Social Security Disability Fund Going Bankrupt?

In six years, the Social Security trust fund will be bankrupt. Not the fund with which most Americans are familiar that provides monthly benefits to the nation’s retirees – that won’t go bust until a couple decades from now. But the less-familiar fund that paid out $126 billion in benefits last year to some 13.5 million disabled Americans.

Applications for federal disability benefits have risen nearly 50 percent over the past decade, according to a report by the Congressional Budget Office. That’s not because the ranks of the nation’s disabled have grown so dramatically but because an increasing number of jobless Americans are applying for federal disability benefits.

“It’s primarily economic desperation,” Social Security Commissioner Michael Astrue told The Associated Press. “People on the margins who get bad news in terms of a layoff and have no other place to go, they take a shot at disability.”

Indeed, roughly 3.3 million people are expected to apply for disability benefits this year. That’s 700,000 more than in 2008 and 1 million more than a decade ago. That exacerbates the looming financial crisis of a federal entitlement that has been operating in the red for some years now.

Meanwhile, as the U.S. population ages, and the disability rate resultantly increases, there is even more demand on Social Security’s disability trust fund. And that situation is made all the worse by a system in place that provides a perverse incentive for the nation’s seniors to seek disability benefits rather than waiting until they qualify for retirement benefits.

Indeed, retirees currently are eligible for full Social Security benefits when they turn 66 years old. Those that opt for early retirement can receive reduced benefits at 62. Now if a person is able to qualify for disability, they can receive full benefits (based on work history) even before they turn 62.

That, along with growing number of economically desperate jobless cited by Astrue, explains why there is a backlog of applicants for federal disability benefits. It also explains why many applicants have had to wait as long as two years to have their applications approved.

In fact, about two-thirds of applications are initially rejected. Most of those rejected drop their claims, but those who soldier on through the lengthy appeals process often get approved for benefits.

Not surprisingly, a certain percentage of those cashing monthly disability checks shouldn’t be receiving government benefits.

In fact, a recent report by the Government Accountability Office, the investigative arm of Congress, disclosed that Social Security made $1.4 billion in overpayments last year to disability recipients who were no longer qualified for benefits (mostly because they had gone back to work).

Congress is targeting the overpayments but even if they are completely eliminated, it will do little to avert the disability trust fund’s looming bankruptcy. While $1.4 billion is a substantial sum, it’s little more than 1 percent of the benefits the fund will pay out this year.

That’s why the trustees who oversee Social Security are urging lawmakers to shore up the disability program by shifting money from the retirement trust fund, which they last did in 1994. It hardly will fix the problems of the disability fund, but it will stave off its bankruptcy until at least the next decade.

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