President Donald Trump’s 2018 budget proposal calls for various changes to the Social Security Disability Insurance (SSDI) programs. It is unclear which, if any, of these proposed changes would likely be enacted, but many of them could have substantial impacts on claimants, state agencies, insurance companies, or employers.
An expert panel would be established by Congress to identify and test various programs that could enable/encourage individuals enrolled in disability programs to remain working or assist in their return to work. This panel would be tasked with reducing the Disability Insurance and Supplemental Security Income projected outlays by 5% by 2027. The budget proposal would increase the SSDI budget by $500 million in total for five years, 2018 to 2022, while the programs are being tested. The expectation built into the budget is that the resulting programs will then reduce the SSDI budget by $48.8 billion over the 10 federal fiscal years 2018 to 2027as return-to-work initiatives are phased in. (All figures and references are from the federal Office of Management and Budget document Major Savings and Reforms: Budget of the U.S. Government Fiscal Year 2018.1) The budget documents lay out the programs to be tested. These include the following:
- Establish a time limit on benefits when claimants are expected to return to work.
- Require applicants to look for a job before their application for disability benefits will be considered.
- Encourage earlier intervention with state vocational rehabilitation offices.
- Provide wellness care and vocational services in state Temporary Assistance for Needy Families (TANF) programs.
- Require claimants whose disabilities are due to lower back pain and arthritis to receive occupational health rehabilitation before receiving benefits.
- Test the effectiveness of the program used in Washington State’s Centers of Occupational Health and Education (COHE) to see if certain key features could be effective in other states or municipalities.
Some of the changes listed above, such as greater access to vocational rehabilitation services, are consistent with claim practices commonly used in the private sector long-term disability plans. Other changes, like requiring applicants to look for work before having applications considered, are more typical of unemployment than disability insurance.
The administration also proposes to reduce the amount of retroactive SSDI benefits that new beneficiaries are able to receive. The budget proposal would reduce to six months, from 12 months, the period of retroactive payments that a new beneficiary can receive. Retroactive SSDI payments differ from SSDI back payments (which are owed for delayed decisions from the date of application). Retroactive SSDI payments are paid when the claimant applies for benefits late and could be paid back to the end of the waiting period equal to five months after the date of disability. SSDI benefit payments in 2018 would decrease by $113 million. Reductions would continue for the next nine years and would reach $1.4 billion by 2027.
The budget also proposes to offset SSDI benefits for unemployment insurance benefits being received, resulting in a $2.5 billion savings over the next 10 years.
The budget recommends eliminating the “reverse offset” in 15 states. The combination of workers’ compensation and SSDI cannot generally exceed 80% of earnings. In most states, the SSDI benefit payment is reduced to reach this limit. However, 15 state plans2 have grandfathered provisions which allow the workers’ compensation benefits to be reduced instead. The 2018 budget proposal would reverse the offsets in those 15 states and reduce the SSDI benefits instead of the workers’ compensation benefits. This proposal could shift costs from SSDI to the states, workers’ compensation insurers, or employers. The combined budget impact over the next 10 years for this proposal is $164 million.
When a beneficiary applies for SSDI, there are 10 states3 currently that do not require a second review by the State Disability Determination Services (DDS) before their appeal goes to the administrative law judge (ALJ). The 2018 budget proposal would require a second consideration by the DDS in all states before the beneficiary can appeal to the ALJ, which is expected to reduce the budget by $2.1 billion over the next 10 years. It is unclear how this change will result in this budget reduction.
Finally, in an effort to increase the efficiency of the administrative law judges, the budget proposes a one-year probationary period to ensure the ALJ is performing at a satisfactory level before granting the ALJ a lifetime appointment. No budget savings are attributed to this change.
It is not yet clear which of the proposed changes are likely to proceed nor which can be considered benefit cuts as opposed to administrative changes intended to manage the existing program more closely. However, the potential impact is significant for many different constituencies.
- Current claimants or applicants now waiting for their claim decisions could be affected through reduced retroactive payments, increased opportunities for rehabilitation, or potential shifting of the payer of their benefits.
- State agencies should pay close attention to the proposed changes as they could require additional services be performed at the state level.
- Insurance carriers could be required to pay additional benefits to private insurance claimants as costs are shifted. Currently, group insurers offset their payments for SSDI benefits, so reduced SSDI benefits will result in higher payments from insurance companies. This has the additional impact of raising premium rates for everyone who has group disability insurance.
- Employers could be affected by cost shifting of workers’ compensation benefit offsets or by being required to accommodate more employees returning to work from disability. Employers could also face the higher premium payments mentioned above or could have higher benefit costs directly if they self-insure. This could discourage employers from offering coverage, cause a shifting of the cost to the employees, or encourage them to offer lower benefit amounts. A benefit to employers could be a larger potential workforce to draw from.
Whether or not this budget is passed, the Social Security Disability Insurance system could change in the next few years. All constituents should keep a close eye on potential changes. Contact your Milliman consultant for more details or clarity on how these changes may affect your situation directly.
Jennifer Fleck, FSA, MAAA, is a consulting actuary with Milliman, based in Portland, Maine.
2States that currently reduce some or types of WC payments for SSDI payments: AK, CA, CO, FL, LA, MN, MT, NV, NJ, NY, ND, OH, OR, WA, WI.
3States that currently do not require a second review by DDS: AL, AK, CA (Los Angeles North and Los Angeles West Branches), CO, LA, MI, MO, NH, NY, PA.