The Social Security Disability Insurance (SSDI) benefit formula includes work incentives on hiring signs ideas in the calculation of benefits payable. The monthly SSDI payments for individuals who have not attained age 62 are reduced by the amount of any earnings, up to a maximum deduction of $1,180 per month. Current earnings test thresholds range from $640 to $1,180 depending on age. If individuals work more than 20 hours per week or 400 hours per year in occupations their skills and training qualify them for, they may lose their SSDI benefits entirely if they surpass the income threshold.
To review the current work incentives in the Social Security Disability Insurance benefit formula and to discuss alternative ways to improve the incentives and minimize any adverse impact on those SSDI beneficiaries who are working.
The primary purpose of the SSDI program is to provide income support to disabled individuals while they are recuperating from their disability. The program is financed through a payroll tax dedicated exclusively to that purpose, and is administered by the Social Security Administration (SSA). When an individual becomes disabled and no longer able to work, he files for benefits with SSA. A determination of disability is made on a case-by-case basis, with each person’s condition being judged independently from those of other applicants. As a general rule, an individual is considered disabled if they have a physical or mental impairment that prevents them from engaging in any “substantial gainful activity” (SGA) and their impairment has lasted or can be expected to last for at least 12 months.
One of the key work incentives built into the SSDI program is the ability of individuals to earn unlimited amounts of “substantial gainful activity” (SGA) without losing their Social Security Disability Insurance benefits. In 2014, individuals between the ages of 17 and 64 are presumed to be engaging in SGA if they earn more than $1,090 per month. Once they earn that amount they become ineligible for SSDI benefits. However, there is no limit on the number of hours an individual may work each week or year as a condition for continuing to receive SSDI benefits.
The formula used to determine SSDI payments provides incentives for beneficiaries to continue working and rewards those who are successful in their efforts. The formula considers an individual’s pre-disability earnings, the severity of their disability, age at implementation and ability to perform past work. The formula also includes a work incentive that reduces the amount of benefits payable by the amount of earnings. The current work incentives are intended to encourage beneficiaries who are able to return to work to do so without risking their SSDI benefits. The incentives are also intended to discourage individuals from taking jobs they are not capable of performing, because that could lead to an increase in disability status from “disabled” to “blind”.
3. STATUS OF THE ISSUE:
The work incentives in the Social Security Disability Insurance are relatively recent and have been developed over many years. They were first implemented in 1975 and have undergone several revisions. The current system was enacted by the Social Security Amendments of 1993, and is the result of nearly a decade of debate over how to improve incentives for beneficiaries to return to work.
Many individuals who are disabled do not achieve their goal of returning to work as quickly as they would like. A total of 9 million Americans received SSDI benefits in 2012, showing that there is a significant group of beneficiaries who work at little or no pay despite having some capacity for work. Because SSDI payments are not dependent on earnings, many beneficiaries in this group quit their jobs or refuse to accept lower-paying positions. Some individuals exhaust all of their Social Security Disability Insurance benefits before they are able to return to work, resulting in significant financial losses while they remain unable to earn any income.
Beneficiaries who continue to work in a low-paying job while receiving SSDI benefits could be making an inefficient use of government resources and causing the program to lose money. Currently there are more than nine million Americans receiving Social Security Disability Insurance benefits and more than half of these individuals are working at little or no pay.
4. LEGISLATIVE/REGULATORY AMENDMENTS:
Any SSDI beneficiary who is able to return to work at a substantial gainful activity level, including working full-time, and yet refuses to do so is potentially subjecting themselves to a total loss of income. Since most beneficiaries would prefer to maintain the maximum level of income that they can earn, it follows that the current system of disincentives has not been very successful in inducing beneficiaries to return to work. It would be more profitable for the disability insurance program if beneficiaries remained on it if they were capable of remaining employed in a paid occupation.
The current system of disincentives for beneficiaries who choose to work is not only inefficient, but it can also actually be detrimental to the disability insurance program. The pre-1993 SSDI program did not include any work incentives, and in the few years after the adoption of that program, a significant number of disabled people abandoned their claims. A number of additional benefits were added to the program in December 1992 to reduce that risk. While these benefits reduced the risk associated with work, they were insufficient to prevent beneficiaries from receiving a high percentage of their weekly pay in Social Security Disability Insurance payments. Since that time further changes have been made to enhance the incentives for individuals to return to work beyond normal retirement age.