The Financing Challenges Facing the Social Security
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The Financing Challenges Facing the Social Security Disability
Insurance ProgramCopyright © 2014 by the American Academy of
Actuaries All Rights Reserved.
Social Security
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 All Rights
Reserved.
The Academy Capitol Forum: Meet the Experts
Social Security Disability Insurance Trust Fund:
Behind the Numbers Presentation by Stephen C. Goss, Chief
Actuary,
Social Security Administration
April 23, 2014
3
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
4
Solvency of the DI Trust Fund Reserve depletion projected for 2016
right after 1994 reallocation
Remember---the Trust Funds cannot borrow under current law
0
50
100
150
200
250
Re se
rv es
a s
Tax-Rate Reallocation
in 1994
5
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
0
50
100
150
200
250
Re se
rv es
a s
6
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
0
50
100
150
200
250
Re se
rv es
a s
7
Economic cycles and policy changes fluctuate, and DI incidence
rates also vary
0
1
2
3
4
5
6
7
8
9
10
11
12
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Un em
pl oy
m en
Civilian unemployment rate
Lowered Family Max
Mental Listings
CDR Plan 1996-2002
Increases
Recession
8
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
0% 2% 4% 6% 8%
10% 12% 14% 16% 18%
2010 2011 2012 2013
Reduction in GDP
9
Additional disabled worker beneficiaries are a small fraction of
reduced employment
Changes in Disabled Worker Beneficiaries and in Covered Workers
from 2008 TR to 2013 TR
0
2,000
4,000
6,000
8,000
10,000
12,000
C h
a n
g e
in T
h o
u s
a n
d s
10
Is DI out of control, taking over OASDI? (Note 5% increase in DI
cost for 2010 due to recession)
0 2 4 6 8
10 12 14 16 18 20
1980 2010 2040
1995 TR 2013TR
11
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
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
in 2010
in 1990
DI Cost
DI Income
DI Cost/GDP by 15% for 2010
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
14
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000 DI Disabled Worker Beneficiaries: from 2010 to 1980, in
thousands
187 percent above 1980
increases 38%
15
Remarkable changes in age distribution Progression of the boomers
and drop in birth rates dominate
Figure 2: Age Distribution of the Population Age 25+, 1940 to 2100
(2012TR)
0
10
20
30
40
50
60
70
80
90
100
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060
2070 2080 2090 2100
Pe rc
Boomers become 25-44
Boomers become 45-64
Boomers become 65-84
The Normal Retirement Age increased from 65 to 66, adding 4% more
disabled worker beneficiaries
16
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000 DI Disabled Worker Beneficiaries: from 2010 to 1980, in
thousands
187 percent above 1980
increases 38%
increases 4%
17
Increased work by women raised insured; men a little lower at
younger ages
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
85% Figure 5: Percent of Population that is Insured for
Disability
Male
Female
Disability insured rates in the population increased substantially
for women, mainly at higher ages;
increased beneficiaries by 21%
18
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000 DI Disabled Worker Beneficiaries: from 2010 to 1980, in
thousands
187 percent above 1980
increases 38% increases
4% increases 21%
Recession of 2008-10 increased disabled workers 5% compared to
full-employment economy, as had been experienced prior to
1980
19
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000 DI Disabled Worker Beneficiaries: from 2010 to 1980, in
thousands
187 percent above 1980
increases 38% increases
4% increases 21%
increases 5%
This leaves 12% increase for all other causes; the increase in
disability incidence rates for women easily
explains this
20
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000 DI Disabled Worker Beneficiaries: from 2010 to 1980, in
thousands
187 percent above 1980
increases 38%
increases 4%
increases 21%
increases 5%
increases 12%
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
2
3
4
5
6
7
8
ed
Male
Female
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
26
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. Cut all DI benefits by 20%? 2. Increase DI tax revenue by 25%?
3. Or, reallocate tax rate between OASI and DI?
• Need further changes for long-range solvency
27
Potential tax rate reallocation between OASI and DI: Like in
1994—NO change in total taxes
28
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
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
30
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:
– Cover all state and local government employees – Tax
employer-sponsored group health insurance premiums
31
32
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
33
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)
0
10
20
30
40
50
60
70
80
90
100
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060
2070 2080 2090 2100
Pe rc
34
The level shift in age distribution is NOT due to a sudden shift in
life expectancy
35
Why so much “Macro Aging”? Birth rates. If birth rates had stayed
at 3.0 per woman after the “boom”?
Age Distribution of the Population Age 25+, 1940 to 2100 (2012TR):
What If Birth Rate (TFR) Had Stayed at 3.0?
0
10
20
30
40
50
60
70
80
90
100
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060
2070 2080 2090 2100
Pe rc
36
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
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060
2070 2080 2090 2100
Actual and TR Intermediate TFR remain at 3.0 after 1964 TFR remain
at 3.3 after 1964
37
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
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060
2070 2080 2090 2100
Actual and TR Intermediate TFR return to 3.0 after 2014 TFR return
to 3.3 after 2014
38
BUT birth rates are not going back up in the U.S. They are staying
around 2.0 TFR, high among developed nations
39
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
40
less, • Workers pay more--- 33%
more, • Increase “Normal Retirement Age”---7+
yrs, • Or some combination
Social Security Disability Insurance
Solvency of the DI Trust Fund Reserve depletion projected for 2016
right after 1994 reallocationRemember---the Trust Funds cannot
borrow under current law
Solvency of the DI Trust Fund looked MUCH better in 2007Boost from
the “new economy” anticipating NO recession
Solvency of the DI Trust Fund; reserve depletion in 20162008
recession offset “new economy”; cycles still happen
Economic cycles and policy changes fluctuate, and DI incidence
rates also vary
Most of the recession effect is from less GDP, not more DI
cost
Additional disabled worker beneficiaries are a small fraction of
reduced employment
Is DI out of control, taking over OASDI?(Note 5% increase in DI
cost for 2010 due to recession)
DI cost as percent of GDP has peaked, but scheduled income is too
low
Disabled workers increased 187% from 1980 to 2010; let’s work
backwards and explain
Population age 20-64 increased 41% from 1980 to 2010; let’s adjust
that out
Population age 20-64 is much older in 2010 Boomers have aged with
lower-birth-rate generations following
Remarkable changes in age distributionProgression of the boomers
and drop in birth rates dominate
The Normal Retirement Age increased from 65 to 66, adding 4% more
disabled worker beneficiaries
Increased work by women raised insured; men a little lower at
younger ages
Disability insured rates in the population increased substantially
for women, mainly at higher ages; increased beneficiaries by
21%
Recession of 2008-10 increased disabled workers 5% compared to
full-employment economy, as had been experienced prior to
1980
This leaves 12% increase for all other causes; the increase in
disability incidence rates for women easily explains this
Incidence rates for women have risen to male level
But NOT because of increasing mental impairment for young females:
steady distribution by impairment
Nor for young males: note steady but for HIV bulge in
1986-2000
For older females: increased musculoskeletal impairment; diminished
circulatory
Same for older males: increased musculoskeletal impairment; less
circulatory
So where are we on DI?
Potential tax rate reallocation between OASI and DI: Like in
1994—NO change in total taxes
Some changes specific to DI
Withhold DI when receiving Unemployment Insurance payments
Changes for long-range DI solvency
Remember DI is Just Part of Social Security
Changing age distribution over next 20 years mainly due to Macro
Aging – a permanent level shift
The level shift in age distribution is NOT due to a sudden shift in
life expectancy
Why so much “Macro Aging”? Birth rates.If birth rates had stayed at
3.0 per woman after the “boom”?
If birth rates had stayed at 3.0 or 3.3 per woman after 1964, our
Aged Dependency ratio would not SHIFT
Even if birth rates returned to 3.0 or 3.3 per woman after 2014,
our Aged Dependency ratio would come back down
BUT birth rates are not going back up in the U.S. They are staying
around 2.0 TFR, high among developed nations
So we need to address a level shift in cost that is mainlydue to
lower birth rates and not due to greater longevityU.S. Social
Security Cost and Income as percent of GDP
Implications for Social Security