The Academy Capitol Forum: Meet the Experts
Social Security Disability Insurance Trust Fund: Behind the Numbers Stephen C. Goss, MAAA, ASA Chief Actuary, Social Security Administration Moderator: Donald E. Fuerst, MAAA, FSA, FCA, EA Senior Pension Fellow, American Academy of Actuaries April 23, 2014
Copyright © 2014 by the American Academy of Actuaries Copyright © 2014 by the American Academy of Actuaries All All Rights Rights Reserved. Reserved.
Social Security Disability Insurance Trust Fund: Behind the Numbers Presentation by Stephen C. Goss, Chief Actuary, Social Security Administration American Academy of Actuaries Webinar April 23, 2014
Social Security Disability Insurance 155 million workers under age 66 are insured against becoming unable to work 9 million workers now receive DI benefits • 2 million “dependents” - mostly children Many more protected from loss of insured status • And from lower retirement benefits Benefits replace 40% to 45% of career earnings on average •
76% for very-low earner, 27% for steady maximum earner 3
Solvency of the DI Trust Fund Reserve depletion projected for 2016 right after 1994 reallocation Remember---the Trust Funds cannot borrow under current law DI Trust Fund Ratio in 1995 Trustees Report 250
Reserves as % of Annual Cost
200
150
100
Tax-Rate Reallocation in 1994 50
0 1990
1995
2000
2005
2010
2015
2020
2025
4
Solvency of the DI Trust Fund looked MUCH better in 2007 Boost from the “new economy” anticipating NO recession DI Trust Fund Ratio in 1995 and 2008 Trustees Reports 250
Reserves as % of Annual Cost
1995TR 2008TR
200
"New Economy" 150
100
50
0 1990
1995
2000
2005
2010
2015
2020
2025
5
Solvency of the DI Trust Fund; reserve depletion in 2016 2008 recession offset “new economy”; cycles still happen DI Trust Fund Ratio in 1995, 2008, 2013 Trustees Reports 250
Reserves as % of Annual Cost
1995TR 2008TR 2013TR
200 "New Economy"
irrational exuberance
150
100
2008 Recession back to reality
50
0 1990
1995
2000
2005
2010
2015
2020
2025
6
Economic cycles and policy changes fluctuate, and DI incidence rates also vary Unemployment rate and Disabled worker incidence per thousand exposed
12
Historical
11
Estimated
Recession Recession
10
Recession and SSI 1974
9 8
Recession
7 Recession 6 5 SSI Outreach
4 3
1970-74 Large Benefit Increases
2 1
1980 Amendments: PER, CDRs, EPE, Lowered Family Max
1984 Amendments: Multiple Impairments Medical Improvement Mental Listings
1996 Amendments: Drug Addiction & Alcohol CDR Plan 1996-2002 Age-sex-adjusted disabled worker incidence rate Civilian unemployment rate
0 1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
Calendar year
7
Most of the recession effect is from less GDP, not more DI cost Change in DI Benefit Cost and in GDP Between 2008 TR and 2013 TR 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%
Increase in DI Benefit Cost Reduction in GDP
Increase in DI Benefit Cost/GDP
2010
2011
2012
2013 8
Additional disabled worker beneficiaries are a small fraction of reduced employment
Change in Thousands
Changes in Disabled Worker Beneficiaries and in Covered Workers from 2008 TR to 2013 TR 12,000 10,000 Increase in Disabled Workers
8,000 6,000 4,000
Reduction in Covered Workers
2,000 0
2007 2008 2009 2010 2011 2012 2013 9
Is DI out of control, taking over OASDI? (Note 5% increase in DI cost for 2010 due to recession) 20
DI Cost as a Percent of Total OASDI Cost 1995 TR
18
2013TR
17.9
16
16.9
14 12
12.8
12.6
12.8
12.3
10 8 6 4 2 0 1980
2010
2040
10
DI cost as percent of GDP has peaked, but scheduled income is too low DI Cost and Income as Percent of GDP 1975-2090 2013 Trustees Report Intermediate Assumptions
1.0 0.9
DI Cost 0.8 0.7
Baby Boomers reach ages 45-64 in 2010
0.6 0.5
Note: Recession raised DI Cost/GDP by 15% for 2010
0.4 0.3
Baby Boomers reach ages 25-44 in 1990
0.2 0.1
DI Income
2090
2085
2080
2075
2070
2065
2060
2055
2050
2045
2040
2035
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
0.0
11
Disabled workers increased 187% from 1980 to 2010; let’s work backwards and explain
12
Population age 20-64 increased 41% from 1980 to 2010; let’s adjust that out
13
Population age 20-64 is much older in 2010 Boomers have aged with lower-birth-rate generations following
DI Disabled Worker Beneficiaries: from 2010 to 1980, in thousands 9,000
187 percent above 1980
8,000 7,000 6,000 5,000
Age 20-64 pop increases 41% increases 38%
4,000 3,000 2,000 1,000 0
14
Remarkable changes in age distribution Progression of the boomers and drop in birth rates dominate 100
Figure 2: Age Distribution of the Population Age 25+, 1940 to 2100 (2012TR) 85+ Boomers become 65-84
90
Percent of Population at Ages 25+
80 70
Boomers become 45-64
60
65-84
45-64
50 40 30
Boomers become 25-44
25-44
20 10 0 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
15
The Normal Retirement Age increased from 65 to 66, adding 4% more disabled worker beneficiaries DI Disabled Worker Beneficiaries: from 2010 to 1980, in thousands 9,000
187 percent above 1980
8,000 7,000 6,000 5,000
Age 20-64 pop increases 41% increases 38%
increases 4%
4,000 3,000 2,000 1,000 0
16
Increased work by women raised insured; men a little lower at younger ages 85% 80%
Figure 5: Percent of Population that is Insured for Disability Male
75% 70% 65% 60% 55%
Female
50% 45% 40% 35%
17
Disability insured rates in the population increased substantially for women, mainly at higher ages; increased beneficiaries by 21% DI Disabled Worker Beneficiaries: from 2010 to 1980, in thousands 9,000
187 percent above 1980
8,000 7,000 6,000 5,000 4,000
Age 20-64 pop increases 41% increases 38%
increases 4%
increases 21%
3,000 2,000 1,000 0
18
Recession of 2008-10 increased disabled workers 5% compared to full-employment economy, as had been experienced prior to 1980 DI Disabled Worker Beneficiaries: from 2010 to 1980, in thousands 9,000
187 percent above 1980
8,000 7,000 6,000 5,000 4,000
Age 20-64 pop increases 41% increases 38%
increases 4%
increases 21%
increases 5%
3,000 2,000 1,000 0
19
This leaves 12% increase for all other causes; the increase in disability incidence rates for women easily explains this DI Disabled Worker Beneficiaries: from 2010 to 1980, in thousands 9,000
187 percent above 1980
8,000 7,000 6,000 5,000 4,000 3,000
Age 20-64 pop increases 41% increases 38%
increases 4%
increases 21%
increases 5%
increases 12% Incidence Rates, etc
2,000 1,000 0
20
Incidence rates for women have risen to male level Figure 8: New Disabled Workers per 1,000 Exposed (Incidence) Age-Adjusted (2000) - 2012 Trustees Report
7
Male 6
5
4
Female 3
2090
2085
2080
2075
2070
2065
2060
2055
2050
2045
2040
2035
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
2
1975
New Awards per 1,000 Exposed
8
21
But NOT because of increasing mental impairment for young females: steady distribution by impairment Figure 12: Female Age 30-39 disabled worker new entitlement distribution by primary diagnosis (awarded through June 2012)
22
Nor for young males: note steady but for HIV bulge in 1986-2000 Figure 13: Male Age 30-39 disabled worker new entitlement distribution by primary diagnosis (awarded through June 2012)
23
For older females: increased musculoskeletal impairment; diminished circulatory Figure 14: Female Age 50-59 disabled worker new entitlement distribution by primary diagnosis (awarded through June 2012)
24
Same for older males: increased musculoskeletal impairment; less circulatory Figure 15: Male Age 50-59 disabled worker new entitlement distribution by primary diagnosis (awarded through June 2012)
25
So where are we on DI? •
Is the sky falling, cost out of control? No.
•
Or are we following a path foreseen? Yes.
•
Trust Fund reserves projected to deplete 2016 Need change soon to avoid inability to pay in full & on time
Default: Revenue enough to pay 80% of benefits, so: 1. 2. 3.
•
Cut all DI benefits by 20%? Increase DI tax revenue by 25%? Or, reallocate tax rate between OASI and DI?
Need further changes for long-range solvency 26
Potential tax rate reallocation between OASI and DI: Like in 1994窶年O change in total taxes
27
Some changes specific to DI • Actuarial deficit for DI is 0.32 percent of payroll – Changes considered by Senator Coburn in 2011 http://www.ssa.gov/OACT/solvency/TCoburn_20110718.pdf
• Raise ages for vocational factors by up to 8 years – Lowers actuarial deficit by 0.04 percent of payroll
• Eliminate “reconsideration” level of disability appeal – Increases actuarial deficit by 0.02 percent of payroll
• Close record without exception after first ALJ decision – Must reapply with new evidence – Lowers actuarial deficit by 0.01 percent of payroll
• Time limit benefits: MIE 2 years, MIP 3 years, MINE 5 years – Reapply; may deny without medical improvement – Lowers actuarial deficit by 0.10 percent of payroll
28
Withhold DI when receiving Unemployment Insurance payments • Currently no DI offset for receiving UI • Change considered by Representative Johnson in 2013 http://www.ssa.gov/OACT/solvency/SJohnson_20140107.pdf
– Treat any month with UI payment as SGA – Lowers actuarial deficit by 0.01 percent of payroll
• Change considered by Senator Coburn in 2013 http://www.ssa.gov/OACT/solvency/TCoburn_20140107.pdf
– Suspend DI benefit for any month with UI payment – Lowers actuarial deficit by 0.01 percent of payroll
• Another possibility–offset DI benefit dollar for dollar for UI 29
Changes for long-range DI solvency • Actuarial deficit for DI is 0.32 percent of payroll – Need to lower DI cost 20% or increase DI revenue 25% – Or, some combination of these
• Will likely be addressed in overall OASDI changes – Note that increasing NRA shifts cost to DI – May need further tax rate reallocation to DI in final amendments
• For overall OASDI solvency: http://www.ssa.gov/oact/solvency/provisions/index.html
• • • •
Increase tax rate or raise/eliminate the taxable maximum Lower the benefit (PIA level) Increase the NRA Expand the tax base – Cover all state and local government employees – Tax employer-sponsored group health insurance premiums 30
Finally A Little Extra Credit
31
Remember DI is Just Part of Social Security • Any fix for the long-term will have to be comprehensive – Address the “Aging” of the population •
“Macro Aging” Shift toward more elders, because Slowed growth for younger ages Faster growth for older ages
•
“Micro Aging” People are living longer Lower death rates Higher life expectancy dd
32
Changing age distribution over next 20 years mainly due to Macro Aging – a permanent level shift Age Distribution of the Population Age 25+, 1940 to 2100 (2012TR)
Percent of Population at Ages 25+
100
85+
90
Boomers become
80
65-84
70
Boomers become 45-64
60
65-84
45-64
50 40 30
Boomers become 25-44
25-44
20 10 0 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
33
The level shift in age distribution is NOT due to a sudden shift in life expectancy
34
Why so much “Macro Aging”? Birth rates. If birth rates had stayed at 3.0 per woman after the “boom”? 100
Age Distribution of the Population Age 25+, 1940 to 2100 (2012TR): What If Birth Rate (TFR) Had Stayed at 3.0? 85+ Boomers
Percent of Population at Ages 25+
90
become 65-84
65-84
80 70
Boomers become 45-64
60
TFR remains at 3.0 after 1964
45-64
50 40 30 20
Boomers become 25-44 TFR=Actual & TR intermediate
25-44
10 0 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
35
If birth rates had stayed at 3.0 or 3.3 per woman after 1964, our Aged Dependency ratio would not SHIFT Aged Dependency Ratio (Population 65+/20-64) 2012 TR 0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 Actual and TR Intermediate
0.1
TFR remain at 3.0 after 1964
0.05
TFR remain at 3.3 after 1964
0 1940
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
2060
2070
2080
2090
2100
36
Even if birth rates returned to 3.0 or 3.3 per woman after 2014, our Aged Dependency ratio would come back down Aged Dependency Ratio (Population 65+/20-64) 2012 TR 0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 Actual and TR Intermediate TFR return to 3.0 after 2014 TFR return to 3.3 after 2014
0.1 0.05 0 1940
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
2060
2070
2080
2090
2100
37
BUT birth rates are not going back up in the U.S. They are staying around 2.0 TFR, high among developed nations
38
So we need to address a level shift in cost that is mainly due to lower birth rates and not due to greater longevity U.S. Social Security Cost and Income as percent of GDP
39
Implications for Social Security –The older age distribution requires: • Beneficiaries receive less--25% less, • Workers pay more--33% more, • Increase “Normal Retirement Age”---7+ yrs, • Or some combination 40
Questions?
41