The Financing Challenges Facing the Social Security ... · Social Security Disability Insurance 155...
Transcript of The Financing Challenges Facing the Social Security ... · Social Security Disability Insurance 155...
Copyright © 2014 by the American Academy of Actuaries
All Rights Reserved.
Social Security
Disability Insurance Trust Fund:
Behind the Numbers
Stephen C. Goss, MAAA, ASA
Chief Actuary, Social Security Administration
Moderator: Donald E. Fuerst, MAAA, FSA, FCA, EA
Senior Pension Fellow, American Academy of Actuaries
April 23, 2014
Copyright © 2014 by the American Academy of Actuaries
All Rights Reserved.
The Academy Capitol Forum: Meet the Experts
Social Security
Disability Insurance Trust Fund:
Behind the Numbers
Presentation by Stephen C. Goss, Chief Actuary,
Social Security Administration
American Academy of Actuaries
Webinar
April 23, 2014
3
Social Security Disability Insurance
155 million workers under age 66 are insured against
becoming unable to work
9 million workers now receive DI benefits
• 2 million “dependents” - mostly children
Many more protected from loss of insured status
• And from lower retirement benefits
Benefits replace 40% to 45% of career earnings on
average
• 76% for very-low earner, 27% for steady maximum earner
4
Solvency of the DI Trust Fund Reserve depletion projected for 2016 right after 1994 reallocation
Remember---the Trust Funds cannot borrow under current law
0
50
100
150
200
250
1990 1995 2000 2005 2010 2015 2020 2025
Reserv
es a
s %
of
An
nu
al
Co
st
DI Trust Fund Ratio in 1995 Trustees Report
Tax-Rate Reallocation
in 1994
5
Solvency of the DI Trust Fund looked MUCH better in 2007 Boost from the “new economy” anticipating NO recession
DI Trust Fund Ratio in 1995 and 2008 Trustees Reports
0
50
100
150
200
250
1990 1995 2000 2005 2010 2015 2020 2025
Re
se
rve
s a
s %
of
An
nu
al
Co
st
1995TR
2008TR
"New Economy"
6
Solvency of the DI Trust Fund; reserve depletion in 2016 2008 recession offset “new economy”; cycles still happen
DI Trust Fund Ratio in 1995, 2008, 2013 Trustees Reports
0
50
100
150
200
250
1990 1995 2000 2005 2010 2015 2020 2025
Reserv
es a
s %
of
An
nu
al
Co
st
1995TR
2008TR
2013TR"New Economy"
irrational
exuberance
2008
Recession
back to
reality
7
Economic cycles and policy changes fluctuate,
and DI incidence rates also vary
0
1
2
3
4
5
6
7
8
9
10
11
12
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Un
em
plo
yme
nt
rate
an
d D
isa
ble
d w
ork
er
incid
en
ce
per
tho
usa
nd
exp
os
ed
Calendar year
Age-sex-adjusted disabled worker incidence rate
Civilian unemployment rate
Historical Estimated
Recession and SSI
1974
Recession
Recession
Recession
1980 Amendments: PER, CDRs, EPE,
Lowered Family Max
1984 Amendments: Multiple Impairments Medical Improvement
Mental Listings
1996 Amendments: Drug Addiction & Alcohol
CDR Plan 1996-2002
SSI Outreach
1970-74 Large Benefit
Increases
Recession
8
Most of the recession effect is from
less GDP, not more DI cost
Change in DI Benefit Cost and in GDP
Between 2008 TR and 2013 TR
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2010 2011 2012 2013
Increase in DIBenefit Cost
Reduction in GDP
Increase in DIBenefit Cost/GDP
9
Additional disabled worker beneficiaries are a
small fraction of reduced employment
Changes in Disabled Worker Beneficiaries and in
Covered Workers from 2008 TR to 2013 TR
0
2,000
4,000
6,000
8,000
10,000
12,000
2007 2008 2009 2010 2011 2012 2013
Ch
an
ge
in
Th
ou
sa
nd
s
Increase inDisabledWorkers
Reduction inCoveredWorkers
10
Is DI out of control, taking over OASDI? (Note 5% increase in DI cost for 2010 due to recession)
0
2
4
6
8
10
12
14
16
18
20
1980 2010 2040
DI Cost as a Percent of Total OASDI Cost
1995 TR
2013TR
12.8
16.917.9
12.6 12.312.8
11
DI cost as percent of GDP has peaked,
but scheduled income is too low
DI Cost and Income as Percent of GDP 1975-2090 2013 Trustees Report Intermediate Assumptions
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
2065
2070
2075
2080
2085
2090
Baby Boomers
reach ages 45-64
in 2010
Baby Boomers
reach ages 25-44
in 1990
DI Cost
DI Income
Note:
Recession raised
DI Cost/GDP
by 15% for 2010
Disabled workers increased 187% from 1980 to 2010;
let’s work backwards and explain
12
Population age 20-64 increased 41% from 1980 to 2010;
let’s adjust that out
13
Population age 20-64 is much older in 2010 Boomers have aged with lower-birth-rate generations following
14
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000DI Disabled Worker Beneficiaries: from 2010 to 1980, in thousands
187 percent above 1980
Age 20-64 popincreases 41%
increases 38%
15
Remarkable changes in age distribution Progression of the boomers and drop in birth rates dominate
Figure 2: Age Distribution of the Population Age 25+, 1940 to 2100
(2012TR)
0
10
20
30
40
50
60
70
80
90
100
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Perc
en
t o
f P
op
ula
tio
n a
t A
ges
25
+
25-44
25-44
45-64
65-84
85+
Boomers
become
25-44
Boomers
become
45-64
Boomers
become
65-84
The Normal Retirement Age increased from 65 to 66,
adding 4% more disabled worker beneficiaries
16
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000DI Disabled Worker Beneficiaries: from 2010 to 1980, in thousands
187 percent above 1980
Age 20-64 popincreases 41%
increases 38%
increases 4%
17
Increased work by women raised insured;
men a little lower at younger ages
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%Figure 5: Percent of Population that is Insured for Disability
Male
Female
Disability insured rates in the population increased
substantially for women, mainly at higher ages;
increased beneficiaries by 21%
18
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000DI Disabled Worker Beneficiaries: from 2010 to 1980, in thousands
187 percent above 1980
Age 20-64 popincreases 41%
increases 38% increases
4% increases 21%
Recession of 2008-10 increased disabled workers 5%
compared to full-employment economy,
as had been experienced prior to 1980
19
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000DI Disabled Worker Beneficiaries: from 2010 to 1980, in thousands
187 percent above 1980
Age 20-64 popincreases 41%
increases 38% increases
4% increases 21%
increases 5%
This leaves 12% increase for all other causes; the
increase in disability incidence rates for women easily
explains this
20
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000DI Disabled Worker Beneficiaries: from 2010 to 1980, in thousands
187 percent above 1980
Age 20-64 popincreases 41%
increases 38%
increases 4%
increases 21%
increases 5%
increases 12%
IncidenceRates, etc
21
Incidence rates for women have risen
to male level Figure 8: New Disabled Workers per 1,000 Exposed (Incidence)
Age-Adjusted (2000) - 2012 Trustees Report
2
3
4
5
6
7
8
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
2065
2070
2075
2080
2085
2090
New
Aw
ard
s p
er 1
,000
Exp
ose
d
Male
Female
But NOT because of increasing mental impairment
for young females: steady distribution by impairment
Figure 12: Female Age 30-39 disabled worker new entitlement distribution by primary diagnosis (awarded through June 2012)
22
Nor for young males: note steady but for HIV
bulge in 1986-2000 Figure 13: Male Age 30-39 disabled worker new entitlement distribution by primary diagnosis (awarded through June 2012)
23
For older females: increased musculoskeletal
impairment; diminished circulatory Figure 14: Female Age 50-59 disabled worker new entitlement distribution by primary diagnosis (awarded through June 2012)
24
Same for older males: increased musculoskeletal
impairment; less circulatory Figure 15: Male Age 50-59 disabled worker new entitlement distribution by primary diagnosis (awarded through June 2012)
25
26
So where are we on DI? • Is the sky falling, cost out of control? No.
• Or are we following a path foreseen? Yes.
• Trust Fund reserves projected to deplete 2016 Need change soon to avoid inability to pay in full & on time
Default: Revenue enough to pay 80% of benefits, so: 1. Cut all DI benefits by 20%?
2. Increase DI tax revenue by 25%?
3. Or, reallocate tax rate between OASI and DI?
• Need further changes for long-range solvency
27
Potential tax rate reallocation between OASI and DI:
Like in 1994—NO change in total taxes
28
Some changes specific to DI • Actuarial deficit for DI is 0.32 percent of payroll
– Changes considered by Senator Coburn in 2011 http://www.ssa.gov/OACT/solvency/TCoburn_20110718.pdf
• Raise ages for vocational factors by up to 8 years
– Lowers actuarial deficit by 0.04 percent of payroll
• Eliminate “reconsideration” level of disability appeal
– Increases actuarial deficit by 0.02 percent of payroll
• Close record without exception after first ALJ decision
– Must reapply with new evidence
– Lowers actuarial deficit by 0.01 percent of payroll
• Time limit benefits: MIE 2 years, MIP 3 years, MINE 5 years
– Reapply; may deny without medical improvement
– Lowers actuarial deficit by 0.10 percent of payroll
29
Withhold DI when receiving
Unemployment Insurance payments
• Currently no DI offset for receiving UI
• Change considered by Representative Johnson in 2013 http://www.ssa.gov/OACT/solvency/SJohnson_20140107.pdf
– Treat any month with UI payment as SGA
– Lowers actuarial deficit by 0.01 percent of payroll
• Change considered by Senator Coburn in 2013 http://www.ssa.gov/OACT/solvency/TCoburn_20140107.pdf
– Suspend DI benefit for any month with UI payment
– Lowers actuarial deficit by 0.01 percent of payroll
• Another possibility–offset DI benefit dollar for dollar for UI
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Changes for long-range DI solvency
• Actuarial deficit for DI is 0.32 percent of payroll – Need to lower DI cost 20% or increase DI revenue 25%
– Or, some combination of these
• Will likely be addressed in overall OASDI changes – Note that increasing NRA shifts cost to DI
– May need further tax rate reallocation to DI in final amendments
• For overall OASDI solvency: http://www.ssa.gov/oact/solvency/provisions/index.html
• Increase tax rate or raise/eliminate the taxable maximum
• Lower the benefit (PIA level)
• Increase the NRA
• Expand the tax base – Cover all state and local government employees
– Tax employer-sponsored group health insurance premiums
31
Finally A Little Extra
Credit
32
Remember DI is Just Part of Social Security
• Any fix for the long-term will have to be
comprehensive
– Address the “Aging” of the population
• “Macro Aging” Shift toward more elders, because
Slowed growth for younger ages
Faster growth for older ages
• “Micro Aging” People are living longer
Lower death rates
Higher life expectancy dd
33
Changing age distribution over next 20 years
mainly due to Macro Aging – a permanent level shift
Age Distribution of the Population Age 25+, 1940 to 2100 (2012TR)
0
10
20
30
40
50
60
70
80
90
100
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Perc
en
t o
f P
op
ula
tio
n a
t A
ges 2
5+
25-44
25-44
45-64
65-84
85+
Boomers
become
25-44
Boomers
become
45-64
Boomers
become
65-84
34
The level shift in age distribution is NOT
due to a sudden shift in life expectancy
35
Why so much “Macro Aging”? Birth rates. If birth rates had stayed at 3.0 per woman after the “boom”?
Age Distribution of the Population Age 25+, 1940 to 2100 (2012TR):
What If Birth Rate (TFR) Had Stayed at 3.0?
0
10
20
30
40
50
60
70
80
90
100
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Perc
en
t o
f P
op
ula
tio
n a
t A
ges 2
5+
25-44
45-64
65-84
85+
Boomers
become
25-44
Boomers
become
45-64
Boomers
become 65-84
TFR=Actual &
TR intermediate
TFR remains at 3.0
after 1964
36
If birth rates had stayed at 3.0 or 3.3 per woman after
1964, our Aged Dependency ratio would not SHIFT
Aged Dependency Ratio (Population 65+/20-64) 2012 TR
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Actual and TR Intermediate
TFR remain at 3.0 after 1964
TFR remain at 3.3 after 1964
37
Even if birth rates returned to 3.0 or 3.3 per woman after 2014,
our Aged Dependency ratio would come back down
Aged Dependency Ratio (Population 65+/20-64) 2012 TR
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Actual and TR Intermediate
TFR return to 3.0 after 2014
TFR return to 3.3 after 2014
38
BUT birth rates are not going back up in the U.S. They are staying around 2.0 TFR, high among developed nations
U.S. Total Fertility Rate: With and Without Adjustment for Survival to Age 10
0
1
2
3
4
5
1875 1885 1895 1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005
Ave TFR Ave AdjTFR
1875-1925 3.67 2.85
1926-1965 2.84 2.69
1966-1990 1.99 1.95
1991-2003 2.01 1.99
TFR
AdjTFR
39
So we need to address a level shift in cost that is mainly
due to lower birth rates and not due to greater longevity
U.S. Social Security Cost and Income as percent of GDP
40
Implications for Social Security
–The older age distribution requires:
• Beneficiaries receive less--- 25%
less,
• Workers pay more--- 33%
more,
• Increase “Normal Retirement Age”---7+
yrs,
• Or some combination
Questions?
41