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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


Capitol forum disability insurance slides april 23 2014  
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