The Social Security disability insurance program (SSDI) is an absolute disaster. As Politico’s David Rogers reported in December: “In the past 20 years, the number of workers getting disability payments has more than doubled to 8.95 million last month [November]. About $140 billion went out the door in fiscal 2013, double what the costs were just 10 years before.”
Indeed, the problem has gotten so bad that the Social Security Administration is robbing from Social Security’s old age trust fund—which is nothing but government IOUs anyway—in order to pay disability benefits.
That fiscal crisis has inspired a number of conservatives to propose solutions, most of which only tweak the edges or attempt to get fewer disability claims approved.
How about a bolder plan?
In 1981-2, three Texas counties opted out of Social Security and created an alternative, personally owned retirement program that mirrored all of Social Security’s benefits—only better. [See a summary here.]
One aspect of what’s called the Alternate Plan (AP) is a private sector alternative to the disability program. A portion of county employees’ payroll tax—which is essentially the same as they would be paying if they were part of the Social Security program—goes toward a private disability insurance policy.
So how do the two plans compare? The Government Accountability Office did a comparison in 1999. According to the GAO, a person over the age of 30 has to have worked for 20 or the previous 40 quarters (i.e. five years) to be eligible for SSDI; employees are immediately eligible to participate the Alternate Plan’s disability insurance program.
And the benefits are better. The GAO estimated that in 1999 (16 years ago) a 30-year-old low earner would receive $752 a month under SSDI vs. $1,242 for the AP. And $951 for a 50-year-old in SSDI vs. $1,771 for the AP.
A 30-year-old high earner would get $1,409 a month from SSDI vs. $3,718 for the AP. A 50-year-old would receive $1,739 vs. $5,302 for the AP.
In short, disabled people are much better off under the Alternate Plan. But so is the country because private sector companies would be monitoring those receiving benefits to ensure (1) they actually are disabled and (2) whether they have improved and can return to work.
Transitioning to such a plan wouldn’t be that difficult. Workers could choose from a number of qualified disability insurers and the DI portion of their payroll tax would go to the insurers rather than the government.
If Congress is serious about cutting government spending and reforming entitlements, here’s an easy first step.
March 17, 2015