABILITY INSURANCE

                              ----------                              


                        THURSDAY, JULY 24, 2014

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:10 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. Ron 
Wyden (chairman of the committee) presiding.
    Present: Senators Stabenow, Nelson, Cardin, Brown, Hatch, 
and Grassley.
    Also present: Democratic Staff: Jocelyn Moore, Deputy Staff 
Director; Tom Klouda, Senior Domestic Policy Advisor; Michael 
Evans, General Counsel; and Laura Berntsen, Senior Advisor for 
Human Resources. Republican Staff: Chris Campbell, Staff 
Director; Preston Rutledge, Tax Counsel; and Jeff Wrase, Chief 
Economist.

   OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM 
             OREGON, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The Finance Committee will come to order.
    Today the Finance Committee takes a fresh look at Social 
Security Disability Insurance, a lifeline that keeps 
hardworking Americans afloat in the event of catastrophic 
illness or disability. Obviously, America's workforce has 
changed dramatically since the program began, and Social 
Security Disability has changed along with it. In recent 
decades, for example, more women have earned the protection of 
Disability Insurance, the baby boomer generation has gotten 
older, and the full retirement age for Social Security benefits 
has gone up.
    On a bipartisan basis, colleagues, Congress must ensure 
that this safety net is not shredded. Where there is abuse, let 
us find it and fight it. Let us all focus on the vital goal, 
which is updating and protecting this essential program for 
generations to come.
    Today's hearing is about the realities of an evolving 
program that reflects changing demographics, as well as the 
challenges of our current economy. As the committee 
contemplates the future of Social Security Disability, as well 
as the rights of individuals with disabilities more broadly, 
let us address inequities that exist for women in both the 
workplace and in retirement; create better tools for managing 
chronic illness and coordinating care; and provide adequate 
agency funding to manage the program, including resources that 
are aimed at targeting unscrupulous doctors and lawyers. Let us 
prioritize access to comprehensive mental health care at every 
age, and certainly encourage greater job creation for 
individuals with disabilities by employers.
    Fortunately, there is a substantial amount of information 
about this key program that will help to sustain it over the 
long term. First, the growth in Social Security Disability over 
the last 20 years has been due to factors that the Congress 
expected. Policymakers, including many former members of this 
committee, planned for a fresh look at the Social Security 
Disability program in 2016, based on the shifting winds of 
demographics. One of those changes I have already mentioned: 
more women earning Disability Insurance.
    Just last week, during an important hearing in this 
committee, the Finance Committee heard testimony from Ms. 
Stephanie Dempsey. Stephanie is a 44-year-old Georgia mother, 
and she has always worked. She owned her own home and was 
happily married. But in her late 20s, Stephanie was diagnosed 
with a hereditary heart disease. The quadruple bypass surgery 
she had at age 30 was just the first of several operations she 
has undergone to place 27 stents in her arteries.
    In addition to heart disease, she now suffers the disabling 
effects of lupus, arthritis, and seizure disorder. Stephanie 
has to take 19 prescription drugs every day. I am looking at 
the witness table, because I will not forget that last week Ms. 
Dempsey was sitting where one of our witnesses is with a 
mountain of prescription bottles stacked up on a tray when she 
came before the committee. She takes those medicines each and 
every day, colleagues, and the illness has cost her her home, 
it has cost her her independence, and it has cost her her 
family.
    She wants to work but she cannot do it, due to her chronic 
illness. She worked and she earned this benefit. She was able 
to use her Social Security Disability Insurance, and, in the 
struggle to pay her bills, it has been a big help to her. It 
does not take care of everything, but it has made a difference.
    Stephanie is not alone. Women now make up nearly half of 
the 9 million workers enrolled in Social Security Disability 
Insurance, and Social Security Disability Insurance supports 
about 1 million veterans.
    Second, I hope we will recognize that Social Security 
Disability Insurance is not a giveaway. Workers earn coverage 
for themselves and their families by working. The applicant 
must have a physician document a medical impairment that 
renders them unable to do substantial work. Less than 40 
percent of applications are approved for benefits, even after 
appeals.
    For workers receiving Disability Insurance, it is usually 
more than half of their income. The average Social Security 
Disability benefit for a disabled worker is $1,146 a month, 
just above the individual poverty level. Without that benefit, 
half of the families receiving Social Security Disability would 
be in poverty in our country.
    Third, we know it is critically important to make sure 
disability benefits are going to those who need them, and that 
is not always easy. A small number of bad apples, unscrupulous 
doctors and lawyers, are always willing to commit fraud. But, 
according to the Social Security Administration's Inspector 
General, the program's front-line employees are highly skilled 
at identifying when things are not right. In the past 6 months, 
they reported over 32,000 suspicious claims to the Inspector 
General, and the Inspector General found that Disability 
Insurance payments are more than 99 percent accurate.
    So let us, colleagues--and again, each of these areas I 
want to make bipartisan. Let us not make budgetary changes at 
Social Security that result in less oversight and more money 
lost to over-payments or fraud. That would mean fewer resources 
for those who rely on the program, which, as I have mentioned, 
includes women and their families.
    The last point I will make is, we know we have to act by 
2016 to shore up the Disability Insurance trust fund. In the 
past, reallocating resources within Social Security has been 
routine and non-controversial. Since the disability program 
began, the combined tax rate has been reallocated--reallocated, 
colleagues--11 times. Some reallocations increased the tax rate 
going to the retirement trust fund and decreased the rate going 
to the Disability Insurance trust fund. Other reallocations did 
the opposite. The 1980 reforms to Social Security shifted money 
from Disability to the retirement program. In 1994, the 
Disability trust fund needed support, so policymakers decided 
to reallocate the tax rates to extend Social Security 
Disability and to allow for more time to collect the data that 
is so essential to the program.
    Congress now has 20 years of experience to assess how 
Disability Insurance is functioning, and maintaining this 
lifeline is critical. So I look forward to working with 
colleagues on both sides of the aisle as we take a fresh look 
at the program and work toward long-term solutions that keep 
the promise of Social Security's earned benefits for many years 
to come.
    [The prepared statement of Chairman Wyden appears in the 
appendix.]
    The Chairman. Senator Hatch, thank you. I look forward to 
working closely with you on these issues.

           OPENING STATEMENT OF HON. ORRIN G. HATCH, 
                    A U.S. SENATOR FROM UTAH

    Senator Hatch. Well, vice versa. Thank you, Mr. Chairman, 
for holding today's hearing. This is an important topic that 
deserves our immediate attention.
    In 2013, the Social Security Disability Insurance, or DI 
program, provided over $140 billion in benefit payments to 
nearly 11 million disabled workers and dependents. According to 
CBO, the number of DI beneficiaries increased nearly 6-fold 
between 1970 and 2012, and, over the past 40 years or so, 
outlays for benefits have grown by more than 9 times. There are 
various reasons for the growth, including demographics, changes 
in the composition of the workforce, relaxation of benefit 
eligibility criteria, and others.
    Now, I hope that we can begin to explore these areas today.
    DI benefits are funded from payroll tax receipts and assets 
in the DI trust fund, which are projected to be exhausted 
sometime around 2016. At that point, under current law there 
will be abrupt across-the-board benefit cuts of around 20 
percent. No one wants that to happen, which is one reason why 
we are here today to begin responsibly looking at the DI 
program.
    Indeed, it is our responsibility to fully examine this 
system and work to improve it and its finances where we can. 
Some believe that we could solve all or most of the financial 
challenges facing the DI program, and Social Security in 
general, through higher taxes. I made several requests to the 
Congressional Budget Office regarding this strategy, and recent 
analysis performed in response to those requests shows how 
difficult this approach can be.
    Most proposals to reform Social Security by raising payroll 
taxes would result in massive tax increases, particularly on 
middle-class Americans, negatively impacting job growth and 
harming middle-income families. That is hardly what our economy 
needs.
    I think there is definitely more we can do on the program 
integrity side. While I am not sure that the DI program is rife 
with fraud, we should work to prevent whatever instances of 
fraud we can. While I do not think that administrative law 
judges in the DI program who hear decision appeals cases are 
all bad actors, each erroneous decision can cost the trust fund 
hundreds of thousands of dollars. That being the case, we need 
to protect against frivolous decision-making that can quickly 
add up to billions of dollars in improper DI benefit payments.
    Sadly, the Obama administration's approach to DI and Social 
Security in general has largely been to remain silent, even in 
the face of the impending DI trust fund exhaustion. The only 
major structural change that the administration briefly 
considered was adoption of the chained CPI and government-wide 
price indexation, coupled with benefit enhancements for 
vulnerable populations. However, the President has since 
withdrawn even that modest proposal and has publicly stated 
that he would not even discuss the idea unless he was assured 
of getting yet another tax hike to go along with it.
    Now, Mr. Chairman, I come to today's hearing in the 
interest of having us responsibly examine the DI program to see 
what can be done and what we can agree upon to help improve the 
program and its finances for today's beneficiaries and, of 
course, future generations. I also believe that it would be 
irresponsible to simply take the expedient route of agreeing at 
this time to merely rubber stamp a payroll tax reallocation 
without examining the DI program to see what could be changed, 
what innovations could be considered, and what could be done in 
the face of projected trust fund exhaustion and over $23 
trillion in unfunded obligations in the Social Security system.
    It is premature to agree on some payroll tax reallocation 
as a patch of convenience and to kick the can down the road yet 
again. Now, I am willing to work with you, Mr. Chairman, and 
anyone in Congress, to see what we can do before DI trust fund 
exhaustion in 2016. There are many options that we already know 
about, but we can also examine more innovative ideas. For 
example, it could be worth looking at pay-for-success funding 
models to help fund one of the DI proposals in the President's 
budget. I am also willing to see if there are ways to improve 
funding flows for Continuing Disability Reviews in the DI 
program, another concept found in the President's budget.
    In the end, it seems to me that we have two paths to choose 
from. One is what I have just traced out involving inquiry, 
research, and examination of what we can do to enhance the DI 
program and its finances and what we can agree upon. The other 
is to engage in divisive political rhetoric and demagogue the 
issue even further, which is irresponsible, in my view, and not 
what disabled American workers, and all workers ensured by 
Disability Insurance, should tolerate.
    As I have tried to make clear, my preference is for the 
first path of cooperation, bipartisanship, and responsibility. 
I hope that, in the end, that is the path we will take.
    So I want to thank you again, Mr. Chairman, for agreeing to 
hold today's hearing.
    The Chairman. Thank you, Senator Hatch. I think, as you and 
I have talked--and I always enjoy our weekly sessions--we are 
going to work very closely on these issues, and others. I just 
want colleagues, as we start this debate, to remember Stephanie 
Dempsey sitting at that table there, because she did everything 
right, and she just got walloped with every possible illness. 
She came before the U.S. Senate with all those medications 
stacked up on the witness table and was just hoping, hoping 
that we would come up with policies that would work for her.
    [The prepared statement of Senator Hatch appears in the 
appendix.]
    The Chairman. So we are going to all work together. We have 
a terrific panel here today. Let me just introduce them.
    Our first witness will be Mr. Stephen Goss. He is the Chief 
Actuary at the Social Security Administration. Our next witness 
will be Ms. Marianna LaCanfora--I hope I am pronouncing that 
correctly--Acting Deputy Commissioner, Office of Retirement and 
Disability Policy at Social Security. Our third witness will be 
Ms. Rebecca Vallas, who is associate director of the Poverty to 
Prosperity Program at the Center for American Progress. Our 
final witness will be Dr. Richard Burkhauser, who is a 
professor at Cornell University and an adjunct scholar at the 
American Enterprise Institute.
    We thank all of you for coming. It is our custom here at 
the Finance Committee to make your prepared statements a part 
of the hearing record, and, if you could take your 5 minutes or 
so to summarize, that would be very helpful. This is a topic 
that I know my colleagues are very interested in exploring with 
you, so let us go with you to start, Mr. Goss.

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

    Mr. Goss. Chairman Wyden, Ranking Member Hatch, members of 
the committee, thank you very much for the chance to talk to 
you today. I hope this will not be a debate, at least from this 
panel, because we have some facts to share with you.
    I would like to walk you through a few of the figures that 
I have in the written testimony and just tell you a few things 
to help elaborate on the points made there. First of all, let 
me just mention, by the way, in addition to the 9 million 
disabled worker beneficiaries we have under the DI program--
which is the one that has the trust fund that is looking 
towards possible reserve depletion at the end of 2016--we have 
155 million American workers and their families who are insured 
against the possibility of becoming disabled and receiving 
those benefits.
    So it is for more than just those who are receiving 
benefits; it actually provides insurance protection for 
virtually all the workers in our economy. So on our first slide 
that we have here, we have just a little picture. Some of you 
have seen this before. What this really does is, to the left of 
the black vertical line, it shows what the cost as a percentage 
of GDP was for the DI program and how it has risen, especially 
from around 1990 to 2010, for reasons that I will try to 
explain here in just a moment. But it also shows that, going 
forward, we project that, in fact, the cost of the DI program 
will be essentially leveling off, again for reasons I will try 
to explain here in a moment.
    The critical point about this is that, under current law, 
the scheduled level of revenue or income for the program is a 
little bit less than what is scheduled for the cost of the 
program, and that is really the problem that you all have to 
try to address. As an actuary, I can only just sort of tell you 
what we are facing, but we depend on you all to make the 
decisions about how to move forward.
    So, on our next slide we actually show what really has 
fundamentally caused this issue. Senator Wyden expressed this 
very well; I could not do it any better. But let me just share 
with you a little further thought. This slide shows you, as we 
march from 1940 out to today and into the far future, the 
distribution of our adult population by age groups.
    What is critical here is, if you see the center line, the 
center line shows you the percentage of our adult population 
that is of working age; the amount of the distance below, that 
is our working-age population. The amount that is below the 
bottom line is the amount of young adults of working age. So 
the age for disabled worker beneficiaries falls between the 
center and bottom lines.
    You can see between 1970 and 1990 that the distance between 
the center and bottom lines, which is the age group of age 45 
to 64--that is the older adult working-age population, the 
folks who are most likely to become disabled--was shrinking. 
Those are the good times. Now, the not-so-good times were when 
the baby boomers were moving into that age bracket between 1990 
and 2010. That is when we had the big run-up in disability 
costs. That is the principal problem, and there are other 
problems we will talk about in a moment.
    The good news is that, as we move into the future, that 
share of our adult population and working-age population will 
stabilize and even decline for the disability ages, so we will 
indeed have a stabilization, even a reduction, in the cost of 
disability. The bad news is that, of course, those baby boomers 
are going where? They are going to go above 65, and they are 
going to become retirees. So to deny that we will have a 
stabilization of the growth rate in the disability program 
would be to deny that we will have the increase in the 
retirement age. They go together.
    On the next slide, I wanted to share with you also, just by 
way of talking a little bit about this, the increase that we 
have foreseen. If we go back to the 1995 trustees' report--
which is an important one, because that was the trustees' 
report that came out right after the last major legislation for 
disability, when we had that reallocation which saved the trust 
funds from depleting--you can see that, compared with what we 
actually had predicted, in 1995, 2000, and 2005, the projected 
level of cost as a percentage of GDP for the DI program has 
actually turned out, on the right-hand bars, to be lower than 
we were projecting in the 1995 trustees' report.
    Now, for 2010 and 2015, we had this unfortunate recession 
occur, quite a severe one, that caused the right-hand bars to 
be higher, which is the actual cost of Social Security 
Disability Insurance in 2010, and we expect in 2015 it will be 
a little bit higher than we had projected in 1995. Why? We were 
not expecting a big recession back in 1995 for that period.
    Going forward, just going back to the trends that we have--
demographics and disability--we expect that, again, we will 
have costs that are lower in the future than we had been 
projecting back in 1995.
    On the next slide--I do not have a lot of time, so I do not 
want to spend a lot of time on this particular slide--this 
really just shows the relationship between the changing 
unemployment rates, the economy, and the incidence rates of 
disability.
    The next slide also gives you a little bit different look 
at that, because we have also done some work showing the effect 
of the changing unemployment rates and the state of the economy 
on the allowance rate for disability beneficiaries. It is true 
that, when we have a major recession, we tend to have more 
people apply for benefits, but the percentage of them who are 
actually allowed goes down.
    On our next little picture here we have something that 
explores a little bit more what actually happened in this 
recession. In this recession, the cost as a percentage of GDP, 
as indicated earlier, did go up. But why was that? It is mainly 
because the reduction in GDP itself far exceeded the percentage 
increase in the cost of disability benefits.
    The next slide even more graphically illustrates this. The 
right-hand bars on the next slide show you the number change, 
that is the reduced numbers of workers we had in our economy as 
a result of the recession, versus the short left-hand bars, 
which show the increase in the number of disabled worker 
beneficiaries. The reduction of the workforce was much higher 
in the recession than the increase in beneficiaries, and that 
is really why our cost as a percentage of GDP has temporarily 
gone up.
    So, when we go to this next slide, we can see what we have 
seen before. Back in 1995, we were projecting that the trust 
fund reserves would deplete in 2016, as Senator Wyden said. We 
had this wonderful period from 1995 to 2005. Some might recall 
it being referred to as the New Economy, when people thought 
great productivity would go on forever. That did go on forever. 
As a result of that, the projections our trustees made did get 
a little bit more optimistic. This late recession has brought 
us back to reality, and we are back to 2016.
    I am almost at the end here. This next slide gives you 
something that some have seen before, but it just gives a 
breakdown of the increase between 1980 and 2010, over that 30-
year period, where we had almost a tripling in the number of 
disabled worker beneficiaries. But we show, if you move from 
left to right, that was largely because of the increase in the 
general population of working age and the change in the age 
distribution. On the next slide, another item that Senator 
Wyden----
    The Chairman. If you would not mind, Mr. Goss--and I am 
very interested in your testimony--I just know you are a little 
bit over your time.
    Mr. Goss. Oh. All right.
    The Chairman. I want to be sensitive to my colleagues.
    Mr. Goss. All right. If I can just go to what is really the 
next-to-the-last slide just for one really quick item--and this 
is really what we are facing. What we are facing is the reserve 
depletion coming up at the end of 2016. We depend on you all to 
come up with something. On the very last slide we do have 
something that was included in the testimony. It is one 
possibility for keeping the benefits whole going forward, which 
is a tax rate reallocation, much as we did in 1994 and many 
times before.
    Thank you very much. I wish we had more time.
    The Chairman. Great. Well, I know you are going to get many 
questions from Senators.
    Mr. Goss. Oh. All right. I hope so.
    [The prepared statement of Mr. Goss appears in the 
appendix.]
    The Chairman. And now let us go to Ms. LaCanfora.

 STATEMENT OF MARIANNA LaCANFORA, ACTING DEPUTY COMMISSIONER, 
  OFFICE OF RETIREMENT AND DISABILITY POLICY, SOCIAL SECURITY 
                 ADMINISTRATION, BALTIMORE, MD

    Ms. LaCanfora. Chairman Wyden, Ranking Member Hatch, 
members of the committee, thank you for inviting me to discuss 
the Social Security Disability Insurance program. I am Marianna 
LaCanfora, Social Security's Acting Deputy Commissioner for 
Retirement and Disability Policy.
    The DI program provides benefits to disabled workers and 
their dependents. Workers become insured under the program 
based on their contributions to the Disability trust fund. For 
this reason, the DI benefit is rightfully described as an 
earned benefit.
    When we decide whether a person qualifies for DI benefits, 
we are required to follow the definition of disability that 
Congress included in the Social Security Act. The Act generally 
defines disability as the inability to engage in any work--
substantial gainful activity--due to a medically determinable 
physical or mental impairment that has lasted, or is expected 
to last, for at least 1 year or to result in death. This is a 
very strict standard of disability, and most people do not meet 
it.
    In fact, while 57 million Americans report living with 
disabilities, only 14 million disabled individuals receive our 
benefits. This includes more than 1 million veterans. To apply 
the statutory definition of disability, we do a rigorous, 
structured analysis of each case using a 5-step sequential 
evaluation process. At step one, we determine whether a person 
is working and engaging in substantial gainful activity. If so, 
we deny that claim.
    At step two, we assess the existence and severity of a 
person's impairment, using objective medical evidence. If we do 
not find a severe impairment, we deny the claim.
    At step three, we determine whether the severe impairment 
matches the criteria of a listing. The listings describe, for 
each major body system, the impairments considered so 
debilitating that they would reasonably prevent someone from 
working. If a person has a listing level ``severe'' impairment, 
we allow that claim. If not, we proceed to step four.
    At step four, we consider, in light of a person's 
impairment, whether that person can do any work that they have 
successfully done before. If so, we deny that claim.
    At step five, we also consider an individual's age, 
education, and work experience, and determine whether they can 
do work that exists in the national economy. If they can, we 
deny the claim. If they cannot do any work that exists in the 
national economy in significant numbers, we will allow that 
claim.
    Our partners at State agencies, called the Disability 
Determination Services, make initial disability decisions. They 
also reconsider the decisions of denied claimants when they 
appeal. Persons denied benefits by the DDS can request a 
hearing before a Federal administrative law judge, and 
thereafter they also have the right to appeal to our appeals 
council and then in Federal district court.
    Without question, administering the Social Security 
Disability program is a uniquely complex and challenging task. 
Our goal is to keep pace with medicine, science, technology, 
and the world of work. We consult with the foremost experts and 
have partnerships across government.
    Currently, we are collaborating with the National Academy 
of Science's Institute of Medicine to update all of our 
disability rules with the most current medical science. We are 
also collaborating with the Department of Labor to update all 
of our occupational information, and we are collaborating with 
the Retirement and Disability Research Consortium to build an 
evidentiary base for potential policy improvements.
    In recent years, deep budgetary cuts have made 
administering the Disability program more difficult. In fact, 
for the last 3 years prior to 2014, our agency received an 
average of nearly $1 billion less than the President requested 
for our administrative budget, including our program integrity 
work. We lost about 11,000 employees over that 3-year period. 
That level of chronic under-funding caused service degradation 
and increased our backlogs.
    While our budget level in fiscal 2014 meets our needs more 
adequately than in prior years, it is insufficient to make up 
for all the losses in those prior years. We still have 
significantly fewer employees than we had in fiscal year 2010, 
our workloads remain high, and we must make difficult trade-
offs as we balance service with our program integrity work.
    Sustained and adequate funding is critical. The fiscal year 
2015 President's budget would allow us to better balance our 
important service and program integrity efforts. We need your 
support of the President's budget to meet our obligations to 
the public we serve.
    Thank you for the opportunity to be before you today. I 
would be happy to answer any questions.
    The Chairman. Thank you very much.
    [The prepared statement of Ms. LaCanfora appears in the 
appendix.]
    The Chairman. We welcome, now, Ms. Vallas. Welcome.

STATEMENT OF REBECCA D. VALLAS, ASSOCIATE DIRECTOR, POVERTY TO 
 PROSPERITY PROGRAM, CENTER FOR AMERICAN PROGRESS ACTION FUND, 
                         WASHINGTON, DC

    Ms. Vallas. Thank you, Chairman Wyden, Ranking Member 
Hatch, and members of the committee. My name is Rebecca Vallas, 
and I am the associate director of the Poverty to Prosperity 
Program at the Center for American Progress.
    The subject of today's discussion is of the utmost 
importance to all of us as Americans, because any of us could 
find ourselves in the position of needing to turn to Disability 
Insurance at any time.
    Imagine that tomorrow you are cleaning out your gutters, 
you fall off a ladder, and you suffer a traumatic brain injury 
and spinal cord damage, leaving you paralyzed and unable to 
speak. Unable to work for the foreseeable future, you have no 
idea how you are possibly going to support your family.
    Now, imagine your relief when you realize an insurance 
policy that you have been paying into your entire working life 
will be there for you and help keep you and your family afloat. 
That insurance policy is Social Security. I am sure we can all 
agree that no one wants to see this important program weakened 
or its basic but crucial benefits cut.
    In fact, the American people have made clear, time and 
again, that they are strongly supportive of Social Security and 
strongly opposed to benefit cuts. Indeed, recent polling by Pew 
found that that was just about the only thing Americans could 
agree on. I look forward to discussing how we can work together 
to strengthen this vital program so that it can continue to 
protect American men, women, and children for decades to come.
    I will make three main points today. First, Social Security 
Disability Insurance, or DI, provides basic but essential 
protection that workers earn during their working years. Social 
Security protects more than nine in 10 American workers and 
their families in case of life-changing disability or illness.
    As Marianna noted, DI is coverage that workers earn. With 
every hard-earned paycheck, American workers pay into the 
system through payroll tax contributions which serve more or 
less as insurance premiums. DI, thus, provides insurance that 
is otherwise out of reach for most families. Just one in three 
private-sector workers has employer-provided long-term 
disability insurance, and those plans are often far less 
adequate than Social Security. Coverage is especially scarce 
for low-wage workers, so in effect Social Security corrects for 
a market failure, ensuring that American workers and their 
families have basic but essential insurance that most of us 
could never afford on the private market.
    As the chairman noted, DI benefits are incredibly modest, 
but they are incredibly vital to American workers and their 
families. For more than 80 percent, DI is their main or sole 
source of income, and benefits are so modest that nearly one in 
five disabled worker beneficiaries lives in poverty, but, 
without DI, more than half would be poor. Disabled workers use 
DI for basic needs such as paying their rent, paying their 
mortgage, affording food, affording co-pays on needed, often 
life-sustaining medications. Without Social Security, the 
alternatives for many would be unthinkable.
    My second main point today is that Social Security's 
eligibility criteria are stringent, and only workers with the 
most severe disabilities and illnesses qualify for benefits. I 
will not repeat the definition of disability which Marianna so 
ably explained, but I will point out that what the definition 
of disability requires is that a worker not only be unable to 
do his or her past jobs, but also any other job in the national 
economy at a level where he or she could earn even $270 per 
week.
    According to the OECD, comparing our DI program to other 
industrialized nations, we have one of the strictest disability 
standards in the entire industrialized world, and the majority 
of applicants are denied under this strict standard. Many are 
terminally ill. Thousands die each year waiting for their 
needed benefits, and nearly one in five beneficiaries dies 
within 5 years of receiving benefits.
    Third and finally, it is no surprise that action will soon 
be needed to address the program's finances. As Chief Actuary 
Goss pointed out, the 1995 trustees' report provided ample 
warning of DI's reserve depletion in 2016, and the program's 
finances have been on a predictable path ever since.
    Unfortunately, a great deal of misinformation has been 
proffered about this vital program, and I am sure we can all 
agree that this misinformation does not serve an honest debate. 
The reasons for the program's period of rapid growth, which the 
Chief Actuary noted has now come to an end, are well-understood 
and are chiefly demographic. The growth was not a surprise, nor 
does it indicate that the program is anything but working as 
intended.
    Fortunately, as the chairman noted, a simple, routine step 
that Congress has taken nearly a dozen times in the program's 
history, in a bipartisan manner on every occasion, would put DI 
and the entire Social Security system on sound financial 
footing for the next 2 decades. It is called reallocation, and 
it has occurred no less than 11 times, about equally in both 
directions. The last time reallocation was done in 1994, it was 
enacted by a unanimous vote in both the House and Senate, 
receiving the bipartisan support of several Senators who serve 
on this committee today.
    In closing, I would like to borrow the words of Robert 
Ball, who served as Commissioner of Social Security under 
Presidents Kennedy, Johnson, and Nixon. Commissioner Ball 
noted, ``I see little merit in doing anything less than 
financing Old-Age and Survivors Insurance and Disability 
Insurance on approximately equal terms.''
    The most important point, of course, is to maintain 
confidence in the Social Security system as a whole. When it 
comes to Social Security, the will of the American people is 
clear: they value and support this program and, indeed, want to 
see it strengthened. Policymakers have many options to ensure 
long-term solvency of the overall system and a window of 20 
years to arrive at a package that will accomplish that goal.
    In the meantime, policymakers should take the common-sense 
step of enacting a simple payroll tax reallocation, as has been 
done 11 times in the past, to keep DI on sound footing past 
2016. Failure to do so would be not only unprecedented, but 
also nothing short of devastating to millions of disabled 
workers and their families.
    I would be happy to take any questions that you have, and 
thank you.
    The Chairman. Thank you very much, Ms. Vallas.
    [The prepared statement of Ms. Vallas appears in the 
appendix.]
    The Chairman. Dr. Richard Burkhauser, we are glad to have 
you. Please proceed.

 STATEMENT OF RICHARD V. BURKHAUSER, Ph.D., PROFESSOR, CORNELL 
     UNIVERSITY, AND VISITING SCHOLAR, AMERICAN ENTERPRISE 
                   INSTITUTE, WASHINGTON, DC

    Dr. Burkhauser. Thank you, Senators. I love to solve 
problems, and one of the wonderful things about my life is that 
Cornell University now pays me an enormous amount of money to 
solve the problems that I choose to solve.
    If you want to take a fresh look at what is going on with 
SSDI, I think you have to answer and solve these two puzzles. 
First is, what accounts for the growth in the prevalence rate 
of SSDI recipients as part of the working-age population? 
Second is, will this growth continue into the future? We have 
heard some discussion about this already.
    I certainly agree with the previous speakers that 
increasing the retirement age is important, the aging of the 
population is important, and women's labor force growth is 
important. But Mary Daly at the San Francisco Federal Reserve 
Bank and Jon Schwabish at the CBO, as well as David Autor at 
Harvard and Mark Duggan at Stanford, using shift/share analysis 
in separate research papers, argue that while these one-time 
factors are important, they only explain part of the growth in 
SSDI prevalence rates. As can be seen in slide 1, Daly and 
Schwabish find that only about 56 percent of this growth since 
1980 is explained by these factors.
    The factors that account for the other 44 percent have not 
been discussed by the other members of the panel, and they are 
critical. What is driving that 44 percent? Well, in my view, it 
is public policy changes that have eased entry into the system: 
relaxation of entry rules through changes in mental illness 
criteria; the use of back pain, making it more difficult for 
CDRs to remove people who are able to work; and, more 
importantly, the way that Social Security gatekeepers have used 
these rules in their decision-making.
    In a 2013 American Economic Review article, Nicole Maestas 
and her co-authors, one a researcher from the Social Security 
Administration, found that, in 23 percent of all cases heard by 
DDS folks, the decision was based on the luck-of-the-draw of 
whether the applicant got a hard or easy evaluator. The problem 
is that it is increasingly difficult to make these hard 
decisions on medical criteria alone. In more than 50 percent of 
these cases, the decision has to be made on vocational 
criteria.
    So, having said that, if you look at the next slide, what 
the Office of the Chief Actuary has nicely done--and these 
numbers are available on the SSA website--is show us what 
history has told us, that between 1977 and 2013 there was a 
rapid rise in the number of people on the rolls. Look 
especially at the period between 1992, where it was 3.47 
million, to 2012, where it was 8.83 million.
    More boldly, the Chief Actuary has told us that this growth 
is going to substantially decrease. As a matter of fact, after 
2025, it is going to stabilize and not increase at all. I hope 
that is the case. But the work of Daly and Schwabish and of 
Autor and Duggan suggests otherwise. Daly, Duggan, and I were 
each members of outside panels asked to evaluate the Chief 
Actuary's methods and assumptions over the last dozen years, so 
we have talked to him about his predictions over the years.
    The next slide will show you why I am doubtful that the 
Chief Actuary's predictions will come true. This is a history 
of the Office of the Chief Actuary's predictions over the last 
25 years about growth in SSDI prevalence rates, the very 
predictions that he is making today. What we see in the black 
line is the actual increases. In 1988, he predicted that growth 
would not be very great, and he was wrong. In 1991, he 
predicted growth was not going to be very great, and he was 
wrong. In 1996, he actually predicted growth that was greater 
than what happened over the next few years. This is the 
projection he is now arguing is the one that got it right, if 
you extend it out to 2013. But in 2001, he predicted that it 
was going to be less than that, and in 2005 he also predicted 
that it was going to be less than that. And these predictions 
were wrong.
    What is going on here? Why is it so hard for him to predict 
the future? Well, because it is hard for anyone to predict the 
future. But it is also because, in his predictions of the 
future, he has not taken into consideration in a systematic way 
the 44 percent of growth that is accounted for by changes in 
the SSDI program itself. Policy changes matter.
    So let us go to the next slide. What I am urging you to 
do--and what I am urging the Social Security Administration to 
do--is to put a band around possible future growth increases. 
The top line shows you what would happen to growth if it simply 
increased at the same rate it has been increasing since 1980. 
We see substantial growth much above the growth that is 
predicted by the Chief Actuary.
    Why does this matter? It matters because, if you really 
believe that these are once-and-done changes in the increase in 
the SSDI rolls, then a once-and-done, one-time single increase 
in SSDI taxes will match long-term revenues to long-term 
expenditures. But, if that is not the case, there will be 
continuous growth in prevalence rates, and this one-time tax 
increase will only be a down payment on the future growth in 
expenditures. In that case, we need to think more carefully 
about structural changes that will slow down this future 
growth.
    Thank you.
    The Chairman. Thank you very much, Doctor. I know we are 
going to have a good discussion with colleagues on both sides.
    [The prepared statement of Dr. Burkhauser appears in the 
appendix.]
    The Chairman. Ms. LaCanfora, let me start with you. Back as 
a young guy, I ran the Senior Citizens Law Service and Gray 
Panthers. We followed these programs very carefully. I 
particularly looked at this question of whether it was somehow 
easy to get these benefits, and I have tried to follow this 
over the years.
    I was struck, in preparing for the hearing, by a Los 
Angeles Times article, specifically a comment by a Jerry 
Mashaw, who is an authority on these issues at Yale Law School. 
He said something that really struck me. I am curious. You have 
been in the field for years and years--I gather decades--and I 
would be curious if you think this is generally true.
    Mr. Mashaw from Yale Law School said, ``It is unlikely that 
someone able to work will voluntarily opt instead for 
disability benefits that pay, on average, one-third of the mean 
wage, require a 6-month waiting period for application, a 2-
year waiting period for medical benefits, and provide any 
benefit to fewer than one-half of those who apply.''
    Just as a general proposition--and you may not have heard 
of this or this particular gentleman--is that pretty much 
accurate, in your view, given your years in the field?
    Ms. LaCanfora. That does reflect my experience. I started 
my career taking claims from the very disabled individuals whom 
we are talking about, and I spent years doing that, so I have 
run into these folks personally. I think generally people want 
to work, and they come to us as a last resort.
    The Chairman. Let me walk through some of the other matters 
that relate to exactly what you have to do to earn this 
benefit. My understanding is that an individual has to work a 
quarter of their adult life and 5 of the last 10 years. Is that 
generally accurate?
    Ms. LaCanfora. That is a generally accurate summary of what 
it takes to become insured for these disability benefits, yes.
    The Chairman. And I think you heard me talk earlier about--
and she is going to sort of be the face of my focus on this 
program--Ms. Dempsey, who was here, Stephanie Dempsey, and the 
link between this and chronic illness, about which we already 
have a bipartisan bill in this committee and in the House as 
well.
    My understanding is that, in many instances, we are talking 
about individuals who are chronically ill, and, in order to 
qualify, an individual has to be unable to engage in 
substantial gainful activity by reason of a medically 
determinable physical or mental impairment expected to last at 
least a year or result in death. Is that essentially the link 
between the program and chronic illness?
    Ms. LaCanfora. Exactly. And I would just add, in terms of 
chronic illness, when we do terminate benefits for individuals 
based on medical Continuing Disability Reviews, we see about a 
fifth of those folks come back onto the disability rolls within 
8 years of being terminated, which just further, I think, makes 
your point that a lot of these folks have chronic illnesses.
    The Chairman. And the last point dealt with this matter of 
applications being approved. What the staff informed me is that 
last year well over half--I mean, it is something like 40 
percent--of the applications were actually approved after you 
got through the various levels of appeal. Is that correct?
    Ms. LaCanfora. That is correct. I would also add that, 
right now, our allowance rate is the lowest that it has been in 
decades.
    The Chairman. Let me ask just one other question, if I 
might, because colleagues have a great interest in this, and 
that is on the work activity of those in the disability 
program. From the seat of your pants you say, all right, these 
are modest benefits, benefits, as I understand it, that are 
lower than the minimum wage, so there certainly would be a 
substantial number of people who would work if they could. So, 
if you could, comment on the work capacity, the ability of 
those on disability to work.
    Ms. LaCanfora. What we see is that about 28 percent of our 
beneficiaries on the DI rolls have some level of earnings, but 
only 10 percent actually exceed what we call the trial work 
period level, which is a very minimal level of earnings below 
the poverty level.
    In terms of people who actually leave the disability rolls 
due to work, they represent less than 1 percent of all 
individuals. So, while we see people attempting to work, what 
we see is that, because of chronic illnesses and other 
debilitating conditions, work becomes sporadic, and folks have 
an inability of sustaining that work over a reasonable period 
of time.
    The Chairman. I am essentially out of time, but let me just 
wrap up, if I might, with this. Give us, given your years in 
the field, your assessment of employers hiring individuals with 
disabilities. I would be interested in your experience. Are 
employers readily available who want to hire individuals with 
disabilities in our country?
    Ms. LaCanfora. I think we have a tremendous amount of work 
to do in that arena. Recently, the Department of Labor 
promulgated regulations under section 503 that require Federal 
contractors to hire people with disabilities, and that is 
certainly a step in the right direction.
    I think there are other things we can do. But our 
experience is that people struggle, truly struggle, to find 
jobs, particularly when they have lower levels of education and 
less skill in the workplace. It is very difficult to sustain 
work and to find work in this country.
    The Chairman. Very good.
    Let us go now to Senator Hatch. I am over my time.
    Senator Hatch. Well, thank you, Mr. Chairman.
    The Office of the Actuary highlights many reasons why 
demographics help to explain some of the changes over time in 
benefits and benefit growth in DI and on the retirement side of 
Social Security. It also mentions some other factors, one of 
which is changes in policy. Now, regarding those changes, the 
Congressional Budget Office has identified that the ways in 
which people could qualify for the DI program were expanded by 
legislation in the early 1980s.
    According to CBO, that legislation ``allowed symptoms of 
mental illness and pain to be considered in assessing whether a 
person qualified for admission to the DI program, even in the 
absence of a clear-cut medical diagnosis.''
    Now, the CBO also says that, ``The easing of the 
eligibility criteria increased the importance of subjective 
evaluations in determining whether applicants qualified for 
benefits.'' CBO also says that, ``Those changes in policy led 
to a substantial expansion in the share of DI beneficiaries 
with mental or musculoskeletal disorders.''
    Now, my question for all of you panelists is whether you 
agree with what CBO has to say and, if so, whether that points 
to a need to carefully examine how the DI program treats 
sometimes subjective evaluation of claims that include symptoms 
of mental or musculoskeletal disorders. Yes, sir?
    Mr. Goss. If I may, thank you very much, Senator Hatch. 
Those are great questions. There are two little pictures that 
are on pages 8 and 9 of my written testimony that we did not 
actually get to, but I would like to just tell you about those 
a bit. We actually do monitor and we do pay attention to, for 
instance, the percentage of newly entitled disabled worker 
beneficiaries who have impairments of different types.
    On those graphs you will see, on pages 8 and 9, that, if we 
look at younger people, younger new disabled worker 
beneficiaries aged 30 to 39, women in particular, the 
percentage of the new entitlements that came on our rolls with 
a mental impairment has not changed from the early 1980s 
through 2010. So it simply has not changed. We should talk 
further with Doug Elmendorf and folks at CBO.
    If you look at the second one, which is for people coming 
newly on our rolls at ages 50 to 59, the share of those coming 
on with a mental impairment is much, much smaller at the older 
ages, and that also has not changed over the last 30 years. So, 
I think we need some more conversation on this.
    The one point that really is important--and you will see 
that on the slide on page 9--is that the share of all the new 
disabled worker entitlements coming on the rolls at age 50 to 
59, men and women alike, who have musculoskeletal impairments 
has risen, but interestingly, at exactly the same time, the 
number of people coming on the rolls with cardiovascular 
impairments has decreased. Between the two of those, they have 
maintained exactly the same share over that time.
    So there is much more to look at here, but the mental 
impairment issue, the share age-by-age for men and women who 
have been coming on with mental impairments, really has not 
changed over the last 30 years.
    Ms. LaCanfora. I would like to just--oh, I am sorry.
    Senator Hatch. No, go ahead. You go ahead, and then Dr. 
Burkhauser.
    Ms. LaCanfora. I would like to just briefly add, we do not 
award benefits to people solely based on allegations of pain. 
We do not. As I said in my opening remarks, a person must have 
a medically determinable impairment based on objective medical 
evidence from a medical provider, so we do not adjudicate 
claims based on pain or symptoms reported by claimants.
    We do consider allegations of pain, and we look at them in 
terms of all of the medical evidence that we get, and we look 
for consistency and credibility in the evidence, but we do not 
pay benefits based on pain alone.
    I also want to say that we do not diagnose people with 
impairments; we follow the medicine. We look for the evidence 
that has been crafted over a person's medical longitudinal 
history, and we use that evidence to award or deny benefits, 
but we are not making diagnoses at the Social Security 
Administration.
    Senator Hatch. I was just quoting CBO, so I just wanted to 
see what you had to say.
    Dr. Burkhauser?
    Dr. Burkhauser. So I think CBO is following the economic 
research on this issue. We certainly know that in the 1980s 
there was a change in the criteria for evaluating mental 
illness, and we know that the share of people coming onto the 
roles with that as their primary condition has risen 
substantially. We also know that the prevalence rate of people 
on the disability rolls under age 40 has been rising faster 
than older people, and in large part that is because of persons 
with a mental illness as their primary diagnoses.
    In addition, Autor and Duggan, in their work, agree that 
for the average wage worker, SSDI benefits do not replace a 
large share of that worker's average yearly wage earnings. But 
for lower-wage workers, that replacement rate has been rising 
over time. They find empirical evidence that this increase has 
had some effect on the decision of low-wage workers to try to 
get onto the SSDI program.
    Now, I am not talking about fraud or abuse here. That is 
not the issue. The issue is that we are increasingly putting a 
burden on our DDS people to make very difficult decisions about 
who--on an unclear borderline--gets on the program and who does 
not.
    Maestas found that 23 percent of those people who apply get 
on the rolls by the luck of having either a harsh evaluator or 
an easy evaluator. But more importantly, she found that those 
people who do not get on the rolls, if you follow what happens 
to them afterwards, work more than the people who did get on 
the rolls. So that is clear evidence of a program effect that 
is published in the American Economic Review.
    Senator Hatch. My time is up.
    Ms. Vallas. Senator, if I could just add a couple of notes. 
Is that all right?
    Senator Hatch. Sure.
    Ms. Vallas. Thank you. I just wanted to point out a couple 
of things about the 1984 legislation that you referenced. I 
mean, first of all, it was the result of many years of careful 
study on a bipartisan basis and actually resulted--it was 
legislation that was passed unanimously and with great 
bipartisan support, and signed into law by President Reagan.
    Again, after years of careful study and examination of what 
the correct procedures and policies should be, it did not 
change the definition of disability in the statute. But what it 
did do, parts of which Marianna referenced, was to direct SSA 
to update its mental listings so that it would bring them in 
line with what current practice was at the time, which was the 
updated diagnostic and statistical manual.
    Secondly, it clarified the way that pain was evaluated to 
ensure that allegations of pain would only be considered in the 
presence of a medically determinable impairment that could 
reasonably be expected to cause the pain.
    Thirdly, it directed--and this was important, and I think 
especially in light of the chairman's story of Stephanie 
Dempsey--SSA to consider the combined effect of multiple 
impairments. Previously, if you had multiple significant 
impairments but none on its own rose to the level of the 
statutory definition of disability, you would be denied 
benefits. This corrected that and updated it.
    The Chairman. Thank you very much. I just have to get my 
colleagues into this.
    Senator Stabenow?
    Senator Stabenow. Thank you very much, Mr. Chairman, for 
this very important hearing. I first just have to say, as 
somebody who has spent a great deal of my adult life fighting 
for mental health parity, that I have a difficult time with 
this discussion, because I think it is a good thing that we are 
now treating serious disabilities above the neck, as well as 
those below the neck.
    I am pleased, Mr. Goss, to see, based on the numbers, we 
have not seen things change overall. But, Mr. Chairman, as I 
know you know, there are serious disabilities in the brain as 
well as every other organ in the body.
    But let me back up, if I might. I do have a question, but I 
do want to start by saying, Mr. Chairman, that, first of all, I 
think Social Security is a great American success story. We all 
think of it as retirement, and yet we also know it is a 
survivor benefit.
    I know colleagues here who have talked about the fact that, 
for them, the working parent passed away before their 18th 
birthday, and their family literally survived on Social 
Security. We also know, although we do not think about it, 
those of us who are fortunate enough not to find ourselves in a 
serious injury, this is a disability policy. So this is a great 
American success story. It is about security, and it is about 
insurance, and it is about all paying in.
    I am also, Mr. Chairman, not surprised, if we are looking 
at numbers between 1970 and 2012, that we are seeing costs 
change. Health care has changed, research has changed. We now 
spend 1 out of 5 Medicare dollars on Alzheimer's because, as we 
are living longer and getting older, those costs are going up--
for SSI Disability as well. I am not surprised at that, since 
we are living longer, and we are seeing more things.
    VA--the blessing is that more people are surviving war. The 
challenge is that we have more costs, because we have long-term 
disabilities for people. So this is not a surprise to me. I 
would hope that we would not make this a political issue in the 
long run. We have, in fact, reallocated 11 times between the 3 
pots.
    This is about adjustments between the three pots of Social 
Security, and it ought to be a no-brainer just to do this, in 
my judgment. I would hope that, in fact, that is what we would 
do. I also would hope that we would stop cutting the agency so 
that, in fact, you could continue to aggressively pursue the 
backlog, which I am very concerned about.
    Let me ask, Ms. LaCanfora, if you could talk a little bit 
more about the difficulty in qualifying for these benefits. 
More people in a recession applied? I am not surprised. People 
have no other income, so they say, ``Maybe I will apply here.'' 
It does not mean that the number of people who were qualified 
went up disproportionately because more people applied, but I 
do think that it is important to answer the comment that has 
been made several times by other distinguished panelists that 
it is the luck of the draw. Is this the luck of the draw?
    Ms. LaCanfora. No. Actually, I would say at the initial 
level, at the Disability Determination Services, we award 33 
percent of applicants, which means that we deny two-thirds of 
them. Overall, we allow less than half of all of the applicants 
who apply for SSDI, which means we deny more than half of them.
    So I think the criteria are strict. As Rebecca said, in 
comparison with other nations, we know it is very strict. Your 
impairment has to be expected to last 12 months or you have to 
be expected to die from the impairment.
    Another point, to reference the research that Dr. 
Burkhauser just referenced, where he mentioned that people who 
are denied benefits oftentimes earn more money than those who 
get on the rolls, that very research showed that the denied 
applicants earn, on average, $3,000 to $4,000 a year more than 
those who get the benefits. That is not a lot of money.
    That same research also showed that, of those denied 
applicants, half of them had zero earnings. So I do not think 
that denying applicants is necessarily the solution here. What 
we would like to see is more emphasis put on research and 
demonstration, because everybody agrees that individuals with 
disabilities, many of them want to work.
    We have to figure out, in a coordinated way at the Federal, 
State, and local levels, in conjunction with the private 
sector, how we provide the necessary supports for them to be 
able to do that.
    Senator Stabenow. Thank you very much.
    Ms. Vallas, could you talk a little bit more about what 
Social Security Disability Insurance means to the average 
worker and what options people would have if we did not have 
the disability program?
    Ms. Vallas. Thank you for the question, Senator. I think, 
to the average worker, what Disability Insurance really means 
is peace of mind. It means that they know that in case--and, as 
you said, hopefully this does not happen--but in the event of a 
significant and life-changing disability or illness, they have 
the protection that they and their family will be able to stay 
afloat and make ends meet. That is really significant. I mean, 
it really, I think, symbolizes what makes Social Security, as 
you said, such a great success story.
    As far as what kinds of alternatives people would have, I 
think, sadly for most, there really are few alternatives. As I 
noted in my opening statement, very, very few American workers 
have access to employer-provided long-term disability 
insurance, and even for those who are fortunate enough to have 
that coverage, those plans are typically far less adequate than 
what Social Security provides.
    So the realistic alternative for many people, if they did 
not have DI, would be nothing, would be homelessness, would be 
skipping meals, would be not being able to afford needed co-
pays on life-
sustaining medications, really horrific things to envision. 
That is why I think DI is such an important program, and I am 
really glad we are all having a conversation today about how to 
strengthen it for those beneficiaries for whom it is really a 
lifeline.
    Senator Stabenow. So, if someone was not paying into this 
insurance system called Social Security and then being able to 
get the benefit from disability, chances are we as taxpayers 
would be paying a cost in another way for those individuals 
with no income who would find themselves in other places, other 
public assistance programs.
    Ms. Vallas. That is very possible.
    Senator Stabenow. So this is an insurance system.
    Mr. Goss, just to take 1 quick second about the 
demographics again, in terms of the changes, the number of 
people who qualify--if you might, just speak a little bit more 
again to the demographic changes.
    Mr. Goss. Thank you very much. I think statistics can tell 
us lots of things, but we have to take care in the statistics 
we are looking at. What I presented here mainly, and many other 
people have talked about, is the increase in the number of 
disabled worker beneficiaries. That is largely--I think even 
Dr. Burkhauser would agree--the result of the increasing 
general population at working ages and the age distribution.
    Now, we can look at statistics in a different way. We can 
look at the percentage of the working-age population that is 
getting benefits. That takes away the increase in the 
population. We can look at the percentage of the population 
receiving benefits by age. That takes away the effects of the 
age distribution change. We can also look at the percentage of 
the insured population at each age. That takes away all three 
of the effects.
    Now, if you look at it that way, then of course the share 
of the increase that is due to increase in population, increase 
in insured status, and the changing age distribution is zero, 
because you have come up with a statistic that ignores this. So 
I think we just have to be very careful when comparing 
prevalence rates to increases in numbers.
    But, if I might say one other thing, we have heard 
mentioned several times, and I think you mentioned it also, the 
luck of the draw. If I may, I think Dr. Burkhauser mentioned 
several times, he referred to a paper by Nicole Maestas in 
American Economic Review in 2013. It happens that that paper 
was reviewed. I reviewed it back in 2012 before it came out.
    In fact, Dr. Burkhauser and I even talked about the 23 
percent statistic that was mentioned in that. Let me share with 
you what that 23 percent statistic actually is. That 23 percent 
statistic was a matter of the researchers looking at a range of 
different Disability Determination Service examiners, 
individual examiners, and looking at their personal, individual 
rates of allowance, including the allowance rates that come 
from appeals afterwards.
    The very highest and the very lowest allowance rates for 
the two individuals were 23 percentage points apart. Now, 
Nicole Maestas and I talked quite a bit about this. If you 
would look at her paper actually in the American Economic 
Review, wonderfully, she put a footnote in about the 23 percent 
and modified it along the ways that we had discussed. One way 
was to say, eliminate the top 1 percent and the bottom 1 
percent, and the 23 percent shrinks to 11 percent.
    The Chairman. Mr. Goss, respectfully, Senator Brown has 
been incredibly patient.
    Mr. Goss. I apologize.
    Senator Brown. I will listen to Mr. Goss all day. I have 
had him in my office, and I like listening to him, Mr. 
Chairman----
    Senator Stabenow. Would you like to ask him to continue his 
discussion?
    Senator Brown [continuing]. But I appreciate the time.
    The Chairman. I thought Dr. Burkhauser wanted to continue 
this. We are going to have a second round, because our 
colleagues do feel very strongly about it. So we can continue 
on this question of the paper and the 23 percent.
    We will now go to Senator Brown.
    Senator Brown. Thank you, Mr. Chairman. It is an honor to 
be on this committee and to work on issues that matter to so 
many people's lives like this. I have been in the Senate only 
7\1/2\ years. I have learned a number of things. One of them 
is, when I hear some of my colleagues talk about strengthening 
and improving a program like social insurance, I always listen 
with caution.
    I noticed in the Wall Street Journal a Republican aide was 
quoted about this hearing, saying, ``Senator Hatch hopes to 
focus on the disability issue to catalyze a broader 
discussion.'' I think ``broader discussion,'' to me, means 
discussions of Social Security at large, discussions of 
Medicare, discussions of social insurance overall.
    I think we always need to approach this with caution, and I 
caution also putting it in historical context. I carry this 
letter around that was given to me by someone in my office. Her 
father--she is roughly my age, without giving away anybody's 
age--found this letter in her grandfather's--her father is 88. 
He found this letter sent to her grandfather from the 
Pennsylvania Gas and Electric Company dated December 24, 1936.
    So this was a letter written by the vice president of this 
company in 1936 to one of his employees, adequately, not well-
paid, but getting along. He writes, ``Dear Fellow Employee: On 
August 14, 1935, Congress passed the Social Security Act,'' 
something probably few of these employees had ever really much 
heard of in 1936. ``Under a provision of this Act, the company 
is required to deduct 1 percent of your wage beginning next 
week, and then 1.5 percent to 2.5 percent, then 3 percent. 
These deductions are designed to provide for retirement at age 
65.''
    So you get this letter from your boss, you do not really 
know what Social Security is, and they are saying, we are going 
to take 3 percent of your wages and we are going to give it 
back to you, and maybe some more, at age 65. It occurs to you, 
wait a minute, nobody in my family has even lived to 65 in the 
last couple of generations. So this stuff is not easy. There 
are always misconceptions--the same with Medicare, the same 
with the Affordable Care Act.
    Why this concerns me is, there was a recent poll that 
showed 72 percent of Republicans, 64 percent of conservatives, 
agree with the statement, the Affordable Care Act has helped no 
one, no one, zero, no one. In another recent poll, 23 percent 
of all Americans believe Barack Obama is not an American, and 
another 17 percent are not sure.
    So, when I hear these attacks on Social Security Disability 
Insurance--there is sort of the ``good'' Social Security. That 
is what Congressmen's mothers and fathers get. That is the 
``good'' Social Security. Then there is Social Security 
Disability, which is a bunch of people who do not want to work, 
or they are people of color, or they are mostly women, or they 
are low-income people and they are scamming.
    I mean, we hear these stories. When any of us contribute to 
these kinds of beliefs, these kinds of doubts, we know how hard 
it is to enact and run these social programs. Everybody loves 
Social Security. Now, the only way to really attack Social 
Security is to go in the back door through Disability 
Insurance, because that is not my mom and dad getting Social 
Security, that is those other people.
    That is why these hearings are so important and why telling 
the truth at these hearings is important and not using one 
story to besmirch the reputation of the whole program with 
millions of people, 85 million Americans. Six-point-five 
million Americans used the VA last year, a total of 85 million 
patient visits. There were problems there, serious problems.
    But you know, most people get pretty good care from these 
government programs, whether it is Social Security Disability, 
whether it is any kind of social insurance. That is just a 
cautionary note that I would like to share with my colleagues, 
and I hope that we can keep this sort of on the straight and 
narrow and not use this to discredit something beyond what its 
intents are.
    So my question, starting with Ms. Vallas--and maybe any of 
you can chime in too--these stories are about, as you said so 
well, Ms. Vallas, individual people with real names, real 
problems, and real concerns. Lincoln used to say, when his 
staff would say, you have to stay in the White House and win 
the war, you have to free the slaves, you have to preserve the 
Union, he would say, no, I have to get my public opinion back. 
He understood it is real people out there who are affected by 
real decisions.
    Mike from Cincinnati, OH owned a small construction 
business. At 60, he suffered a massive stroke. This was even 
more serious than if he fell off a ladder. He suffered a 
massive stroke that left him paralyzed, unable to speak over 
the past 7 years. Mike is now 67. His medical expenses depleted 
his IRA. He had prepared for the future as well as any small 
businessman could. If he did not have SSDI, his family does not 
know what he would have done.
    Are benefits for people like him adequate, are they too 
generous? What are they?
    Ms. Vallas. Thank you for the question, Senator. I think we 
have all talked about how important this program is, and it is 
really nothing short of vital for beneficiaries. But benefits 
are incredibly, incredibly modest.
    As the chairman noted, they are just over $1,100 per month, 
which breaks down to about $300 a week. So, at a level that is 
so low, and when we know that eight in 10 beneficiaries count 
on DI for their sole or primary source of income and fully one-
third count on it as their only source of income, it really is 
no surprise that one in five beneficiaries lives in poverty, 
even with the vital assistance from those benefits.
    So when you ask, are they adequate, I mean, they are 
incredibly vital, but I think that there would be room for 
having a conversation about strengthening the benefits that 
people count on and that are so important to them so that we 
can provide people insurance so that they would not be living 
in poverty if something happens to them, but rather would be 
able to be above the Federal poverty level.
    Senator Brown. Dr. Burkhauser, too adequate, too generous?
    Dr. Burkhauser. Well, I guess what I would say is, for 
people who are able to work, I would much prefer to put my 
money in accommodation and rehabilitation to slow their 
movement onto the rolls. I think that is the major issue. As a 
government, what are we going to do to try to keep people in 
work as long as possible? These are very tough issues.
    Sweden, Great Britain, and Holland, over the last 15 years, 
have radically changed their approach to the population with 
disabilities by putting more energy into accommodation and 
rehabilitation rather than into benefits on the rolls. Because 
of that, those----
    Senator Brown. Do you want to expand the Earned Income Tax 
Credit then, because that incents people to work?
    Dr. Burkhauser. That would be a wonderful idea. The 1996 
welfare reform under President Clinton demonstrated that when 
you made work pay for single moms, you dramatically changed the 
way that single moms led their lives and tremendously increased 
their workforce employment.
    I would love to see a disability worker's tax credit for 
kids 18 to 25, for instance. This is an age group not now 
eligible for the Earned Income Tax Credit. This kind of a 
disability tax credit could allow them the opportunity, even if 
they could only work part-time, to still have sufficient income 
so that they could make more than they would on SSDI. These are 
the kinds of innovative ideas that I hope we can talk about. 
That would be great.
    The Chairman. Let us do this. We are going to continue 
this, I know, on a second round.
    Senator Nelson?
    Senator Nelson. Just to put it into perspective for me, 
there are 650,000 Floridians receiving disability benefits. It 
is about 6.2 percent of all Florida residents between the ages 
of 18 and 64, so it is substantial. Yet, if we do not act, 
those benefits are going to be cut. So, Ms. Vallas, what would 
their life look like if they saw a 20-percent reduction in 
their monthly checks?
    Ms. Vallas. Thank you for the question, Senator. As I 
pointed out in my response to your colleague Senator Brown, the 
benefits are already incredibly modest, and many beneficiaries 
are already living in poverty, so there really is no room in 
their household budgets for cuts. Many are already making tough 
choices between, do I pay my gas bill or do I pay my electric? 
Do I take half a pill so that I can afford transportation to go 
to see a doctor? If those are the choices that they are already 
making, a 20-percent benefit cut would be nothing short of 
devastating for folks who are already struggling to get by with 
these vital, but modest, benefits.
    Senator Nelson. Let me ask Mr. Goss and Ms. LaCanfora, we 
do not hear a lot about how the rate of awards has remained 
relatively flat for disability, and we have seen a number of 
people rejected over the last few years. What does this say 
about the strict eligibility standards?
    Mr. Goss. If I could just start on that. What we have seen 
overall for about the last 20 or 30 years is that the rate of 
award has remained quite constant; that is, of the percentage 
of people who apply. That has remained quite constant. That 
does vary somewhat, as we have discussed so far today, with the 
state of the economy. When we have a very, very weak economy 
and more people apply, we have a lower award rate.
    But another way of looking at this too is the disability 
incidence rate, which is the share of the number of people who 
are living in our society and are insured, actually receiving 
benefits. That, for men--it goes up and down, as everything 
does--but that has remained quite constant for men over time.
    That has increased somewhat, we must tell you, for women at 
exactly the same time over the last 30 to 40 years, so that we 
have doubled the share of women who in fact are insured for 
disability benefits. So we have gone from 35 to 70 percent of 
women in our workforce having enough recent work to be insured 
for disability benefits, and over that same time the disability 
incidence rates for women have gone up. There is a relationship 
there, clearly, but we just want to make sure that we are clear 
that incidence rates have gone up somewhat, but it is highly 
associated with the share of women who are insured.
    Senator Nelson. Well, what do you think, Ms. LaCanfora, 
about the strict eligibility standards?
    Ms. LaCanfora. I would add only, to reinforce the point I 
made earlier, that the requirements are very strict. Less than 
half of all applicants are awarded benefits overall after 
exhausting all of their appeals. In order to qualify for 
benefits, the disability must last a minimum of 12 months or be 
expected to result in death. We see, as Ms. Vallas said, I 
think, one in five men and one in seven women dying within 5 
years of getting disability benefits.
    The only other thing I would like to mention is that, from 
a quality review perspective, we have very robust quality 
review at Social Security, which we are always enhancing. At 
the Disability Determination Services where we make our initial 
and reconsideration determinations, our quality is consistently 
above 99 percent, so we think we are also making accurate and 
consistent decisions--always with room for improvement, of 
course, but we are pretty good at what we do.
    Senator Nelson. Thank you, Mr. Chairman.
    The Chairman. Let us stay with Mr. Goss on this matter of 
women, because of course this has been a very significant 
aspect of the growth. As you said, it was foreseen, expected, 
and now it is predicted.
    Let us talk a bit about how SSDI and the challenges with 
respect to women in the workforce continue to play out in this 
debate. It seems to me that, in many instances, we know that 
the incomes of women are lower, so then they would have a lower 
benefit.
    Then they would, in many instances, take time out to raise 
children, care for an older parent. What are the implications 
of these kinds of trends, and do you think that this is an 
important challenge for us--again, we are going to try to work 
in a bipartisan way--and what might Congress do about that?
    Mr. Goss. Senator Wyden, that is an extremely, extremely 
good question and a great insight. I think, first, I would 
speak to the success story that we have had as a society where 
women--look at the panel today, look at this room.
    Women are much, much more engaged in the workforce and on a 
consistent basis, and that is why, at this point, we now have 
essentially the same percentage of women of working age who are 
insured for disability as for men. That is a great success 
story.
    You are exactly right though, that women are much, much 
more likely--and I am probably not the best person to speak to 
this--to take time out during their working years to care for 
children or care for elders. That has a direct impact on the 
average earnings level the person has that we use for 
determining benefit levels and will, therefore, of course, 
lower the benefit level available to women. With more and more 
women working in single-parent households, that becomes much, 
much more important than when we were a society that was much 
more likely to have two-parent households.
    The Chairman. Does any other panelist want to comment on 
that?
    Ms. Vallas. I would be happy to chime in, Mr. Chairman, 
since it is such an important topic, and I am really glad that 
you brought up the importance of DI to women. As you noted, DI 
amounts are actually lower for women typically than they are 
for men, and so it is no surprise that one in four women DI 
beneficiaries lives in poverty compared with just one in six 
men, and that is because of, as Chief Actuary Goss noted, time 
out to care for children and for other reasons, and also lower 
lifetime earnings.
    Women are actually slightly more likely to become disabled 
than men are and to face chronic illness, and that is actually 
consistent across the U.S., as well as other nations. But, 
given that women on average have lower earnings and higher 
rates of poverty, DI is especially important for women.
    Both lower earnings and higher rates of poverty are 
actually themselves risk factors for chronic illness and for 
disability, and they can also leave individuals with less to 
fall back on in the event of a significant disability or 
illness. So, DI is especially important for women.
    The Chairman. Do any other panelists want to comment on 
that? I want to let my colleagues have a second round. The only 
thing I want to do is make two comments. Maybe for the record, 
Mr. Goss, we can have you respond to the comments that Dr. 
Burkhauser made with respect to his judgments about the 
accuracy of some of your projections and whether the growth 
rate is understated. I think that would be helpful to have for 
the record. We could probably go on all morning with the battle 
of the actuaries, both of whom have very distinguished 
credentials.
    I also would like--and we can do this off-line--to follow 
up on that last question that Senator Brown asked you, Dr. 
Burkhauser. Senator Brown has been a great champion of the 
Earned Income Tax Credit, which I have been a very, very strong 
supporter of as well. This will be a major issue as we go 
forward. Senator Hatch and I talked about bipartisan tax 
reform.
    Senator Brown asked you about supporting the Earned Income 
Tax Credit, and you said you did and made a comment with 
respect to disability. So I am interested in hearing more about 
the details of what the two of you were talking about in that 
last question Senator Brown asked. He has been a great champion 
of the Earned Income Tax Credit, and I am very much in support 
of what he is working on.
    Senator Hatch?
    Senator Hatch. Well, I do not know anybody who wants to 
hurt anybody who has a legitimate disability claim, but we also 
have a $17 trillion, going on $18 trillion national debt. We 
also have an inability to raise more funds. We also have all 
kinds of other impingements on the Federal budget.
    So naturally, part of the reason for this hearing is to see 
if there is some way we can resolve this problem and yet not 
hurt anybody. So anybody who is taking the position that, oh 
well, the Republicans are just against Social Security, I mean, 
that is a really, really offensive thing.
    But it does concern me that the CBO--I mentioned it in my 
opening remarks--says the number of DI beneficiaries increased 
nearly 6-fold between 1970 and 2012. Now, there may be a lot of 
really good answers to that. You have tried to answer that, Mr. 
Goss. Over the past 40 years or so, outlays for benefits have 
grown by more than 9 times.
    Now, sooner or later we wonderful people here in Congress 
are going to have to look at that $18 trillion debt and find 
some way of making payments that are just, reasonable, and 
decent and get rid of any kind of misspent payments. We have 
plenty of those throughout the Federal Government. So I am just 
concerned. Who wants to hurt anybody on Social Security? I do 
not.
    But I would like to direct this question to Dr. Burkhauser, 
and Ms. Vallas as well. In your testimony, Ms. Vallas, you 
discussed the U.S. DI program in relation to other OECD 
countries and identified some quotes from OECD reports saying 
that, by some measure, U.S. eligibility criteria are stringent.
    Yet, as I understand experiences of the other OECD 
countries, many have been confronting rapid growth rates in 
their disability programs by increasing the stringency of their 
eligibility criteria and changing policy to try to accommodate, 
where possible, the abilities of disabled workers to 
participate in whatever gainful activity that they are able to 
perform. They are having problems like we are, it seems to me.
    So let me start with Ms. Vallas to see what your thoughts 
are about recent international experiences with disability 
programs, followed by whatever observations you would like to 
bring out here, Dr. Burkhauser. Help us to understand this. 
Help us to know how to solve this problem. Not just, we need 
more money, which is the request of everybody in the 
bureaucracy today, because we do not have more money to give.
    So, how do we do that? I wish our friends on the liberal 
side would find some ways of cutting out the unessential 
programs in government so that we can do a better job for you. 
But I would like to have that answered.
    Ms. Vallas. Thank you for the question, Senator. There is 
definitely a lot of attention that is being paid to what is 
happening overseas, and I think there have been a lot of 
questions raised about whether what we are seeing in the 
Netherlands, which Dr. Burkhauser often refers to, or in other 
nations, might serve as a reform model for the United States.
    Senator Hatch. Yes.
    Ms. Vallas. I would note that, even after reforms that we 
have seen in the Netherlands, the U.K., and elsewhere, the 
United States actually still has the lowest disability 
recipiency rates measured as a share of the working-age 
population, and we also spend comparatively little compared to 
those other countries, even after their massive disability 
benefit reforms.
    So I think the U.S. already has a disability income support 
system which, as we have said, has one of the strictest 
disability standards and least generous benefit structures in 
the industrialized world. So to look to other countries which 
started with much more lax disability benefit definitions and 
much more generous benefits, they have effectively engaged in 
massive reform to try to get closer to where we are, yet, we 
are still actually doing better on those measures in terms of 
spending less and having a smaller share of our population 
receiving benefits. So, for those reasons, I think they might 
actually be better served looking to us as a reform model than 
vice versa.
    Senator Hatch. Dr. Burkhauser?
    Dr. Burkhauser. Well, no one can accuse Sweden and Great 
Britain and the Netherlands of being conservative governments 
that do not use government funding to provide for their folks 
with disabilities. But over the last decade, major changes have 
occurred in the Dutch system, in the Swedish system, and in the 
British system that have substantially reduced the prevalence 
rate of people in their working-age population receiving 
disability benefits.
    They did not do it primarily by moving people off the 
rolls; they did it by slowing the movement onto the rolls of 
these folks by providing accommodation, rehabilitation, and 
incentives for private corporations to provide these kinds of 
help so that they had a work-first environment.
    The problem with Social Security Disability Insurance is 
that it is a pure transfer program. The Social Security 
Administration is great at keeping records and paying people 
benefits. It is not in a position to provide accommodation and 
rehabilitation as an alternative. So we should look to what, 
for instance, the Dutch have done.
    The Dutch have said that, for the first 2 years, private 
corporations are required to take care of the long-term 
disability needs of their workers. Thereafter, if any of their 
workers come onto the rolls, their experience-rated taxes go up 
in the way that we do in the United States with State Worker's 
Compensation programs.
    These reforms have essentially given the responsibility to 
private corporations to provide the kind of necessary 
accommodation or rehabilitation that will slow people coming 
onto the rolls. For corporations that do that, they pay less in 
payroll taxes than the firms that do not do it. These kinds of 
incentives, I think, are structural changes that we should 
think about in reforming our DI program. They will make all 
people with disabilities better off.
    Ms. Vallas. Senator, if I could add just one more note.
    Senator Hatch. Sure.
    Ms. Vallas. One of the proposals that has been floated--the 
source being countries such as the Netherlands, and Dr. 
Burkhauser has voiced support for this proposal--is to 
experience-rate disability insurance here in the United States.
    I think it is worth being very careful as we explore that 
sort of option, given that if our shared goal here, as it seems 
everyone in this room agrees, is to best support workers with 
disabilities as well as we possibly can, experience-rating 
would be very likely to have the effect of actually providing 
employers with a disincentive to hire workers with 
disabilities. That is something we should be very cautious 
about as we consider potential reform.
    Senator Hatch. All right. My time is up.
    The Chairman. Colleagues, Senator Hatch and I have each had 
two rounds. Senator Cardin has not had his first, and Senator 
Brown would like to ask some additional questions. So let us 
recognize Senator Cardin. He has a hectic schedule today, and 
we are happy he is here.
    Senator Cardin. Well, thanks for acknowledging my schedule. 
I appreciate that, Senator Wyden. Senator Brown was not happy 
that I showed up when I did, but thank you for being pleased. 
Let me thank all the witnesses. I was following some of your 
testimonies, and I do apologize for not being here. The Senate 
Foreign Relations Committee is holding hearings on Iraq, which 
is urgent today.
    I really appreciate this hearing, because I think it is 
critically important that members of the Senate and the public 
fully understand why we are having an issue with the DI trust 
fund, the different rates that go into the OASI and the DI 
trust funds, the demographic changes that have taken place in 
our country, and the changes in the law that increase the age 
of eligibility for Social Security retiree benefits.
    It is not unusual to see an imbalance between the two 
funds. It is my understanding that the last time this imbalance 
occurred and this Congress took action was 1994. If I am 
correct, I believe it was unanimous action in both the House 
and Senate. I see everybody nodding. Shaking heads do not get 
into the record, so ``yes''?
    Ms. Vallas. Yes, Senator.
    Senator Cardin. Thank you. Thank you for pointing that out. 
So it was not a controversial issue. If I am also correct, I 
believe that, before the 1983 changes, the amount of funds 
going into Disability Insurance was much higher than it is 
today. So we reduced the amount going into the Disability 
Insurance trust fund when we made the 1983 reforms, recognizing 
we did not need as much in the fund at that time. Again, you 
are shaking your heads.
    Ms. Vallas. Yes, Senator.
    Senator Cardin. I just want to make sure the record is 
correct on all these issues.
    Senator Wyden, your opening comments are so correct--
Disability Insurance is critically important to the people of 
this country. I could tell you about people in my State who 
depend upon Disability Insurance. Our office has helped many 
people go through the system, trying to make it as easy as 
possible for people who deserve to be on the program to receive 
benefits. Senator Hatch, I agree we have to make sure the 
integrity of the programs is maintained. That is absolutely 
essential, and I fully support that.
    But I really want to emphasize that the imbalance between 
the two trust funds is not unusual. I hope Congress will do 
everything we can to protect the integrity of the system and 
ensure that those who are entitled to benefits receive them in 
a timely way. We should also look at any outliers in the system 
to see whether they are appropriate.
    But at the end of the day, we, on a non-partisan and non-
political basis, recognize that contributions have been 
adjusted between the two trust funds to make sure that both 
programs are adequately protected and that we have adequate 
revenues in the funds to last us for some time. So it is 
reasonable to look at an adjustment.
    I will make one last point. Back in 1994 and 1995, the 
President, in his budgets, submitted adjustments. We do not 
have OMB here today, but I would welcome their thoughts as to 
whether they support in their budget for next year an 
adjustment between the two trust funds.
    Ms. LaCanfora. Yes. I am actually the Assistant Deputy 
Commissioner, actually the Acting Deputy Commissioner for 
Policy at Social Security, so I can say that the administration 
and the Social Security Administration do support reallocation.
    Senator Cardin. Oh, good. Well then, put it in the budget. 
Get it to OMB so that we have that direct request: what number 
you want to see adjusted, how you want to see it adjusted. I 
think it would be important to have leadership from OMB, and 
then, Senator Wyden and Senator Hatch, we would have better 
information on the long-term impact that reallocation would 
have on the trust funds.
    I think this hearing has been very helpful in putting this 
issue in perspective for us. There is no reason to panic. We 
always want to do a better job in the way we manage the trust 
funds, but I would hope that we would have guidance as to how 
we can make sure there is no anxiety in 2016 that we would not 
be able to pay full benefits under the Disability Insurance 
program.
    With that, Mr. Chairman, I thank you for the time.
    Mr. Goss. Senator Cardin, might I just add that I am the 
Chief Actuary at Social Security, and we do, at the conclusion 
of every Trustees' report, produce a memo, at request, of what 
kind of reallocation potentially could be done to do just what 
you said, to equalize the trust funds. We have one of those 
now. It would be a temporary reallocation just for about 10 
years of, at most, having 0.1 percent of the overall payroll 
tax rate shifted from OASI to DI for a brief period of time.
    And I might just add, if you wanted to completely fix the 
75-year projected shortfall for DI, we estimate that to be 0.32 
percent of our tax base. So, if the payroll tax of 6.2 percent 
were increased by 0.16 percent for employers and employees 
each, that would eradicate the shortfall over the next 75 
years. I am not suggesting that that is something that you want 
to do or that the American people would want, I just wanted to 
sort of put that in perspective.
    Senator Cardin. I appreciate that. Mr. Chairman, just very 
briefly, my point was that we normally adjust the existing 
revenues in order to make sure that we do not run out of funds 
with one trust fund versus the other. The overall solvency of 
the Social Security system, including the Disability Insurance 
program, is something I know this committee is very interested 
in.
    Mr. Goss. Our current projection is 2016 reserve depletion 
for DI, 2035 for OASI. They could be equalized at 2033 with a 
reallocation.
    The Chairman. For our guests, I will tell you, Senator 
Cardin is always worth waiting for, and you have heard it 
again. [Laughter.]
    Senator Brown?
    Senator Brown. I was thinking the same thing, Mr. Chairman. 
Thanks.
    I want to follow up on Senator Cardin's comments and 
questions about how--and we talk about this around here all the 
time--we need a more predictable tax system, we need a more 
predictable set of rules. You know the anxiety as we move up 
close to a debt ceiling, or the anxiety of a reauthorization of 
a program and how important predictability is.
    So just to expand a bit on that, Ms. Vallas, if you would 
sort of help us with this. How does reallocation actually work? 
We have done it, as Senator Cardin said and as you said in your 
testimony, a number of times. We know there is precedent. Does 
it cost anything? Is there any alternative? If you would, walk 
us through exactly how it has happened in the past and how it 
could happen now so we can reach some consensus, as we used to, 
so we could do this quickly.
    Ms. Vallas. Thank you for the question, Senator. As was 
pointed out very well by Senator Cardin, this has been really 
the traditional non-controversial and routine step that 
Congress has taken 11 times in the program's history since 
1957. It has gone actually both ways. About half the time OASI 
has been the fund that has needed to have funds shifted towards 
it, and about half the time it has been DI. So really, as 
Senator Cardin said, the two have sort of always been 
considered together, and there have been reallocations made 
whenever needed, and on a bipartisan basis on every occasion.
    The way it works is, I like to think of it as though there 
is a spigot of water coming down out of the ceiling and there 
are two buckets. One of them is a much larger bucket, that is 
the OASI bucket, and most of the water is going into that 
bucket. The other bucket, a much smaller bucket, is the DI 
bucket, and a little trickle of water is going into that one.
    What reallocation does is, it actually shifts where the 
water is going so that slightly more goes into one or the other 
fund depending on its needs. So the plan that the Chief Actuary 
has laid out in the trustees' report and in a memo is a 
hypothetical plan for how you shift the water coming into those 
buckets.
    Senator Brown. If the water represents cost, there is no 
additional cost.
    Ms. Vallas. That is exactly right. There would be no need 
for additional taxes, there would be no need for----
    Senator Brown. And this is no surprise that this is 
happening. Again, we knew this was about to happen at some 
point in the future, correct?
    Ms. Vallas. That is exactly right. We knew back in 1995 
that we were going to be where we are today, here today talking 
about 2016. So actually the program has been on a tremendously 
predictable path since the last time reallocation happened in 
1994.
    If I might, I just wanted to expand on a point that Senator 
Cardin raised, which is a very important one, which is kind of 
taking a walk back in history. If you look back at 1983 to that 
package of reforms that the Senator mentioned, one of the 
consequences of that package of reforms was actually a 
significant loss to DI because DI's share of the payroll taxes, 
the water trickling into that bucket, was significantly cut.
    If DI's share of payroll taxes had actually continued to 
rise as scheduled under law previous to 1983, we would not be 
having this conversation today. DI would not be in need of 
shoring up. The 1994 reallocation partially addressed that 
long-term under-funding of DI, but it did not fully correct the 
under-funding that had happened since 1983. So what we really 
need to do is sort of finish the job that the 1994 reallocation 
started.
    Senator Brown. Thank you, Ms. Vallas. Let me shift to 
another question for you. We all talk here about how we want 
people to work, we want to reward work in this society. I 
appreciate Dr. Burkhauser's support of the Earned Income Tax 
Credit; that is one of the ways we do it. But there seems to be 
a myth that Disability Insurance is the cause of otherwise 
healthy workers leaving the workforce. Explain, Ms. Vallas and 
anyone else who wants to take it, how Disability Insurance 
serves actually as a work incentive.
    Ms. Vallas. Thank you for the question. The DI program 
actually contains an array of strong work incentives and 
protections for beneficiaries if their conditions improve and 
they are able to attempt to return to work.
    So actually, given those significant work incentives, which 
include beneficiaries being encouraged to work up to the 
substantial gainful activity level to supplement their 
benefits--that is up to about $1,070 per month--they are 
encouraged to do that. They are also encouraged to take 
advantage of a trial work period which fully protects their 
benefits but which allows them to attempt to return to work to 
see if that is going to be feasible given their health.
    Given those strong work incentives, one would expect that, 
if beneficiaries had significant work capacity, we would be 
seeing a lot of them taking advantage of these strong work 
incentives. We would expect that a lot of them would actually 
be supplementing their meager earnings so that they would have 
a little more to get by on each month, but that is actually not 
what we see. As Marianna noted, what we see is actually very 
few beneficiaries with sufficient work capacity to have any 
earnings at all.
    Actually, Marianna noted, I think, something that I will 
repeat, because I think it bears repeating. If you actually 
look at the applicants who were denied benefits--so people who 
were found not disabled enough to reach that strict disability 
standard--we see incredibly little work by them after the 
denial. So, I think that really underscores how strict the 
disability standard is.
    Senator Brown. I have one related question, and you can 
finish, if the chairman is all right with that. These people 
working who are getting disability, they are paying into 
Unemployment Insurance, right?
    Ms. Vallas. That is right, Senator.
    Senator Brown. All right. Yes, if you would like to comment 
on that question, if that is all right, Mr. Chairman----
    Ms. LaCanfora. I was just going to add--oh, I am sorry.
    Senator Brown. Is it all right for her to comment too?
    The Chairman. Yes.
    Senator Brown. All right. Thank you.
    Ms. LaCanfora. I just wanted to add to what Ms. Vallas said 
by pointing out that I think there is some common ground here 
in terms of a path forward. One of the things that Dr. 
Burkhauser mentioned was slowing the entrance of individuals 
onto the rolls, and another way to look at that is with what we 
call early intervention. I think that we are very interested in 
exploring the idea of early intervention.
    How do you help people who have a desire to work despite 
their disability, to do that in a way that works for them? 
There are three proposals in the President's fiscal 2015 
budget, demonstration projects that we would like to get the 
funding to run, that would do exactly that, that would explore 
ways to incentivize individuals with disabilities to work, to 
stay in the workforce, before they come on the disability 
rolls.
    One of them includes, for example, looking at individuals 
who have been denied benefits. What happens to those folks? How 
can we keep them working so that they do not end up 
deteriorating further and having to come back and apply for 
Social Security again? We would also like to look at tax 
incentives for employers and test how that might work and what 
that might look like.
    Lastly, we would like to also look at people who could use 
vocational and other rehabilitation supports, and coordinate 
with States to see what State services might help people with 
disabilities return to work.
    So I would just like to reiterate that I think we have some 
common ground with respect to exploring early intervention 
strategies to help people return to work, and that will have, 
likely, the collateral benefit of slowing some of the growth in 
the rolls.
    The Chairman. Senator Brown, does that respond to your 
question?
    Senator Brown. Yes, I think so. I am done.
    Senator Hatch. But does Dr. Burkhauser have anything to add 
to that? Because I would be interested just to see what he has 
to say.
    Dr. Burkhauser. Yes. So to argue that the Social Security 
Disability Insurance system encourages work is just odd. It is 
true that, once you are on the disability program, that is, you 
have spent a year or two proving that you cannot work, then 
there is some opportunity to work at that point.
    But that clearly is the wrong moment to apply interventions 
to encourage work. What you really want to do is focus on 
slowing people down from leaving the workforce and moving onto 
the disability program in the first place.
    The Chairman. I am not sure you disagree with him much. Is 
that true?
    Ms. LaCanfora. Well, that is right. I am trying to point 
out some commonality here. Again, we have a proposal in the 
2015 budget to test those very early intervention strategies 
that would keep people in the workforce before they come onto 
the disability rolls.
    The Chairman. Let us do this, because we have to wrap up. I 
was pleased, because I thought the two of you were moving 
together there. I always like to kind of quit while I am ahead. 
Senator Hatch and I were basketball players in our youth, and 
you would always like to make one shot before you left. I think 
the two of you were moving closer together on this early 
intervention point. Feel free to add additional materials for 
the record.
    I know that Senators on both sides of the aisle are going 
to have questions for all of you, and I am really very 
appreciative of the fact that you have allowed us, once again, 
to do what Senator Hatch and I feel so strongly about, and that 
is have big debates about important issues, and do it in a 
thoughtful way where people express themselves.
    I am still interested in seeing the back-and-forth, by the 
way, on the projections for the program between Dr. Burkhauser 
and Mr. Goss, and you will be getting questions from a number 
of our Senators.
    You heard me refer to Stephanie Dempsey, who sat where you 
are, Mr. Goss. She is, for me, the face of this program, a 
woman who did everything right who just got walloped by every 
possible illness, who takes 19 medications, all stacked up 
where Mr. Goss is.
    We can figure out a way, as Senator Cardin said, and I 
think very eloquently, to make sure that the safety net is in 
place for her and address program integrity, and we can do it 
in a bipartisan way. You have helped us with that. We are going 
to have plenty of questions for you in the days ahead.

    With that, the Finance Committee is adjourned.

    [Whereupon, at 11:54 a.m., the hearing was concluded.]


                            A P P E N D I X

              Additional Material Submitted for the Record

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