In an article today, I explore why Social Security is strained by the number of workers who now collect disability benefits, and why it is so difficult for these beneficiaries to go back to work.
Many, of course, suffer such severe disabilities that it is all but impossible to work. For them, the benefits provide an essential lifeline. For others, some work is possible, and economists and advocates for the disabled argue that if these people were provided with the right assistance and workplace accommodations, they might be able to work enough to leave the benefit rolls.
But some economists and policy analysts argue that many beneficiaries who might work are discouraged from doing so because of the so-called “cash cliff” that stipulates that workers who earn even $1 more than $1,000 a month — a level deemed “substantial gainful activity” — will lose all their cash benefits once a nine-month trial period is completed.
According to a paper submitted to The Journal of Rehabilitation by Tim Tremblay, Alice Porter and James Smith of the Vermont Division of Vocational Rehabilitation and Robert Weathers of the Social Security Administration, this cash cliff is a “substantial disincentive to work.”
Let’s say a disabled beneficiary goes back to work part-time, and earns $13 an hour for 15 hours a week. His total monthly earnings would be $845. Because that amount falls below $1,000, he would be able to keep a total of $1,845 a month. But if he upped his hours to 20 hours a week, he would then be earning $1,127 a month, which would put him over the threshold for collecting benefits. After the nine-month trial period, he would be stripped of benefits and thus would have only $1,127 in earnings. So by working five more hours a week, he loses $718 a month.
The authors of the paper suggested that many beneficiaries work just up to the threshold in order to maintain benefits. They suggested that a gradual reduction in benefits, rather than an abrupt cutoff, would spur more beneficiaries to work and earn more.
Many disabilities entail “a gradual road to full employment,” Mr. Smith said in a telephone interview. “You’re not going to go from being severely ill to being fully employed in nine months. So we think that the emphasis of the program should be on offering people an easy exit ramp, versus this sudden and dramatic cutoff.”
Since 2005, the Social Security Administration has conducted a pilot program in four states — Connecticut, Utah, Vermont and Wisconsin — in which a test group of randomly assigned disabled worker beneficiaries saw their benefits reduced by $1 for each $2 they earned at work above the substantial gainful level for up to six years. That way, they preserved some benefits as they eased back to work, rather than losing them all after just nine months. A control group did not receive the gradual reduction, losing all benefits if their earnings were above the threshold after nine months.
A preliminary study of the pilot program showed that in Connecticut and Vermont, beneficiaries who were given the gradual reduction in benefits were much more likely to work and earn more than the threshold amount. In Utah, the effects were less striking, and in Wisconsin, there were no statistically significant differences between the pilot and control groups.
Mr. Smith said that although the results were preliminary, the data from Connecticut and Vermont suggested that giving beneficiaries a longer-lasting safety net would encourage more of them to work and earn enough to reduce their benefits. Even if Social Security continued to pay out some benefits for the rest of their working lives, Mr. Smith argued, that would be better than paying full benefits to a vast majority of beneficiaries.
With the disability trust fund headed for insolvency by 2018, it’s a thought.
This post has been revised to reflect the following correction:
Correction: April 8, 2011
Because of incorrect information supplied by one of the authors, an earlier version of this post misidentified the journal to which three researchers submitted a study on the effect of Social Security disability policy on work incentives. It is The Journal of Rehabilitation, not The Journal of Vocational Rehabilitation.
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