Social Security disability insurance began in 1956 as a means of insuring a portion of the earned income of U.S. workers over age 50 against the risk of disability. In 1960, when coverage was extended to all workers, less than half a million workers were collecting benefits, and by 2012 this number had increased to 8.8 million people — an increase from 0.3 percent to 3.6 percent of the population. Over this period, there have been a number of changes: Initially, the law insured only against permanent disabilities, but in 1965 the definition of disability was expanded to cover impairments expected to last at least one year. In 1973, beneficiaries disabled for two years became eligible for health insurance through Medicare. Of particular interest from the standpoint of this article is that in the past three decades, disability rolls have been growing fast, costing the system more in benefit payouts as well as in forgone tax revenue as more working-age Americans leave gainful employment.
I will examine trends in disability insurance recipient numbers, which have been growing for all age groups, and the possible reasons behind the increase. As I will show, although disability insurance provides much-needed aid to those who can no longer work, how the program is administered can affect people’s decisions to remain employed or to leave or rejoin the labor force. I investigate these effects by summarizing a number of studies that assess the impact of the availability of disability insurance on labor force participation rates. Finally, I will look at reforms that have been undertaken to encourage more D.I. recipients to return to the labor market and whether these reforms have been effective.
This article appeared in the Fourth Quarter 2014 edition of Business Review. Download and read the full issue.