«

»

Mar 02

Print this Post

Will the Jobless Exhaust the Disability Trust Fund More Quickly?

In recent months, many have been cheering the declining unemployment rate.   According to the Department of Labor, the unemployment rate (seasonally adjusted) has steadily declined from 9.1% to 8.3% since August 2011.  After an unprecedented prolonged recovery time that continues to this day, any and all positive economic indicators are received with more than usual joviality.  However, after considering additional data during the same period, this excitement is likely premature.

As the unemployment rate continued to slowly but steadily decline in late 2011, some critics argued that the decline was deceptive and the number of people unemployed remained about the same.  Although some of the critics’ arguments may be subjective and debatable, their primary argument appears objective and valid.  They correctly pointed to the fact that the primary reason for the rate decline was that more people were dropping out of the labor force, and thus not being counted in the Department of Labor’s unemployment rate calculation.

However, additional insight may be gleaned from those dropping out of the labor force.  Recent research suggests that many of these “drop-outs” are merely stepping out of one government insurance (unemployment insurance) and into another (disability insurance or “DI”).  After receiving the maximum unprecedented allotment of 99 weeks of unemployment insurance payments, many of the unemployed appear to have suddenly acquired “mental illnesses” requiring them to go on disability.   Some recent research indicates that mental illness claims for disability are up approximately 10% since the recession began.   Unlike unemployment insurance that eventually ends, disability insurance can be obtained practically forever.  Thus, they are less likely to go off disability once they get on.

The mainstream media has fallen into the data pitfall of making the unemployment picture appear more peachy than it really is, since many of the once unemployed are still unemployed but merely counted in a different “bucket” of disability.  Instead, they should be sounding the alarm that these additions to DI are unsustainable.  As the table below indicates, the DI fund has been out of cash since 2005 (2009 if including interest).  Its trust fund is predicted to be exhausted by 2018.  However, these dire predictions were made PRIOR to this new phenomenon of maxed out unemployed persons moving to collect disability.  Some research indicates that approximately 25% of those dropping out of the job market may be jumping on the disability wagon.  If this continues and DI is not reformed, undoubtedly this 2018 date will be pushed up.

 

Trust Funds’ Key Years

OASI

DI

OASDI

HI

First year outgo exceeds   income excluding interesta

2017

2005

2010

2008

First year outgo exceeds   income including interesta

2025

2009

2023

2008

Year trust funds are exhausted

2038

2018

2036

2024

a Dates indicate the first year that a condition is projected to occur   and to persist annually thereafter through 2085.

Source:  Social Security Administration

The following two charts demonstrate the problems with the sustainability of the DI fund, as well as the other “safety nets” of Social Security.

 

About the author

Nicole Liska

I am a Principal at Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I hold an ABD and MA in economics from the University of California, San Diego. I perform damages analyses and serve as a damages expert witness. My resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2012/03/will-the-jobless-exhaust-the-disability-trust-fund-more-quickly/

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

*