Disabled Workers

Spouses

Percentage of People Ages 20 to 64

Percentage of GDP

Disabled Workers

Children

Spouses

Children

6

7

3

5

2

1

4

0

Disability Insurance Beneficiaries

Outlays for Disability Insurance Benefits

1.0

0.2

0.4

0

0.6

1982 1987 1992 1997 2002 2007 2012 2017 2022

Actual Projected

Actual Projected

0.8

1982 1987 1992 1997 2002 2007 2012 2017 2022

CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

CBO

Policy Options for the 

Social Security 

Disability Insurance 

Program

JULY 2012
CBO

Note

Unless otherwise indicated, the years referred to in this report are federal fiscal years 

(which run from October 1 to September 30). 

Pub. No. 4207
Contents

CBO

Summary iii

What Is Disability Insurance? 1

How Have Participation in and Costs for the Disability Insurance Program Grown? 2

Why Has the Disability Insurance Program Grown So Rapidly? 3

Changes in Demographics and Growth of the Labor Force 3

Changes in Federal Policy 4

Changes in Opportunities for Employment and Compensation 5

Approaches to Addressing the Fiscal Imbalance in the Disability Insurance Program 6

Box 1. Other Federal Programs That May Be Affected by Changes to the 

Disability Insurance Program 8

Increase the Program’s Revenues 10

Reduce the Program’s Spending 11

Options to Provide Greater Support to Disability Insurance Beneficiaries 16

Increase the COLA by 1 Percentage Point 16

Eliminate the Five-Month Waiting Period 16

Possible Approaches to Making Fundamental Changes in the Disability Insurance Program 16

The Capacity for Work of People with Disabilities 17

Encouraging Work Among DI Beneficiaries and Applicants 17

Strategies for Reducing the Number of People Who Leave the Workforce and 

Become DI Beneficiaries 19

About This Document 21

Table

1. Summary of Possible Approaches to Changing the Disability Insurance Program 7

Figures

1. Fraction of the Working-Age Population (People Ages 20 to 64) Receiving 

Disability Insurance Benefits 2

2. Primary Insurance Amount Formula for Computing Disability Insurance 

Benefits in 2011 12
CBO

Summary

The Social Security Disability Insurance (DI) program pays cash benefits to nonelderly adults (those 

younger than age 66) who are judged to be unable to 

perform “substantial” work because of a disability but 

who have worked in the past; the program also pays benefits to some of those adults’ dependents. In 2011, the 

DI program provided benefits to 8.3 million disabled 

workers, nearly sixfold the 1.4 million disabled workers 

who received benefits in 1970. Including the dependent 

spouses and children of those workers further increases 

the number of people receiving support in 2011 to 

10.3 million. The growth in the program can be attributed to changes in multiple factors, including demographics, the labor force, federal policy, opportunities for 

work, and compensation (earnings and benefits) during 

employment.

Over the past 40 years, outlays for benefits from the DI 

program (adjusted for inflation) have grown by more 

than nine times. During that period, the average benefit 

received by disabled workers rose from about $560 per 

month to about $1,050 per month in 2010 dollars. 

(Other programs also support workers with disabilities; 

for example, DI beneficiaries receive Medicare benefits 

that cost the federal government on average more than 

80 percent as much as their DI benefits.) By comparison 

with outlays, revenues dedicated to the program have 

increased nearly fivefold since 1970. The divergence 

between the program’s spending and revenues has 

prompted concerns about its financial sustainability. 

In 2011, spending on benefits in the DI program was 

$128 billion, or 0.86 percent of gross domestic product 

(GDP); by contrast, the program’s revenues totaled about 

$94 billion, or 0.63 percent of GDP. In 2022, the program’s spending and revenues will be roughly the same 

shares of economic output as in 2011, according to the 

Congressional Budget Office’s (CBO’s) estimates. By 

2037, revenues as a percentage of GDP will be little 

changed, but spending as a share of output will have 

fallen slightly, as the proportion of the working-age population that is age 50 or older (and thus more likely to 

receive DI benefits) declines. 

In this study, CBO in conjunction with the staff of the 

Joint Committee on Taxation (JCT) has estimated the 

budgetary effects of a variety of potential modifications to 

the DI program. In CBO’s and JCT’s estimation, two 

policy options that would alter the taxes that support the 

program would result in higher revenues of $13 billion or 

$28 billion in 2022. Seven policy options that would 

modify benefits could lead to declines in the rate of 

growth of the number of participants in the program 

and to cuts in the program’s spending relative to CBO’s 

currently published estimates; cuts in spending could 

range between about $1 billion and about $22 billion 

in 2022. In addition, CBO estimated the longer-run 

effects of each option relative to the agency’s current 

long-term estimates: By 2037, the two revenue options 

would increase DI tax receipts in that year by 8 percent or 

22 percent, and the seven spending options would reduce 

DI outlays by between 2 percent and 14 percent. 

Modifications to the DI program would necessarily 

affect several other federal programs, including, most 

significantly, the Social Security Old-Age and Survivors 

Insurance (OASI) program, Medicare, the Supplemental 

Security Income (SSI) program, and Medicaid. However, 

analysis of those interactions was outside the scope of this 

report.

Restoring the DI program to a sound budgetary position 

would require combinations of the policies examined 

here or other changes to the program. From the perspective of the overall federal budget, the increases in taxes 

and reductions in spending considered in this analysis 

would improve the fiscal outlook to varying degrees but 
IV POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM

CBO

would leave very large imbalances between total federal 

revenues and spending if current policies were continued 

in all other respects.1

Alternatively, lawmakers could choose to modify the DI 

program in ways that would provide greater support to 

certain DI beneficiaries and increase spending for the 

program. CBO examined two policy options of that sort. 

Those options would increase DI outlays by $8 billion or 

$16 billion in 2022 and by 5 percent or 6 percent by 

2037. 

Policymakers could also alter the program in more fundamental ways. CBO reviewed proposals for several such 

changes, and this report summarizes the main themes 

among them. Modifications might include promoting 

disabled beneficiaries’ return to work—for example, by 

moving to a partial disability system that related benefits 

to the degree of disability or, in the case of newly disabled 

workers, by focusing on rehabilitation and reemployment 

rather than the receipt of benefits. Many of those alternatives have been implemented in various European 

nations, in part to reduce spending on disability programs, and that experience may provide some insight into 

the options’ potential effects. But the changes in policy 

that those countries have instituted generally have been in 

place for such a short time that their fiscal impact is 

uncertain. Overall, CBO concludes, such fundamental 

changes might help move the United States’ DI program 

toward budgetary balance in the long run but are unlikely 

to provide sufficient immediate cost savings to resolve the 

program’s near-term financial pressures.

1. For a discussion, see Congressional Budget Office, The 2012 

Long-Term Budget Outlook (June 2012).
CBO

Policy Options for the Social Security

Disability Insurance Program

What Is Disability Insurance? 

The Social Security Disability Insurance program is one 

component of the framework of support that is the federal Social Security system, which comprises the Old-Age, 

Survivors, and Disability Insurance programs. The DI 

program provides income to nonelderly adults who have 

worked in the past but whom the Social Security Administration (SSA) now deems unable to work because of a 

medical condition that is expected to last more than one 

year or to result in death. Only workers who are younger 

than the full retirement age—established for the Old-Age 

component of Social Security—can be eligible for DI 

benefits.1

 Disabled beneficiaries receive monthly payments based on their past earnings for as long as they 

remain in the program.2

 (Some family members of 

disabled beneficiaries, including certain spouses and children, are also eligible for benefits.) If DI beneficiaries 

remain disabled and live to their full retirement age, they 

transfer to the Social Security retirement program at that 

age, but their benefits do not change.3

In May 2012, the DI program provided benefits to 

10.8 million people. More than 80 percent of them, 

or 8.7 million people, were disabled workers; about 

18 percent, or 1.9 million, were children of those workers; and fewer than 2 percent, or 166,000, were spouses 

of those workers. 

The DI program’s rules generally restrict beneficiaries 

from working and earning substantial amounts while 

they are receiving benefits. However, when beneficiaries 

first start to work, they can earn an unlimited amount for 

12 months without losing their benefits. Thereafter, they 

can earn no more than some specified amount per year 

($12,120 in 2012) before their benefits are eliminated. (A 

beneficiary may enter a “trial work period” during which 

he or she may work for nine months and remain in the 

program. A three-month grace period follows the trial 

work period.)4

 The average monthly benefit for a disabled worker in May 2012 was $1,111; thus, at that 

benefit level, the average DI beneficiary this year may 

have an annual income of no more than $25,452 from 

those two sources. (For purposes of comparison, average 

income per person for the nation as a whole, according to 

the Census Bureau, was about $26,500 in 2010.) In 

2006, the most recent year for which data are available, 

50 percent of DI beneficiaries had household income that 

was below the federal poverty threshold—a proportion 1. The full retirement age is the age at which a person becomes 

eligible for unreduced Social Security retirement benefits. For 

details on DI eligibility, see Social Security Administration, 

Disability Evaluation Under Social Security (Blue Book), SSA Pub. 

64-039 (September 2008), www.ssa.gov/disability/professionals/

bluebook/listing-impairments.htm. 

2. In this report, the term “disabled beneficiaries” refers to people 

with disabilities who are receiving benefits from the DI program 

as a result of their own disability and whose DI benefits are calculated on the basis of their own work history. (Such beneficiaries 

are also referred to as disabled worker beneficiaries, disabled workers, or disabled insured beneficiaries.)

3. For more-detailed descriptions of the DI program, see 

Congressional Budget Office, Social Security Disability Insurance: 

Participation Trends and Their Fiscal Implications (July 2010); 

and Social Security Administration, Disability Benefits, SSA 

Pub. 05-10029 (July 2011), www.ssa.gov/pubs/10029.html. 

4. Blind beneficiaries face higher thresholds; in 2012, they could 

earn up to $20,280 per year. For more information, see Social 

Security Administration, “Trial Work Period” (October 2011), 

www.ssa.gov/oact/COLA/twp.html.
2 POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM

CBO

Figure 1.

Fraction of the Working-Age Population (People Ages 20 to 64) Receiving 

Disability Insurance Benefits

(Percent)

Sources: Congressional Budget Office; Social Security Administration.

Note: White bars indicate recessions.

about five times higher than the national poverty rate of 

10 percent at that time.5

How Have Participation in and 

Costs for the Disability Insurance 

Program Grown?

Over the past 40 years, the number of disabled workers 

who receive benefits from the DI program has increased 

nearly sixfold, rising from 1.4 million in 1970 to 8.3 million in 2011. (Dependents of disabled beneficiaries are 

not included in that calculation.) In calendar year 1970, 

about 1.3 percent of working-age adults—individuals 

ages 20 to 64—were receiving DI worker benefits; in 

2011, that fraction was 4.5 percent. Much of the recent 

growth in the share of the population that comprises disabled workers stems from increases in the number of 

women receiving disabled worker benefits. Between 1970 

and 1995, the percentage of women who received such 

benefits grew by about 0.6 percentage points—about the 

same rate of growth as for men. Between 1995 and 2011, 

however, women receiving disabled worker benefits 

increased from 1.0 percent to 2.1 percent of all workingage adults; the corresponding change for men was from 

1.6 percent to 2.4 percent. 

Between calendar years 2012 and 2022, growth in the 

share of people ages 20 to 64 receiving DI benefits will 

slow considerably relative to growth during the past 

40 years, the Congressional Budget Office projects. 

Nevertheless, in CBO’s estimation, the share of people of 

those ages receiving benefits in 2022 will rise to more 

than 5.0 percent, with about equal relative increases in 

the proportion who are men and the proportion who are 

women (see Figure 1). 

The rapid growth in the DI program’s rolls has put 

increasing pressure on its finances. Between fiscal years 

1970 and 2011, DI expenditures on benefits (adjusted 

for inflation) rose by more than nine times. As a result, a 

growing share of spending for the Social Security system 

is being directed to participants in the DI program. In 

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 2022

0

1

2

3

4

5

6

Total

Men

Women

Actual Projected

5. Because the poverty rate among DI beneficiaries is measured at 

the household level and the national poverty rate is measured at 

the family level, the two are not strictly comparable. The household poverty rate among DI beneficiaries comes from Table 9 in 

Gina Livermore and others, Work Activity and Use of Employment 

Supports Under the Original Ticket to Work Regulations—2006 

National Beneficiary Survey: Methodology and Descriptive Statistics

(Mathematica Policy Research, Center for Studying Disability 

Policy, October 2009), www.mathematica-mpr.com/publications/

PDFs/disability/TTW_2006_NBS.pdf. The national poverty rate 

is calculated for all families by the Census Bureau; see Income, 

Poverty, and Health Insurance Coverage in the United States: 

2006, Current Population Reports, P60-233 (August 2007), 

www.census.gov/prod/2007pubs/p60-233.pdf. 
POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM 3

CBO

1970, DI spending was about 10 percent of OASDI 

expenditures; by 2011, that share had grown to nearly 

18 percent. CBO estimates that by 2022, as the number 

of beneficiaries in the Social Security retirement program 

swells, the DI program’s share of OASDI spending will 

shrink to about 15 percent. 

Total DI expenditures were $128 billion in 2011 and, 

CBO projects, will be $204 billion in 2022. Measured 

relative to the size of the economy, DI spending was 

about 0.27 percent of the nation’s gross domestic product 

in 1970; by 2011, that share had grown to 0.86 percent. 

CBO expects that proportion to continue to increase, to 

about 0.91 percent in 2013 and 2014, before declining 

slightly, to 0.83 percent in 2022. In contrast, revenues 

measured as a share of economic output were 0.63 percent of GDP in 2011 and, CBO projects, will be 

0.65 percent of GDP in 2022.6

Total government spending on DI beneficiaries is substantially higher. In particular, the cost of Medicare 

benefits received by people who are eligible for them 

because they receive DI benefits was about $80 billion in 

2011; CBO expects that it will be $120 billion in 2022. 

Moreover, some DI beneficiaries also receive benefits 

from the Medicaid and Supplemental Security Income 

programs.

The DI program’s rapid expansion and the projected gap 

between its spending and dedicated revenues in the future 

raise questions about the financial sustainability of the 

program. Since 2009, the program has been paying out 

more in annual benefits than it receives in taxes and in 

interest on the balances in its trust fund.7

 CBO projects 

that the DI trust fund will be exhausted by 2016, nearly 

20 years before the projected exhaustion of the trust fund 

for the Social Security retirement program.8

Why Has the Disability Insurance 

Program Grown So Rapidly? 

Multiple factors help explain the DI program’s rapid 

growth, and CBO has grouped them under three main 

categories:

 Changes in demographics and growth of the labor 

force,

 Changes in federal policy, and

 Changes in opportunities for employment and 

compensation.

Changes in Demographics and Growth of the 

Labor Force

Part of the growth in the DI program reflects the aging of 

the large baby-boom generation (people born between 

1946 and 1964) and consequently the aging of the workforce, which has led to an increase in the share of workers 

who enter the DI program. Older workers are far more 

likely than younger workers to qualify for DI benefits. 

More older people suffer from debilitating conditions; 

moreover, the program’s qualification standards for older 

workers are less strict than those for younger workers 

because older people are assumed to be less able to adapt 

to new types of work. 

The aging of the baby-boom generation has shifted more 

people from the ranks of younger workers (ages 25 to 

44), for whom the rate of enrollment in the DI program 

is lower, and into the ranks of older workers (ages 45 to 

65), for whom the rate of enrollment is higher. Between 

calendar years 1996 and 2009—the approximate period 

during which the baby-boom generation entered their 

50s—the share of disabled worker benefits awarded to 

older workers (age 45 and older) rose from 67 percent to 

76 percent; mirroring that increase was the decline in the 

share of benefits awarded to younger workers (ages 25 to 

44), which fell from 31 percent to 22 percent.9

 Thus, the 6. Lawmakers have reduced the workers’ portion of the payroll tax 

by 2 percentage points for calendar years 2011 and 2012; the 

reduction in tax revenues is being made up by reimbursements 

from the Treasury’s general fund to the two Social Security trust 

funds. For the purposes of the calculations in this report, Social 

Security payroll tax revenues are considered to include those 

reimbursements.

7. Federal trust funds, including those for Social Security, essentially 

constitute an accounting mechanism. In a given year, the sum of a 

fund’s receipts along with the interest that is credited on previous 

balances, minus spending for benefits and administrative costs, 

equals a fund’s surplus or deficit.

8. Pursuant to the Balanced Budget and Emergency Deficit Control 

Act of 1985 (section 257(b)), CBO’s baseline projections incorporate the assumption that DI benefits will be paid in full even after 

the trust fund is exhausted.

9. Over that period, awards to people younger than age 25 rose 

from 2.0 percent to 2.5 percent. See T.A. Zayatz, Social Security 

Disability Insurance Program Worker Experience, Social Security 

Administration Actuarial Study 122 (Social Security Administration, May 2011), www.ssa.gov/OACT/NOTES/s2010s.html.
4 POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM

CBO

baby boomers’ aging would have boosted enrollment in 

the DI program even if no other factors had changed.10

Another reason for the DI program’s growth is the 

increase in the labor force relative to the number of 

working-age people. That increase largely stems from a 

rise in the number of working women, who are eligible, 

like men, to receive benefits if they become disabled. 

The increased number of working women has boosted 

revenues for the DI program, through the payroll taxes 

collected on their earnings, but it has also led to more 

disabled beneficiaries and higher outlays for the program. 

Changes in Federal Policy

In 1984, lawmakers enacted the Disability Benefits 

Reform Act, which expanded the ways in which people 

could qualify for the DI program. That legislation, in 

addition to reversing several of the cost-containment 

measures enacted as part of the 1980 Social Security Disability Amendments, shifted the criteria for DI eligibility 

from a list of specific impairments to a more general consideration of a person’s medical condition and ability to 

work. The legislation allowed applicants to qualify for 

benefits on the basis of the combined effect of multiple 

medical conditions, each of which taken alone might not 

have met the criteria. It also allowed symptoms of mental 

illness and pain to be considered in assessing whether a 

person qualified for admission to the DI program, even 

in the absence of a clear-cut medical diagnosis.11 The easing of the eligibility criteria increased the importance of 

subjective evaluations in determining whether applicants 

qualified for benefits. 

Those changes in policy led to a substantial expansion in 

the share of DI beneficiaries with mental or musculoskeletal disorders, many of whom enter the program at 

younger ages than do people with other types of disabilities and many of whose applications are largely judged by 

using subjective criteria. The share of beneficiaries with 

musculoskeletal disorders increased from about 17 percent in calendar year 1986 (two years after the passage 

of the law) to over 28 percent in 2010. The share of 

beneficiaries with mental disorders increased from about 

22 percent in 1986 to about 33 percent in 2010. In addition to increasing the number of people who enter the 

DI program, those changes have helped boost the average 

length of time that disabled workers receive DI benefits 

because those disorders are comparatively more prevalent 

at younger ages and comparatively less likely than many 

other qualifying conditions to result in premature 

death.12

Another way in which federal policy has led to growth in 

the DI program is through the rise in the full retirement 

age for Social Security that has occurred during the past 

decade. That rise has had two main effects on the DI program: It has enlarged the potential pool of DI applicants 

by including more older workers who have not yet 

reached their full retirement age, and it has increased the 

length of time individuals spend receiving DI benefits 

because disabled worker beneficiaries now shift to the 

Social Security retirement program later than in previous 

years. (In addition, the rise in the full retirement age has 

boosted revenues for the DI program in the form of payroll taxes collected on the earnings of people who are now 

working longer before claiming retirement benefits.) 

Between 2002 and 2009, the age at which DI beneficiaries transferred to the retirement program rose from 65 to 

66; it is scheduled to rise to age 67 by 2027. 

10. See Mark G. Duggan and Scott A. Imberman, “Why Are the 

Disability Rolls Skyrocketing? The Contribution of Population 

Characteristics, Economic Conditions, and Program Generosity,” 

in David M. Cutler and David A. Wise, eds., Health at Older Ages: 

The Causes and Consequences of Declining Disability Among the 

Elderly (University of Chicago Press, 2009), pp. 337–379, 

www.nber.org/chapters/c11119. Those authors estimate that the 

aging of the population accounts for about one-fifth of the growth 

in the share of the working-age population enrolled in the DI 

program. 

11. See Zayatz, Social Security Disability Insurance Program Worker 

Experience; Frank S. Bloch, “Medical Proof, Social Policy, and 

Social Security’s Medically Centered Definition of Disability,” 

Cornell Law Review, vol. 92 (2006–2007), p. 189; and David H. 

Autor and Mark G. Duggan, “The Growth in the Social Security 

Disability Rolls: A Fiscal Crisis Unfolding,” Journal of Economic 

Perspectives, vol. 20, no. 3 (Summer 2006), pp. 71–96. 

12. Musculoskeletal disorders include, for example, certain disorders 

of the spine and major dysfunctions of the joints, which affect 

people’s ability to ambulate or to perform fine and gross movements effectively. Mental disorders include, for example, certain 

types of affective, psychotic, and anxiety-related disorders. (Details 

are available at www.ssa.gov/disability/professionals/bluebook/

AdultListings.htm.) Researchers have found that mortality rates 

vary substantially by diagnosis and that DI recipients with mental 

disorders and musculoskeletal conditions have lower mortality 

rates than the average DI recipient. See Kalman Rupp and 

Charles G. Scott, “Trends in the Characteristics of DI and SSI 

Disability Awardees and Duration of Program Participation,” 

Social Security Bulletin, vol. 59, no. 1 (January 1996), pp. 3–21, 

www.ssa.gov/policy/docs/ssb/v59n1/index.html. 
POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM 5

CBO

Changes in Opportunities for Employment and 

Compensation 

Whether people apply for DI benefits is strongly affected 

by the design of the program, the opportunities people 

have for employment, and the difference between the DI 

benefits an individual would receive and the compensation (earnings and benefits, including health insurance) 

associated with working. When jobs are plentiful, some 

people who could qualify for the DI program may choose 

instead to work. Conversely, when jobs are scarce, such as 

in economic downturns, some people with disabilities 

may find that their employment opportunities are especially limited, and they will instead choose to apply for 

DI benefits. Indeed, in the aftermath of the recent severe 

recession, applications for DI benefits reached a historic 

high, exceeding 2.9 million in calendar year 2010.13

Short-term economic downturns can have long-term 

effects on the DI program’s benefit rolls. Many people 

who have been out of work for long periods find it hard 

to reenter the labor force, especially at their previous wage 

level, and they may ultimately turn to the DI program for 

support. Once they have been awarded benefits, only a 

very small percentage of DI participants permanently 

leave the program to return to the workforce.14 CBO 

projects that as a result of the most recent recession and 

slow recovery, the number of disabled worker beneficiaries will continue to rise over the next few years (although 

growth will slow as the economy improves). That increase 

in participation stemming from the severe economic 

downturn will add to the long-term trend of rising 

enrollment. 

The value of the benefits that a worker receives from the 

DI program relative to the earnings and benefits received 

through his or her job will also affect whether an eligible 

worker decides to apply for DI benefits. Workers who are 

displaced from jobs during economic downturns may 

face large cuts in their wages upon reemployment, making DI benefits relatively more desirable. Moreover, 

because the formula for calculating benefits is progressive, 

it replaces a larger share of earnings for low-wage workers 

than for high-wage workers. That progressivity combined 

with the growing gap between the earnings of low-paid 

and highly paid workers has probably increased the number of low-wage beneficiaries since the late 1970s.15

Access to health insurance and the cost of obtaining it are 

additional factors that can affect an individual’s decision 

to apply for DI benefits. Disabled beneficiaries receive 

coverage under Medicare, regardless of their age, generally after a 24-month waiting period. For workers 

without employment-based health insurance, the eventual eligibility for Medicare that comes with participation 

in the DI program may be quite valuable and may 

encourage them to apply. Similarly, the recent decline 

in employer-provided health insurance might increase 

participation in the program not only by encouraging 

workers with disabilities to apply but also by discouraging 

those who are receiving benefits from leaving.16

The recently enacted Affordable Care Act is likely to 

influence future application rates for the DI program 

(especially after 2014, when new health insurance 

requirements are set to take effect under the law), but 

whether it will result in more or fewer beneficiaries is difficult to predict.17 Among other changes, that legislation 

will make it easier for people who have health problems 

to buy their own insurance; it will also provide new 

subsidies for individually purchased coverage and expand 

13. In calendar year 2011, the number of DI applications dropped 

slightly, to just under 2.9 million; see Social Security Administration, “Selected Data from Social Security’s Disability Program” 

(May 2012), www.ssa.gov/OACT/STATS/dibStat.html. 

14. See Su Liu and David C. Stapleton, “Longitudinal Statistics on 

Work Activity and Use of Employment Supports for New Social 

Security Disability Insurance Beneficiaries,” Social Security Bulletin, vol. 71, no. 3 (August 2011), pp. 35–59, www.ssa.gov/policy/

docs/ssb/v71n3/index.html. Those authors found that over a 

10-year period, about 4 percent of an entering cohort of new DI 

beneficiaries left the program to take a job. 

15. For additional discussion, see L. Scott Muller, “The Effects of 

Wage Indexing on Social Security Disability Benefits,” Social 

Security Bulletin, vol. 68, no. 3 (December 2008), pp. 1–44, 

www.ssa.gov/policy/docs/ssb/v68n3/index.html; Autor and 

Duggan, “The Growth in the Social Security Disability Rolls: 

A Fiscal Crisis Unfolding”; and Kalman Rupp and David C. 

Stapleton, “Determinants of the Growth of the Social Security 

Administration’s Disability Programs—An Overview,” Social 

Security Bulletin, vol. 58, no. 4 (October 1995), pp. 43–70, 

www.ssa.gov/policy/docs/ssb/v58n4/index.html. 

16. Census Bureau, Income, Poverty, and Health Insurance Coverage in 

the United States: 2010, Current Population Reports, P60-239 

(September 2011), Table C-1, www.census.gov/prod/2011pubs/

p60-239.pdf.

17. The Affordable Care Act comprises the Patient Protection and 

Affordable Care Act (Public Law 111-148) and the health care 

provisions of the Health Care and Education Reconciliation Act 

of 2010 (P.L. 111-152). 
6 POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM

CBO

eligibility for Medicaid in states that choose to do so. 

On the one hand, applications to the DI program may 

decline—because people who do not have employmentbased health insurance will find it easier to obtain 

subsidized coverage as well as to gain access to health care 

without applying for DI benefits. On the other hand, 

applications to the DI program might increase—because 

some people who would lose employment-based health 

coverage if they left their jobs to apply for DI benefits will 

have access to insurance during the two-year waiting 

period for Medicare benefits, with no exclusions for preexisting conditions, through the health insurance 

exchanges that will be established under the law. Moreover, that insurance might be subsidized, depending on 

an individual’s income. 

Approaches to Addressing the Fiscal 

Imbalance in the Disability Insurance 

Program

Alleviating the financial pressures on the DI program will 

require a substantial increase in revenues for the program, 

a substantial decrease in the program’s costs, or some 

combination of those two approaches. On the revenue 

side, options are straightforward but limited: To expand 

revenues, DI taxes paid by employers or employees (or 

both) must rise, or some other source of funding must be 

used. In contrast, options for reducing costs are both 

more complex and more numerous: For example, the 

components of the formula that is used to calculate DI 

benefits could be altered, as could one or more of the 

rules used to help determine eligibility for the program. 

CBO evaluated a variety of options that policymakers or 

researchers have identified, focusing on the following:

 The formula for computing benefits, 

 The factors that increase benefits over time, 

 Changes in eligibility that affect the number of workers who enter the DI program and the likelihood that 

people who are receiving benefits will leave the program and return to work, and

 Changes in the length of time people must wait to 

enter the program after they apply for benefits.

For each option, CBO assumed that the policy would 

take effect at the beginning of calendar year 2013. Estimates of the budgetary effects of the options during the 

next decade—which are derived from the agency’s March 

2012 baseline—are presented as nominal dollars in 2022 

and as percentage changes from currently scheduled outlays or revenues; estimates of budgetary effects beyond 

the next decade—which are derived from the agency’s 

June 2012 long-term budget projections—are presented 

solely as percentage changes in DI revenues or outlays 

from the projections for 2037 under current law (see 

Table 1).18

With a couple of exceptions, as noted below, CBO’s estimates of the budgetary effects of the policies include 

savings or costs to the DI program itself and to the 

Social Security Old-Age and Survivors Insurance program when the effects on OASI are simply a result of 

DI beneficiaries’ transferring to the OASI program.19

(Benefits for DI beneficiaries who shift to the OASI 

program are paid from the OASI trust fund.) Modifications to the DI program would necessarily affect several 

other federal programs in addition to the Social Security 

Old-Age and Survivors Insurance program, including, 

most significantly, Medicare, Medicaid, and the Supplemental Security Income program. For the policy options 

presented in this study, CBO generally has not estimated 

the effects they might have on those other federal 

programs. (For a more complete discussion of such 

interactions, see Box 1.)

18. CBO’s baseline is a neutral reference point for measuring the budgetary effects of proposed changes to federal revenues or spending. 

It consists of projections of outlays, revenues, and the deficit or 

surplus over 10 years calculated according to rules originally set 

forth in the Balanced Budget and Emergency Deficit Control 

Act of 1985. For more details about CBO’s most recent 10-year 

current-law baseline projections, see Congressional Budget Office, 

Updated Budget Projections: Fiscal Years 2012 to 2022 (March 

2012). For CBO’s long-term budget estimates, see Congressional 

Budget Office, The 2012 Long-Term Budget Outlook (June 2012).

19. CBO’s estimate for the policy option that modifies the factors 

used to adjust DI benefits (that is, the option involving the 

chained consumer price index) includes the effects of applying 

that option to all OASDI beneficiaries and not just to those 

who shift from the disability to the retirement portion of Social 

Security. CBO’s estimate for the policy option that eliminates 

DI eligibility starting at age 62 shows both the savings for the DI 

program and the costs to the OASI program for people who claim 

OASI benefits in lieu of DI benefits after age 62. 
POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM 7

CBO

Table 1.

Summary of Possible Approaches to Changing the Disability Insurance Program

Source: Congressional Budget Office.

Note: DI = disability insurance; n.a. = not applicable; COLA = cost-of-living adjustment.

a. Changes are measured against CBO’s March 2012 baseline; see Congressional Budget Office, Updated Budget Projections: Fiscal Years 

2012 to 2022 (March 2012). 

b. Changes are measured against estimates in Congressional Budget Office, The 2012 Long-Term Budget Outlook (June 2012).

c. Estimates of revenues for 2022 provided by the staff of the Joint Committee on Taxation.

d. CBO’s estimates for options affecting COLAs apply to all beneficiaries; estimates for all other options that change outlays apply only to 

new beneficiaries in 2013 and later.

e. CBO’s estimates for this option apply the reduction in the COLA to beneficiaries of the entire Social Security system—the Old-Age and 

Survivors (OASI) and Disability Insurance programs—and to recipients of Supplemental Security Income. The table shows only the 

savings to the DI program. Savings for all three programs would total $25.0 billion in 2022.

f. CBO’s estimates for this option apply the elimination of eligibility to DI beneficiaries only. The resulting savings are offset by an increase 

in OASI benefits of $9.3 billion in 2022, for a net reduction in Social Security spending of $2.4 billion in that year. 

Increase Revenues

Raise the DI tax rate by 0.4 percentage pointsc n.a. 28 18 22

Increase the amount of earnings that are taxablec n.a. 13 8 8

Change the DI Benefit Formula

Reduce all benefits by 15 percent 6,200 -22 -11 -14

Reduce DI benefits for people age 53 and older 1,900 -6 -3 -7

Change How DI Benefits Grow Over Time—Reduce

COLAs by Using a Different Measure of Inflationd,e 10,100 -3 -1 -2

Change Eligibility Rules

Eliminate eligibility starting at age 62f 500 -12 -6 -6

Require applicants to have worked more in

recent years 400 -8 -4 -5

Increase the age at which disability requirements

become less restrictive 50 -1 -1 -3

Change Waiting Periods—Extend the Waiting

Period for Benefits from 5 Months to 12 Months 900 -11 -6 -7

Increase the COLA by 1 Percentage Pointd 10,100 16 8 6

Eliminate the 5-Month Waiting Period 900 8 4 5

Disabled Worker

Beneficiaries

Affected in 2022

In 2022a

Scheduled Revenues or Outlays

Percentage Change from Currently 

Dollars in 2022

Providing Greater Support to DI Beneficiaries—Effects on Outlays

Effects on Revenues

Number of Effect on DI Revenues or Outlays

In Billions of

Effects on Outlays

Reducing the DI Program's Fiscal Imbalance

In 2037b (Thousands)
8 POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM

CBO

Continued

Box 1.

Other Federal Programs That May Be Affected by Changes to the 

Disability Insurance Program

The Social Security Disability Insurance (DI) program is 

linked to many other federal programs, most notably the 

Old-Age and Survivors Insurance (OASI) program, the 

retirement component of the Social Security system; the 

Supplemental Security Income (SSI) program; and federal 

health care programs, including Medicare and Medicaid. 

Changes to the DI program that affected a person’s eligibility for DI benefits could have an impact on spending for 

OASI, Medicare, SSI, and Medicaid. Changes to the DI 

program that affected the size of the DI benefit that a person received but did not alter the eligibility criteria for the 

program would generally affect spending for SSI and Medicaid but not spending for OASI or Medicare. Because of 

the additional time that would have been required, the 

Congressional Budget Office (CBO) has not estimated 

how the policy options considered in this study would 

affect spending for and participation in those other federal 

programs. (In a formal cost estimate for legislation, CBO 

would attempt to assess the combined effects for all of the 

affected programs.)

The Old-Age and Survivors Insurance Program

The reduced spending for the DI program that resulted 

from policy options to tighten its eligibility requirements 

would be partially offset by increased spending for OASI. 

The offset is partial because not everyone who would lose 

their eligibility for DI benefits would be eligible for OASI, 

and people who would be eligible for OASI would generally receive a smaller benefit under that program’s rules.

Most people who became ineligible for the DI program 

because of a change in policy would probably apply for 

OASI benefits as soon as they became eligible for them, at 

age 62. The benefits they would receive from the retirement program would be smaller than those they would 

have received from the DI program, CBO expects, because 

retirement benefits are reduced for workers who claim 

them before the full retirement age (the age of eligibility 

for unreduced Social Security retirement benefits) and 

most people who lost their eligibility for DI benefits 

would claim retirement benefits at the earliest possible 

opportunity. (Individuals who claim retirement benefits at 

age 62 currently receive 75 percent of the benefit they 

would have received if they had been eligible for the DI 

program; that proportion is scheduled to decline to 70 percent by 2022.) In 2010, more than 7 percent of initial DI 

awards went to people age 62 or older; another 52 percent 

of awards went to people ages 50 to 61. (Changes in policy 

that are directed at older DI recipients, such as not allowing people age 62 or older to apply for DI benefits, would 

have a much greater impact on OASI than would policies 

directed at younger people because a larger share of the 

people affected would be eligible for OASI.)

Medicare

Because almost all DI beneficiaries are eligible for Medicare after a two-year waiting period, changes to the 

eligibility requirements for the DI program would also 

affect the number of people who were eligible for Medicare 

and, correspondingly, spending for that program. The 

effects would probably be significant: Medicare’s spending 

per disabled beneficiary averaged about $10,500 in 2009, 

or more than 80 percent of the DI benefits that the average 

disabled beneficiary received in that year. Policies that 

reduced the number of people who were receiving DI benefits would also lower spending for Medicare. However, 

policies that decreased average DI benefits without reducing the number of people who received them would not 

affect Medicare’s spending.

Supplemental Security Income

The Supplemental Security Income program was established in 1974 to provide cash assistance to individuals 

with low income and few assets who are also disabled or 

elderly. The disability standard is the same for the SSI and 

DI programs; however, the DI program provides benefits 

only to people with a sufficient history of work. About 

15 percent of DI beneficiaries concurrently receive benefits 

from the SSI program, and about 30 percent of DI beneficiaries received SSI benefits at some point during their first 

five years of eligibility for the DI program. Accordingly, 

policy options that increased or decreased spending for the 

DI program would tend to have partially offsetting budgetary effects in the SSI program.
POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM 9

CBO

Box 1. Continued

Other Federal Programs That May Be Affected by Changes to the 

Disability Insurance Program

For example, a policy option that lowered benefits from 

the DI program would increase SSI’s costs, for two reasons: 

First, dually eligible beneficiaries would receive larger 

SSI benefits to partially offset the income from the DI 

program that they would lose, and, second, some DI recipients who were not currently eligible for SSI benefits 

would become eligible because their income would be 

lower as a result of the reduced DI benefits they would 

receive under the policy option. Thus, a policy that lengthened the DI program’s waiting period for benefits would 

probably increase the number of people eligible for the SSI 

program and the average benefit that the program paid, 

because the policy would reduce beneficiaries’ income to 

below the SSI eligibility threshold (or to further below the 

threshold) during the extended waiting period. 

By comparison, options that increased DI benefits would 

generally lead to lower SSI costs. And proposals that 

changed the definition of disability in both programs 

would affect spending for both programs in the same 

direction.

Medicaid

The DI program is not tied specifically to Medicaid. But 

any policy that affected eligibility for SSI benefits would 

generally affect eligibility for Medicaid because in most 

states, SSI beneficiaries are automatically eligible for Medicaid. Thus, a person who is eligible for both the DI and 

SSI programs is usually eligible for Medicaid’s coverage of 

his or her health care costs during the two-year waiting 

period for Medicare; those costs are shared by the federal 

government and the states. After individuals who are eligible for both DI and SSI benefits gain access to Medicare, 

Medicaid continues to cover costs and services that 

Medicare does not pay for. 

A policy option that changed the number of DI beneficiaries or the program’s benefits could affect federal Medicaid 

costs by shifting some people between Medicaid coverage 

groups that generate different federal payments to states, 

even if the option did not change the overall number of 

people eligible for Medicaid. For example, beginning in 

2014, the Affordable Care Act (ACA) will extend Medicaid coverage to additional low-income people in states 

that choose to undertake that expansion.1

 The federal 

government will pay a larger share of the costs for those 

new enrollees as compared with the federal share of costs 

for people who were eligible for Medicaid under prior law. 

As a result, the federal share of any additional Medicaid 

costs stemming from a change in the DI program will 

depend on whether an individual falls into the new ACAcoverage group or into a prior-law-coverage group. 

Health Insurance Exchanges

Policies that changed the number of DI beneficiaries or the 

program’s benefits could affect federal payments for premium or cost-sharing assistance provided through health 

insurance exchanges that will be established under the 

ACA. Beginning in 2014 under that legislation, certain 

people who do not qualify for Medicaid or for affordable 

insurance coverage from other sources will be eligible for 

subsidies to purchase health insurance through the 

exchanges. The amount of the subsidy for which a qualified individual is eligible will vary with his or her income. 

Policies that modified DI benefits would tend to alter the 

costs of those subsidies by changing the number of people 

who would be eligible for them and the amount of the 

subsidies those individuals would receive.

Revenues and Other Federal Programs

Changes to the DI program would have a smaller impact 

on revenues (apart from those dedicated to the DI program and those associated with the subsidies provided 

through health insurance exchanges) and on other government programs than they would have on the programs 

discussed above. Some of the policy options that CBO 

analyzed would affect tax receipts because workers and 

their dependents might work more or less and thus have 

more or less in taxable earnings. In addition, some of the 

policy options would affect benefits under the Supplemental Nutrition Assistance Program (formerly known as food 

stamps), which uses income and assets to determine eligibility. Moreover, the policy options would interact with 

workers’ compensation programs.

1. The ACA comprises the Patient Protection and Affordable 

Care Act (Public Law 111-148) and the health care provisions of the Health Care and Education Reconciliation Act of 

2010 (P.L. 111-152). 
10 POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM

CBO

In its analysis, CBO also evaluated two changes that 

could be made at the administrative level—in particular, 

how the Social Security Administration hires and trains 

employees who conduct disability application hearings 

and how the agency reexamines disability cases over time. 

However, because evidence on the effects of such changes 

is limited, CBO did not estimate their potential budgetary impact.

Increase the Program’s Revenues

The DI program is funded primarily through a portion of 

the Social Security payroll tax, which is split evenly 

between employers and employees.20 (Self-employed 

workers pay the entire tax.) The total Social Security payroll tax is 12.4 percent and is applied to earnings up to a 

maximum amount that generally increases over time with 

average earnings nationwide. The DI program’s share of 

that tax is 1.8 percentage points; in other words, the DI 

tax rate today is 1.8 percent, implying that employers and 

employees each pay a rate of 0.9 percent. 

One approach to addressing the DI program’s budgetary 

imbalance would be to raise the DI tax rate.21 Based on 

analysis that CBO conducted with the staff of the Joint 

Committee on Taxation, restoring long-term balance 

(over the next 75 years) between the program’s costs and 

revenues would require that the DI payroll tax rate be 

increased by 0.4 percentage points (or 0.2 percentage 

points each for the employee and employer), to 2.2 percent. At that rate, revenues would be higher than in 

CBO’s baseline projection by $28 billion in 2022, JCT 

estimates. In 2037, revenues would be higher than CBO’s 

long-term budget projection by 22 percent, in CBO’s 

estimation. Such an increase in the tax rate would equalize costs and revenues, on average, over a 75-year time 

horizon but would leave a significant funding shortfall 

over the next few decades.

Another way to expand revenues would be to increase the 

maximum taxable earnings limit—that is, the highest 

amount of employees’ wages subject to the DI tax. The 

earnings of workers in the highest income groups have 

grown faster than average earnings in recent decades. As a 

result, the share of all earnings covered by the Social Security program that were below the taxable maximum 

shrank from about 91 percent in 1983 to about 84 percent in 2010. By 2037, CBO projects, about 83 percent 

of all covered earnings will fall below the limit.22 Increasing the taxable earnings limit only for the DI program 

(the limit for the other Social Security programs would 

not be raised) to cover 90 percent of earnings—that is, 

increasing the maximum taxable earnings limit for the DI 

portion of the payroll tax from its projected level of 

$113,400 in 2013 to $174,000—would produce an 

additional $13 billion in revenues in 2022 and increase 

revenues by 8 percent in 2037.23

Those two methods of altering the DI program’s revenues 

would affect taxpayers in different ways. Increasing the 

rate of the DI payroll tax across the board for employers 

and employees would spread the costs among all people 

with labor earnings. In contrast, raising the maximum 

taxable earnings limit would increase taxes only for higher 

earners, leaving the majority of DI taxpayers unaffected. 

In terms of workers’ incentives to try to work more hours 

or to work harder, policies that raised payroll taxes would 

have opposing effects: On the one hand, an increase in 

the tax rate for disability insurance would encourage 

affected workers to work fewer hours or to work less hard 

because they would keep less of each extra dollar they 

earned; on the other hand, those workers would earn less 

after-tax income by working their current number of 

hours at their current level of effort, which would encourage them to increase the number of hours they worked 

and their work effort. CBO concludes, as do most analysts, that the former effect outweighs the latter and that 

higher tax rates reduce the supply of labor.24 However, the 

estimates presented here do not incorporate any changes 

in the supply of labor.

20. In addition to payroll tax receipts, a portion of the income taxes 

paid on Social Security retirement benefits is credited to the DI 

trust fund. The government maintains a separate trust fund for 

the Old-Age and Survivors Insurance program.

21. Another approach would be to redirect revenues to the DI trust 

fund from the OASI trust fund, a course that was followed in legislation enacted in 1994. However, such a redirection of resources 

would worsen the outlook for the OASI program.

22. The maximum taxable earnings limit is $110,100 in 2012. Historical data are taken from Social Security Administration, Annual 

Statistical Supplement, 2011 (Office of Retirement and Disability 

Policy, February 2012), Table 4.B1.

23. For those estimates, CBO did not assume that benefits would be 

increased to reflect the higher maximum taxable earnings limit. If 

benefits were increased to reflect that change, the net savings from 

this option would be smaller.

24. For further discussion, see Congressional Budget Office, The 2012 

Long-Term Budget Outlook, pp. 36–37.
POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM 11

CBO

Reduce the Program’s Spending

Options that reduce spending for the DI program would 

require scaling back either the number of beneficiaries the 

program serves or the amount of support each beneficiary 

receives. The challenge facing policymakers who are aiming to lower spending is to choose options that maximize 

savings while minimizing the harm inflicted on people 

whose disabilities prevent them from working. 

Change the DI Benefit Formula. One way to reduce the 

costs of the DI program would be to alter the amount of 

insurance it provides by changing the formula used to calculate benefits. Like Social Security retirement benefits, 

DI benefits are based on a worker’s past earnings and are 

calculated using a progressive formula that replaces more 

of the earnings of low-wage workers than of high-wage 

workers.25 (That is, workers who have higher earnings 

receive larger benefits, but the replacement rate—the 

portion of a worker’s earnings that the benefits replace—

declines as earnings rise.) Specifically, the primary insurance amount (PIA) formula for DI benefits has three 

components, any of which could be altered by policymakers (see Figure 2): 

 Average indexed monthly earnings (AIME). The AIME 

is a measure of a worker’s lifetime earnings. It is calculated as the sum of his or her earnings, indexed to 

compensate for inflation and for the real (inflationadjusted) growth of wages in the economy as a whole, 

divided by the number of months over which the 

earnings were obtained.26 For disabled worker beneficiaries, the AIME is computed by using an individual’s 

indexed earnings between the age of 22 and the year of 

onset of his or her disability. 

 Primary insurance amount factors. The PIA factors are 

the rates by which the components of the AIME are 

multiplied—specifically, 90 percent, 32 percent, and 

15 percent. The PIA factors, which are fixed by law, 

have been at those levels since 1977.27

 Bend points. The dollar amounts of the AIME at 

which the PIA factors change are called “bend points.” 

They govern the portions of the AIME associated with 

each PIA factor and change annually when the 

national average wage index rises. In 2011, the bend 

points were $749 and $4,517. Thus, a person with an 

AIME below $749 received a DI benefit equal to 

90 percent of that amount; a person with an AIME 

between $749 and $4,517 received 90 percent of the 

first $749 and 32 percent of the remainder; and a person with an AIME above $4,517 received 90 percent 

of the first $749, 32 percent of the next $3,768 

($4,517 minus $749), and 15 percent of the amount 

above $4,517. 

CBO analyzed two options that are based on modifying 

the formula for computing DI benefits.

Reduce All Benefits by 15 Percent. Policymakers could 

choose to reduce all DI benefits by the same amount, a 

change that would maintain the progressivity of the DI 

program. For example, benefits for newly eligible workers 

could be cut by 15 percent by reducing each PIA factor 

by that percentage (to 77 percent, 27 percent, and 

13 percent). Under that version of the option, the average 

DI benefit for disabled workers in 2012 would decline 

from $1,111 per month to $944 per month. Outlays for 

DI would fall by $22 billion in 2022 and by 14 percent 

in 2037.28

25. For a more detailed discussion of the Social Security benefit 

formula, see Congressional Budget Office, Social Security Policy 

Options (July 2010).

26. Indexing ensures that a worker’s benefits reflect the general rise 

in the standard of living that occurred during his or her working 

lifetime. Thus, a worker’s nominal earnings for the appropriate 

working years are converted to near-current wage levels on the 

basis of changes in average annual earnings in the economy as a 

whole. For disabled workers, the calculations record earnings at 

their actual amounts for the two years before the initial computation of benefits and earlier earnings as indexed amounts. For a 

related discussion, see David H. Autor and Mark G. Duggan, 

“The Rise in the Disability Rolls and the Decline in Unemployment,” Quarterly Journal of Economics, vol. 118, no. 1 (February 

2003), pp. 157–205, http://economics.mit.edu/files/579. Those 

authors have shown that rising income inequality in the United 

States combined with indexing by the average wage level has significantly raised the earnings replacement rate for DI benefits 

provided to low-wage workers. 

27. For further discussion, see Social Security Administration, 

“Automatic Determinations: Social Security Benefit Amounts” 

(October 19, 2011), www.ssa.gov/oact/cola/Benefits.html; and 

Muller, “The Effects of Wage Indexing on Social Security 

Disability Benefits.”

28. In earlier work, CBO estimated the costs associated with the same 

option for the entire OASDI program and found that outlays for 

the Social Security system would decline by about 12 percent relative to outlays currently scheduled for 2040. See Congressional 

Budget Office, Social Security Policy Options, p. 21. 
12 POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM

CBO

Figure 2.

Primary Insurance Amount Formula for Computing 

Disability Insurance Benefits in 2011

(PIA, in dollars)

Source: Congressional Budget Office.

Notes: The section in the text titled “Change the DI Benefit Formula” on page 11 describes the computation of benefits. 

PIA = primary insurance amount. 

Changes to benefits in the DI program would also 

directly affect other federal programs that use applicants’ 

income and assets to determine eligibility or amounts of 

support. In particular, people whose DI benefits were 

reduced would be more likely to qualify for the Supplemental Security Income program and Medicaid. Lower 

DI benefits might also deter some people from participating in the DI program, which would reduce outlays in 

related programs, such as Medicare. However, if fewer 

people applied for DI benefits, outlays might rise in the 

retirement portion of Social Security if people then 

claimed their retirement benefits earlier than they otherwise would have. CBO did not estimate the effects of this 

option on outlays for programs other than DI.

Reduce DI Benefits for People Age 53 and Older. Under the 

current Social Security system, workers who claim retirement benefits at age 62 rather than at their full retirement 

age are subject to an actuarial reduction that lowers their 

benefits for as long as they live. In contrast, workers who 

at age 62 move from employment to the DI program’s 

rolls, and then to Social Security’s retirement program at 

their full retirement age, are not subject to a reduction. 

Instead, they receive approximately the same retirement 

benefits in each year that they would have received if they 

had enrolled directly in the retirement program at their 

full retirement age. A potential change to benefits for DI 

beneficiaries would be to impose the same penalty on 

them at age 62 that is now paid by early retirees. 

CBO analyzed the budgetary effects of such an option by 

considering an approach that would reduce newly 

awarded benefits for older workers on the basis of their 

age. Specifically, for people born in 1960 and later, CBO 

estimated the effect of permanently reducing an older 

person’s DI benefits at the time the benefits are first 

awarded; starting at age 53, benefits would be reduced by 

3 percent, with an additional 3 percent reduction occurring at each subsequent year of age. Thus, a person who 

was newly awarded benefits at age 54 (in 2014 or later) 

would face a permanent reduction in benefits of 6 percent, a person who was newly awarded benefits at age 55 

(in 2015 or later) would face a permanent reduction in 

benefits of 9 percent, and so on. Ultimately, a new beneficiary who was 62 years old would receive a permanent 

benefit reduction of 30 percent, which is equal to the 

1,000 2,000 3,000 4,000 5,000 6,000 7,000

0

500

1,000

1,500

2,000

2,500

90% PIA Factor

32% PIA Factor

15% PIA Factor

1,880

674

749 4,517

First

Bendpoint

Second

Bendpoint

Average Indexed Monthly Earnings (Dollars)
POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM 13

CBO

reduced Social Security retirement benefit at that age for 

workers born in 1960 and later. A new beneficiary 

between the ages of 62 and 67 (the full retirement age for 

that group of workers) would receive a benefit equal to 

the Social Security retirement benefit he or she would 

have received at that age. 

If such a schedule of reductions was put in place at the 

beginning of 2013, the option would affect about 2 million people in 2022 and would reduce outlays by about 

$6 billion in that year and by nearly 7 percent in 2037, 

CBO estimates. Under the option, monthly support for 

people who were newly awarded benefits in 2022 would 

be reduced, on average, by between $50 (for 53-yearolds) and $600 (for 62-year-olds). Again, changes in the 

benefits provided through the DI program would directly 

affect spending for other parts of the Social Security system, Medicare, Medicaid, and SSI, but CBO did not 

estimate those effects.

Change How DI Benefits Grow Over Time. The DI program adjusts disabled workers’ benefits annually to 

account for increases in the prices of goods and services. 

For those calculations, the program currently uses the 

consumer price index for urban wage earners and clerical 

workers (CPI-W); under this option, the program would 

switch to a different indexing factor—specifically, the 

chained CPI.29 Over the next 10 years, CBO estimates, 

the chained CPI is likely to grow more slowly than the 

current CPI-W—on average, 0.25 percentage points per 

year more slowly. If that trend continued, this option 

would effectively reduce the growth of benefits for all DI 

beneficiaries. For example, the benefit of a disabled 

worker under current law might have grown during the 

next 10 years from $1,111 per month to $1,344 per 

month, but that same worker’s benefit under this option 

(that is, indexation using the chained CPI) would grow 

more slowly, from $1,111 per month to $1,312 per 

month. 

In CBO’s estimation, DI outlays would fall by about 

$3 billion in 2022 if the chained CPI was used; in 2037, 

use of that alternative indexing measure would reduce 

outlays for the program by about 2 percent. If lawmakers 

decided to use the chained CPI simultaneously to index 

benefits in the Old-Age and Survivors’ Insurance 

program, outlays for those components of Social Security 

would fall by over $20 billion in 2022. If they also 

applied the change in policy to SSI, its outlays would fall 

by nearly $2 billion in 2022. In contrast, if policymakers 

did not require use of the chained CPI for indexing SSI 

benefits, outlays for that program would increase slightly 

in response to the lower benefits that the option would 

provide to DI beneficiaries.

Change Eligibility Rules. The eligibility standards for 

receiving benefits from the DI program could be altered 

in numerous ways. 

Eliminate Eligibility Starting at Age 62. As noted earlier, 

the DI benefits that workers receive at age 62 equal the 

full OASI (retirement) benefit they would have received 

at their full retirement age, a policy that encourages people to apply for DI and OASI benefits simultaneously. 

(Some individuals claim OASI benefits during the fivemonth waiting period that the DI program imposes on 

applicants for benefits. Those individuals’ receipt of 

OASI benefits during the waiting period reduces their DI 

and subsequent OASI benefits for the rest of their lives.)

CBO estimated the budgetary impact of preventing 

workers from applying for DI benefits after their 62nd 

birthday or from receiving awards if the date they become 

eligible for benefits is after that birthday. Under such a 

policy, individuals who would have become eligible for 

DI benefits at age 62 or later would instead have to claim 

retirement benefits. Benefits for those men and women 

over their lifetime would be as much as 30 percent lower, 

on average, than the DI and OASI benefits they would 

have claimed. (The actual reduction in lifetime benefits 

would depend on their year of birth, the age at which 

they claimed retirement benefits, and how long they 

lived.) On the one hand, the option might induce some 

people to work longer than they would have worked 

under current law; on the other hand, it might induce 

some people who were planning to work until age 62 or 

63 to leave the labor force at age 61 and apply for DI 

benefits. The option also would deny support to some 

older disabled people who would have relied on those 

larger benefits and on the associated Medicare coverage. 

In CBO’s estimation, the option would affect about 

500,000 people in 2022 and would reduce DI outlays by 

about $12 billion in 2022 and by about 6 percent in 

2037. However, most of those budgetary savings would 

be offset by larger outlays for Social Security retirement 

29. For a broader discussion of the effects of such a switch, see Congressional Budget Office, Using a Different Measure of Inflation for 

Indexing Federal Programs and the Tax Code (February 2010). 
14 POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM

CBO

benefits as people shifted from the DI to the OASI program. OASI outlays under this option would rise by over 

$9 billion in 2022, CBO estimates, thereby reducing net 

savings for the Social Security system to about $2 billion.

Require Applicants to Have Worked More in Recent Years.

To be eligible for benefits under the current DI program, 

disabled workers must generally have worked 5 out of the 

past 10 years.30 CBO estimated the budgetary effects of a 

policy that would tighten that eligibility rule by requiring 

disabled workers to have worked 4 of the past 6 years. 

The tighter policy would reduce the number of workers 

who received DI benefits by 4 percent, CBO estimates, 

and would decrease outlays for the program by $8 billion 

in 2022. Expenditures on the program in 2037 would be 

about 5 percent lower.

Increase the Age at Which Disability Requirements Become 

Less Restrictive. One set of DI eligibility criteria for people 

who do not have a specific SSA-designated medical 

impairment is based on whether an individual can find a 

job within the U.S. economy. The criteria are known as 

vocational factors, and they vary with age, becoming less 

restrictive at ages 45, 50, 55, and 60 than they are at 

earlier ages.31 For example, according to the current DI 

program’s criteria, a worker who was 45 to 49 years old, 

whose “maximum sustained work capacity” was limited 

to sedentary work, who had no experience doing skilled 

work, and who was illiterate or unable to communicate in 

English would be considered disabled under the vocational criteria and awarded benefits if he or she had a 

sufficient work history.32 In contrast, his or her younger 

counterparts would not immediately qualify for the DI 

program. 

CBO estimated the budgetary impact of shifting upward 

the age ranges for the vocational factors. The current 

factors for ages 45 to 49, 50 to 54, and 55 to 59 would 

apply instead to ages 47 to 51, 52 to 56, and 57 to the 

full retirement age, respectively; the current vocational 

factor for age 60 and the factors for ages 45 to 46 would 

be eliminated. Under such a policy, the number of DI 

recipients would fall by about 50,000, or 0.5 percent, in 

2022. Expenditures for the DI program would fall by 

$1 billion in that year, CBO estimates, and by 3 percent 

in 2037. By reducing participation in the DI program, 

the option would also reduce participation in Medicare 

(and thus Medicare outlays) but would result in greater 

outlays for SSI and Medicaid. CBO did not estimate the 

effects on outlays for those programs. 

Extend the Waiting Period for Benefits from 5 Months to 

12 Months. To be deemed eligible for the DI program 

and ultimately to be awarded benefits, applicants must 

have earnings that fall below a threshold amount—called 

the substantial gainful activity (SGA) amount—for at 

least five months, which constitutes a waiting period 

during which applicants receive no support from the program. For example, suppose a worker becomes disabled 

on January 15 and leaves the labor force. The worker 

then applies to the DI program for benefits, and SSA 

awards them to the worker on November 1 of that year. 

The worker’s eligibility date is therefore July 1, or five 

months after the onset of disability, which SSA sets as 

February 1. (Unless the date of disability onset is the first 

day of the month, SSA pushes dates of onset to the first 

day of the next month.) In addition to receiving monthly 

DI benefits from November 1 onward, the worker also 

receives retroactive benefits for the period between the 

date of eligibility (July 1) and the awarding of benefits 

(November 1). 

Increasing the DI program’s waiting period would reduce 

outlays for benefits and might deter some people from 

applying. At the same time, if the waiting period was 

lengthened, it would make many disabled workers worse 

30. For the purposes of computing Social Security benefits, a year of 

work is defined as having earnings that exceed Social Security’s 

“quarters of coverage” threshold. In 2012, a worker receives onequarter of coverage (up to a total of four quarters in the year) for 

each $1,130 of annual earnings. The amount of earnings required 

for a quarter of coverage generally increases annually at the same 

rate as the rise in the average wage index.

31. Recent research shows the large increase in the rate of DI awards 

at those ages. See Joyce Manchester and Jae G. Song, “What Can 

We Learn from Analyzing Historical Data on Social Security 

Entitlements?,” Social Security Bulletin, vol. 71, no. 4 (November 

2011), pp. 1–13, www.ssa.gov/policy/docs/ssb/v71n4/index.html.

32. See Social Security Administration, “Appendix 2 to Subpart P of 

Part 404—Medical-Vocational Guidelines,” Code of Federal Regulations (November 2011), www.ssa.gov/OP_Home/cfr20/404/

404-app-p02.htm. SSA’s definition of “maximum sustained work 

capacity” is related to the kinds of tasks a person can perform at 

work, and its definition of “sedentary work” is related to the 

amount of weight a worker can lift or carry and the amount of 

time he or she can stand, walk, and sit. See Social Security Administration, “DI 25001.001 Medical-Vocational Quick Reference 

Guide,” TN 6 (03-10) (May 2012), http://policy.ssa.gov/poms.

nsf/lnx/0425001001. 
POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM 15

CBO

off because they would be forced to wait longer for 

benefits.

CBO estimated that under a policy in which the waiting 

period for DI benefits was extended to 12 months, DI 

outlays would fall by $11 billion in 2022 and by about 

7 percent in 2037. Outlays for the SSI program, however, 

would be higher with that extended waiting period: People’s income would be lower until they entered the DI 

program, and, in CBO’s estimation, the increase in SSI 

spending that would result from that lower income 

would offset roughly one-eighth of the DI program’s savings. CBO assumed that DI beneficiaries’ eligibility for 

Medicare under this option would still begin 29 months 

after the onset of disability (the sum of the 5-month initial waiting period for benefits plus the 24-month waiting 

period for Medicare coverage once a disabled worker was 

awarded benefits), so spending for Medicare under the 

option would probably be little changed.

Change Certain Administrative Features of the DI 

Program. SSA could alter the administration of the DI 

program in a number of ways that might affect the program’s costs. CBO identified two such potential changes: 

modifying certain aspects of the appeals process associated with applying to the program and altering how SSA 

reexamines disability cases over time. However, because 

there is little evidence as to the impact such policies 

would have, CBO did not estimate their potential 

budgetary effects. 

Modify the Appeals Process for Disability Claims. The initial consideration and disposition of a disabled worker’s 

application for benefits from the DI program are the job 

of the Disability Determination Services (DDS), which 

are agencies funded by SSA and administered by the 

states.33 If a person’s application is denied at the DDS 

level, the applicant can either terminate the application 

process or appeal the decision. Certain appeals may 

be adjudicated before administrative law judges—

individuals appointed by SSA who conduct hearings at 

about 180 offices across the country.34 Those officials are 

trained at the local hearing office at which they are 

employed. 

Researchers have suggested different ways in which SSA 

could improve the administration of the DI program at 

the hearings level. They include modifying the selection 

criteria for administrative law judges, increasing the 

length of their training, and improving the consistency of 

training among localities. Another example of a possible 

change in the program’s administrative procedures 

involves altering the hearing process. Applicants for DI 

benefits are permitted legal representation at appeal hearings, whereas SSA is not. Policymakers could allow SSA 

to be so represented, which in the short term would 

add certain costs for hiring and training but might over 

the long run result in lower spending for the program 

because fewer people would be admitted.35 However, the 

effects that any of those modifications would have on the 

disability determination process are uncertain, and CBO 

has not estimated their budgetary impact.

Increase the Frequency of Continuing Disability Reviews.

An option related to recent growth in the DI program 

involves SSA’s periodic reexamination of cases through 

continuing disability reviews (CDRs). CDRs help the 

agency determine whether disabled workers are still eligible for benefits, and they tend to lower outlays for the 

program because the average reduction in benefits associated with a CDR is significantly greater than the average 

cost of a review. The Budget Control Act of 2011 (Public 

Law 112-25) allows lawmakers to adjust the current limits on overall federal discretionary spending to permit 

additional appropriations for conducting CDRs. (That 

additional money may also be used to fund CDRs for 

SSI beneficiaries and redeterminations of whether SSI 

recipients still meet the program’s nonmedical eligibility 

criteria—that is, those related to income and assets.)36

In its 2011 cost estimate for the Budget Control Act, 

CBO estimated the effect on outlays if the Congress 

33. For details on the application and appeals process, see Congressional Budget Office, “DI: The Social Security Disability Insurance 

Program” (infographic, July 2012).

34. Social Security Administration, Annual Statistical Supplement, 

2011, Table 2.F1.

35. See Autor and Duggan, “The Growth in the Social Security 

Disability Rolls: A Fiscal Crisis Unfolding”; and Social Security 

Advisory Board, Improving the Social Security Administration’s 

Hearing Process (September 2006), www.ssab.gov/documents/

HearingProcess.pdf, and Charting the Future of Social Security’s 

Disability Programs: The Need for Fundamental Change

(January 2001), www.ssab.gov/Publications/Disability/

disabilitywhitepap.pdf.

36. The law allows for similar adjustments to the spending limits for 

additional appropriations for Medicare, Medicaid, and the Children’s Health Insurance Program to ensure that enrollees meet the 

programs’ eligibility criteria, that claims are paid accurately, and 

that the programs are managed effectively and efficiently.
16 POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM

CBO

appropriated the maximum amounts for which such 

adjustments to the spending limits could be made. In 

CBO’s estimation, such appropriations would add about 

$4 billion in funding for SSA to CBO’s baseline for the 

coming decade. In addition, if that additional funding 

was appropriated, spending for benefits from the DI program, SSI, Medicare, and Medicaid would fall by nearly 

$12 billion during the 2012–2021 period, and additional 

savings would accrue after 2021.37 CBO has not estimated the effects of even larger appropriations for such 

purposes or of other changes in the manner in which 

CDRs are conducted. 

Options to Provide Greater Support to 

Disability Insurance Beneficiaries

In light of the importance of DI benefits to the individuals and families who receive them, policymakers might 

want to provide greater amounts of support to certain 

disabled workers. CBO estimated the additional federal 

spending that would result from two options for increasing such assistance: 

 Increase benefits for all DI beneficiaries beyond their 

first year of receiving benefits by raising the annual 

cost-of-living adjustment (COLA) by 1 percentage 

point, and 

 Eliminate the five-month waiting period for benefits 

for workers who apply for disability insurance, thereby 

paying benefits to DI recipients from the date of onset 

of their disability.

Increase the COLA by 1 Percentage Point

One way in which lawmakers could provide greater support to DI beneficiaries would be to increase the rate at 

which benefits grow over time. One consequence of such 

a change is that disabled workers who became entitled to 

benefits at relatively younger ages would experience more 

years of the enhanced COLA in their benefits than would 

workers who were awarded support when they were older. 

If the COLA was increased by 1 percentage point, CBO 

estimates, total outlays would rise by $16 billion in 2022 

and by 6 percent in 2037. Outlays for related programs 

would change slightly under such a policy: Spending for 

programs that used applicants’ income and assets to 

determine eligibility for benefits (SSI and Medicaid, for 

example) would be affected because people who received 

higher DI benefits as a result of the larger COLA might 

not be eligible for those programs. CBO did not estimate 

the magnitude of those effects.

Eliminate the Five-Month Waiting Period

If lawmakers eliminated the DI program’s waiting period 

for applicants, a worker would be eligible for DI benefits 

the day he or she was deemed to become disabled or to 

have stopped working because of the onset of disability. 

As under the current program, DI beneficiaries would 

receive a “retroactive” benefit—a lump-sum payment for 

the time between their application to the program and 

their approval for benefits. 

Under a policy that eliminated the waiting period, total 

DI outlays would rise by $8 billion in 2022, CBO estimates, and by 5 percent of outlays in 2037. A policy that 

eliminated the DI program’s waiting period would lead 

to additional DI benefits for disabled workers who would 

have been eligible for SSI and Medicaid, and it would 

therefore reduce outlays for those two programs. In particular, the reduction in SSI outlays would offset nearly 

one-tenth of the increase in DI spending.

Possible Approaches to Making 

Fundamental Changes in the Disability 

Insurance Program

Changes in the U.S. economy, advances in medicine and 

technology, and the evolution of views about disability 

during the past several decades suggest that the DI program’s model of disability, in which disabled people leave 

the labor force, may be outdated. In particular, those 

recent economic and perceptual shifts suggest that a 

disability insurance system that emphasized workers’ 

continuing in their jobs might lead to a higher rate of 

employment among those with disabilities than is now 

the case.38

37. Congressional Budget Office, letter to the Honorable John 

Boehner and the Honorable Harry Reid about CBO’s analysis of 

the impact on the deficit of the Budget Control Act of 2011, as 

posted on the Web site of the House Committee on Rules on 

August 1, 2011 (August 2011). 

38. For further discussion, see Richard V. Burkhauser and Mary C. 

Daly, The Declining Work and Welfare of People with Disabilities: 

What Went Wrong and a Strategy for Change (AEI Press, 2011); 

and David H. Autor and Mark G. Duggan, Supporting Work: A 

Proposal for Modernizing the U.S. Disability Insurance System 

(Brookings Institution, Hamilton Project, December 2010), 

www.brookings.edu/papers/2010/12_disability_insurance_autor.aspx. 
POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM 17

CBO

The effect of that kind of job-continuation model on the 

DI program’s rolls and costs would depend on the structure of the changes in policy that established it, and only 

limited evidence is available on the potential impact of 

such changes. Therefore, CBO did not estimate the 

budgetary effects of specific changes of that sort. However, the agency reviewed proposals for such fundamental 

reforms to the DI program and summarized the main 

themes among them: moving to a so-called partial disability system or, for newly disabled workers, focusing on 

their rehabilitation and reemployment rather than on 

their receipt of benefits. In CBO’s estimation, such 

changes are unlikely to provide significant short-term 

cost savings but could provide long-term savings or 

achieve other goals, such as improving the well-being of 

people with disabilities.

The Capacity for Work of People with Disabilities

At the time the DI program was established, in 1956, 

policymakers specified that beneficiaries be “unable to 

engage in any substantial gainful activity.” Over the past 

half century, though, the labor market has changed considerably, shifting away from physically demanding jobs 

with rigid work schedules and toward jobs with a broader 

range of physical requirements and greater flexibility in 

how those jobs can be performed. That changed environment suggests there may be more opportunities today for 

disabled people to work. At the same time, views about 

people with disabilities have changed, emphasizing abilities rather than limitations, capacities over deficits. That 

modern view of disability was codified in 1990 with the 

passage of the Americans with Disabilities Act. The law 

requires that people with disabilities have equal access to 

employment (as well as to other activities) and that their 

employers make reasonable accommodations (for the use 

of such equipment as hearing aids and wheelchairs and 

through computer modifications to increase accessibility) 

to support their work. 

Nonetheless, over the past 20 years, the employment rate 

among people with disabilities has declined sharply, from 

about 29 percent in calendar year 1990 to about 16 percent in 2010.39 The drop in employment does not appear 

to be explained by a rising inability to work at all, nor 

does it seem to be attributable to the ups and downs of 

the business cycle. Instead, recent research shows that an 

increasing number of DI claims are coming from younger 

workers with mental or musculoskeletal disorders—

despite other evidence indicating that those workers have 

the greatest capacity to remain part of the labor force.40

Another study, using data on accepted and rejected applicants with similar conditions, also found that some new 

DI beneficiaries were able to continue working.41 To 

be sure, not all DI beneficiaries can be candidates for 

reemployment. Still, evidence of existing work capacity 

among disabled workers—as well as increased use of 

assistive technologies and workplace accommodations—

implies that the design of the DI program might contribute to the relatively low rate of employment among 

people with disabilities.42

Encouraging Work Among DI Beneficiaries and 

Applicants 

One approach that policymakers have already used to try 

to increase employment among current and future DI 

beneficiaries is to provide support for their return to 

work. As currently designed, however, that approach 

does not appear to have had a significant effect. In 1999, 

lawmakers authorized the Ticket to Work and Work 

Incentives Improvement Act, under which DI beneficiaries may request employment or vocational rehabilitation 

services. The act was designed to encourage DI beneficiaries to find jobs and lessen their reliance on the program’s 

benefits. In particular, the legislation provided the 

following:

39. See Employment and Disability Institute, “U.S. Disability 

Statistics: Current Population Survey” (various years), 

www.disabilitystatistics.org. For a discussion of the technical issues 

related to measuring employment rates among people with disabilities, see Burt S. Barnow, “The Employment Rate of People 

with Disabilities,” Monthly Labor Review, vol. 131, no. 11 

(November 2008), pp. 44–50, www.bls.gov/mlr/2008/11/

contents.htm.

40. Till von Wachter, Jae Song, and Joyce Manchester, “Trends in 

Employment and Earnings of Allowed and Rejected Applicants to 

the Social Security Disability Insurance Program,” American Economic Review, vol. 101, no. 7 (December 2011), pp. 3308–3329, 

www.aeaweb.org/articles.php?doi=10.1257/aer.101.7.3308.

41. Nicole Maestas, Kathleen J. Mullen, and Alexander Strand, Does 

Disability Insurance Receipt Discourage Work? RAND Working 

Paper WR-853-2 (RAND, March 2011), www.rand.org/pubs/

working_papers/WR853-2.html. Also see Eric French and Jae 

Song, The Effect of Disability Insurance Receipt on Labor Supply, 

Federal Reserve Bank of Chicago Working Paper 2009-05 (revised 

July 1, 2011), www.chicagofed.org/webpages/publications/

working_papers/2009/wp_05.cfm.

42. See, for example, “Assistive Technology, Accommodations, and 

the Americans with Disability Act” (Cornell University, (December 2000), www.ilr.cornell.edu/extension/files/download/

Assistive_Tech.pdf.
18 POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM

CBO

 Grants to support counselors for working 

beneficiaries, 

 Upgrades to help SSA speed up the processing of 

information about earnings and the results from 

continuing disability reviews, 

 Expedited reinstatement of disabled workers whose 

benefits were terminated because they returned to 

work but then became unable to work and returned to 

the DI rolls, 

 Eased procedures for states to establish income and 

asset standards for working people with disabilities 

and thus share Medicaid costs through premiums or 

other cost-sharing arrangements, and 

 Extended Medicare coverage—from about three years 

under the previous rules to nearly eight years under 

the 1999 legislation—for beneficiaries who returned 

to work. 

Although those provisions reduce some of the potential 

hurdles to DI beneficiaries’ participation in the labor 

market, the employment rates of DI recipients have 

not been measurably affected.43 As of April 2012, 

13.2 million DI and SSI beneficiaries were eligible for 

employment services through the Ticket to Work program, but only about 290,000 beneficiaries (or about 

2 percent) were receiving them. About 1,000 firms have 

signed up to be “employment networks” to provide services to beneficiaries, and about 900 have successfully 

placed DI beneficiaries in jobs.44

The original Ticket to Work legislation asked SSA to 

implement and evaluate a demonstration project that 

would modify reductions in DI benefits for beneficiaries 

who work. SSA is currently evaluating the effects of such 

a program in which annual benefits are reduced by $1 

for every $2 in earnings that exceed the SGA amount.45

However, it is too early to determine whether those 

modifications will succeed in encouraging more DI beneficiaries to leave the program’s rolls and return to the 

labor market.

A growing number of studies suggest that the critical 

obstacle to DI beneficiaries’ return to the labor market 

is the substantial amount of time they have often spent 

away from employment, through a combination of looking for work, completing the DI program’s waiting 

period, and receiving DI benefits. Specifically, because DI 

applicants must demonstrate that they are unable to 

undertake any substantial gainful employment, workers 

who seek support must generally leave any jobs they 

might be holding. Once an application is filed, the determination process is quite lengthy.46 During the time a DI 

application is being reviewed, the applicant receives no 

income support or medical benefits from the program, 

and the law requires no additional accommodations for 

his or her disability in the workplace. Moreover, the 

program’s limits on earnings discourage applicants from 

43. Government Accountability Office, Employment for People 

with Disabilities: Little Is Known About the Effectiveness of Fragmented and Overlapping Programs, GAO-12-677 (June 2012),

www.gao.gov/assets/600/592074.pdf, and Social Security Disability: Ticket to Work Participation Has Increased, but Additional Oversight Needed, GAO 11-324 (May 2011), www.gao.gov/products/

GAO-11-324; and Craig Thornton and others, Evaluation of the 

Ticket to Work Program: Assessment of Post-Rollout Implementation 

and Early Impacts (Mathematica Policy Research and Cornell University, May 2007).

44. For additional information on the Ticket to Work program 

and the employment networks, see Social Security Administration, “Ticket to Work,” www.ssa.gov/disabilityresearch/

offsetnational.htm; and David Stapleton and others, Ticket to 

Work at the Crossroads: A Solid Foundation with an Uncertain 

Future (Mathematica Policy Research and Cornell University, 

September 2008).

45. As under the DI program’s usual rules, beneficiaries in the 

trial program are allowed to earn any amount for as long as 

12 months (a trial work period of 9 months plus a grace period 

of 3 months) and keep all of their benefits. But also under 

those rules, beneficiaries lose 100 percent of their benefits after 

12 months if they earn the SGA or more, whereas in the 

trial program, many beneficiaries can keep a substantial share of 

their benefits. See Social Security Administration, “Benefit 

Offset National Demonstration” (July 2012), www.ssa.gov/

disabilityresearch/offsetnational.htm. 

46. The average DI applicant who appeals an initially denied application to an administrative law judge will wait about 12 months 

for the case to be decided, although that is significantly faster than 

the time required for such judgments a few years ago. See Congressional Budget Office, “DI: The Social Security Disability 

Insurance Program” (infographic); Social Security Administration, 

The Social Security Administration’s (SSA) Performance and 

Accountability Report (PAR) for Fiscal Year (FY) 2011 (February 

2012), www.socialsecurity.gov/finance; and David Autor and 

others, Does Delay Cause Decay? The Effect of Administrative 

Decision Time on the Labor Force Participation and Earnings of 

Disability Applicants, University of Michigan Retirement 

Research Center Working Paper 2011-258 (September 2011), 

www.mrrc.isr.umich.edu/publications/papers/pdf/wp258.pdf. 
POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM 19

CBO

continuing to work even on a trial basis because doing so 

could jeopardize their DI application. Research has 

shown that returning to work is difficult for rejected DI 

applicants, and the time they spend out of the workforce 

(perhaps as much as two years while they seek benefits) 

generally makes it harder. For people who are eventually 

awarded DI benefits, concerns about maintaining that 

support and finding employment after a long absence 

from the workforce may keep many from reentering the 

labor market.47

Strategies for Reducing the Number of People Who 

Leave the Workforce and Become DI Beneficiaries

The limited success of programs designed to increase the 

rate at which DI beneficiaries and applicants return to 

work has spurred proposals aimed at supporting employment for people with disabilities before they quit their 

job to begin the application process. Ideally, such proposals can enable people with disabilities to remain in the 

workforce and can thereby slow the movement of such 

people onto the DI rolls. In the face of fiscal challenges 

that are similar to those confronting the United States, 

several other nations have implemented some of those 

types of changes.

Moving to a Partial Disability System. One way to 

encourage workers with disabilities to participate in the 

labor market is to move to a partial disability system of 

the kind used by the Department of Veterans Affairs and 

by many workers’ compensation systems. Partial disability systems generally use a predetermined schedule to 

calculate a “percent disabled” rating for each individual; 

those percentages then determine the amount of the payments a person will receive. Such a system avoids the 

either/or threshold currently employed in the DI program in which employment and disability are considered 

incompatible. A partial disability system explicitly recognizes that workers with a disability that restricts their 

activity by, say, 30 percent or 50 percent have some 

remaining capacity to work. 

If the DI program shifted to such a system, the number 

of people in the program would probably increase 

because the system would encourage people with lesssevere disabilities to apply and qualify for benefits. 

Because current beneficiaries would not face reduced 

benefits and newly qualified individuals who are partially 

disabled would also receive benefits, outlays would rise in 

the short run. However, the net budgetary effects in the 

long run are difficult to estimate because they would 

depend critically on the definitions used to assess partial 

disability, on the amount of benefits provided for those 

who were so identified, and on the responses of workers 

and firms. 

In practice, partial disability systems have been difficult 

to design and carry out consistently. Problems of implementation include, first, how to agree on a predetermined 

schedule of disabling conditions when the demands of a 

job and the severity of health impairments may change 

over time and, second, how to use the schedule to assess 

different individuals in a comparable way.48 The difficulty 

of managing partial disability systems combined with 

rising costs—stemming from increased administrative 

expenditures and lost earnings among those with partial 

disabilities—has led several European nations (for example, the Netherlands, Norway, and Switzerland) to move 

away from partial disability insurance and toward 

approaches that directly involve employers in helping 

individuals with disabilities remain in the labor market.49

Involving Employers in Supporting Workers with 

Disabilities. Employers are not allowed to discriminate 

against people with disabilities and are required by law 

to make reasonable accommodations for them in the 

workplace. In most cases, employers have some financial 

incentive (such as the costs of replacement workers, 

retraining, and workers’ compensation) to actively participate in keeping workers with disabilities on the job. 

However, because the DI program is funded through a 

flat-rate payroll tax on employers and employees, employers do not bear the costs associated with a disabled worker 

47. Maestas, Mullen, and Strand, Does Disability Insurance Receipt 

Discourage Work?

48. The Institute of Medicine’s Committee on Medical Evaluation of 

Veterans for Disability Compensation highlighted some of those 

challenges in a review of the Department of Veterans Affairs’ disability system. See Michael McGeary and others, eds., A 21st 

Century System for Evaluating Veterans for Disability Benefits

(National Academies Press, 2007), www.iom.edu/Reports/2007/

A-21st-Century-System-for-Evaluating-Veterans-for-DisabilityBenefits.aspx. 

49. See Organisation for Economic Co-operation and Development, 

New Ways Of Addressing Partial Work Capacity: OECD Thematic 

Review on Sickness, Disability, and Work Issues Paper and Progress 

Report (OECD, April 2007), www.oecd.org/dataoecd/6/6/

38509814.pdf.
20 POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM

CBO

who stops working and becomes a beneficiary in the DI 

program. 

In recent years, the policies of a number of European 

countries have changed to transfer more of the cost of 

providing disability benefits to employers. One way that 

has been done is by making employers responsible for 

paying benefits for a fixed amount of time. Those periods 

vary from as much as two years in the Netherlands to just 

six months in the United Kingdom, but like workers’ 

compensation in the United States, the programs are 

meant to encourage employers to accommodate workers 

with disabilities and provide rehabilitation services in lieu 

of moving such workers to a system of long-term cash 

benefits.50 Among the countries that have adopted the 

employer-involvement model, strategies are being developed to assist employers in managing their workers with 

disabilities.51 One challenge with such an approach is 

determining the time horizon over which a firm is 

responsible for an ex-employee who enters the DI 

program.

Lawmakers in the United States could consider similar 

changes. Firms could be required to provide the first, say, 

two years of disability insurance, in which firms covered 

some portion of a worker’s earnings before he or she was 

awarded DI benefits. Private-market provision of such 

short-term disability insurance—similar to arrangements 

in some European nations—might develop in that environment.52 As an alternative to requiring firms to provide 

insurance, employers who did so, and whose private 

insurance agents cooperated with SSA in managing their 

cases, could be granted a reduction in DI tax rates. Firms 

that did not offer private insurance could be charged a 

higher DI tax rate, an approach that Switzerland has 

adopted.53

Another way in which European nations have encouraged 

employers to accommodate workers with disabilities 

rather than move them to cash benefit programs is by 

applying “experience rating” to the contributions 

employers make for disability benefits. In the context of 

the DI program, experience rating would mean raising 

the DI payroll taxes of firms whose workers became beneficiaries of the DI program at above-average rates or 

lowering the payroll taxes of firms whose workers claimed 

benefits at below-average rates. Experience rating provides a financial incentive for employers to engage in 

practices that promote continued work by people with 

disabilities.54 The Netherlands and Finland use such a 

strategy, as do workers’ compensation programs and the 

unemployment insurance program in the United States.55

One criticism of experience rating is that it could push 

employers away from hiring people with disabilities, 

potentially increasing growth in the number of beneficiaries in the DI program. That type of behavior is illegal 

and would come with significant costs if it was discovered. Uncovering and prosecuting such behavior, 

however, might be difficult. 

50. For a discussion of the differences between the programs of other 

countries, see Organisation for Economic Co-operation and 

Development, Sickness, Disability, and Work: Breaking the Barriers; 

A Synthesis of Findings Across OECD Countries, (OECD, November 2010), http://dx.doi.org/10.1787/9789264088856-en. 

51. See also the various OECD publications that make up the OECD 

series Sickness, Disability, and Work at www.oecd.org/els/disability.

52. For details of such a proposal, see Autor and Duggan, Supporting 

Work: A Proposal for Modernizing the U.S. Disability Insurance 

System.

53. Ibid. For further discussion, see Burkhauser and Daly, The Declining Work and Welfare of People with Disabilities.

54. Ibid.

55. Organisation for Economic Co-operation and Development, Sickness, Disability, and Work: Breaking the Barriers. 
POLICY OPTIONS FOR THE SOCIAL SECURITY DISABILITY INSURANCE PROGRAM 21

CBO

About This Document

This Congressional Budget Office study was prepared at the request of the Ranking Member of the 

Senate Budget Committee. In keeping with CBO’s mandate to provide objective, impartial analysis, 

the report contains no recommendations.

Jonathan Schwabish of CBO’s Health, Retirement, and Long-Term Analysis Division wrote the report 

under the supervision of Joyce Manchester and Linda Bilheimer. Sheila Dacey, Charles Pineles-Mark, 

and David Rafferty of CBO contributed significantly to the analysis, as did the staff of the Joint 

Committee on Taxation, which estimated how some of the policy options would affect federal 

revenues. Molly Dahl, Noah Meyerson, and Andrew Stocking of CBO provided helpful comments. 

The work benefited from contributions by Mary Daly of the Federal Reserve Bank of San Francisco 

while she was a visiting scholar at CBO. In addition, Mark Duggan of the University of Pennsylvania, 

Jason Fichtner of George Mason University, Kathy Ruffing of the Center on Budget and Policy 

Priorities, and Jack Smalligan of the Brookings Institution (on leave from the Office of Management 

and Budget) offered comments. The assistance of external reviewers implies no responsibility for the 

final product, which rests solely with CBO. 

Leah Mazade edited the study. Jeanine Rees and Maureen Costantino prepared the report for publication. The report is available on CBO’s Web site (www.cbo.gov).

Douglas W. Elmendorf 

Director

July 2012