There Is Nothing Like Going On "Disability"

Back in December 2012 I wrote a post titled "Who Could Be Against Disability Pensions?" pointing out the sad truth that the New York disability pension programs are riddled with unbelievable levels of fraud:  for example, 75% of New York City firemen retiring with supposed "disabilities"; 97% of Long Island Rail Road workers retiring with supposed "disabilities."  It seems that the temptations of a free check every month for life without having to do anything are just too great for many people.  The post concluded, 

I wonder if it's actually possible to have a government-run program for disability payments without having it explode because of endemic fraud.

Now comes along Chana Joffe-Walt at NPR (of all places) to write what promises to be a four-part series on the Social Security disability program.  Here is the first part.

Please read the whole thing.  Literally every line is a warning of how badly wrong good intentions can go.  

The concept behind Social Security disability is that if you are sufficiently disabled that you are unable to do productive work of any sort, you are an appropriate candidate for the safety net, in the form of "disability" payments, to sustain you at a minimum level for the rest of your life.  At first consideration, almost no one would disagree with the concept.  But the designers of the program seem to have given almost no thought to the problems that perverse incentives can cause.   

The result is a program that sucks people in, and from which almost no one escapes.  The number of beneficiaries continues to explode in good times and bad.  Rolls have about doubled during the Obama administration, increasing by some 5.4 million people over the past 4 years according to Investors Business Daily.

Let's consider a few examples of perverse incentives and how they play out.  It turns out that the costs of welfare (now known as TANF) are shared between state and Federal governments; but SSDI is all on the Federal dime.  So states can save a buck by transferring people from TANF to SSDI.  How does that play out?  From NPR:

PCG is a private company that states pay to comb their welfare rolls and move as many people as possible onto disability. "What we're offering is to work to identify those folks who have the highest likelihood of meeting disability criteria," Pat Coakley, who runs PCG's Social Security Advocacy Management team, told me.  The company has an office in eastern Washington state that's basically a call center, full of headsetted women in cubicles who make calls all day long to potentially disabled Americans, trying to help them discover and document their disabilities:  "The high blood pressure, how long have you been taking medications for that?" one PCG employee asked over the phone the day I visited the company. "Can you think of anything else that's been bothering you and disabling you and preventing you from working?"

Of course, welfare/TANF has time limits, but disability is a lifetime entitlement where nobody so much as checks up on you once you qualify.  It's the ultimate poverty trap.

Then there's the story of Charles Binder, SSDI attorney extraordinaire, whose firm in 2012 represented some 30,000 clients and earned some $68.7 million (!) in fees, in each case seeking SSDI benefits.  How much of an effort does the government put up to be sure that those seeking benefits are actually "disabled" in the sense commonly understood?  The answer is, when a claimant seeks a hearing to get benefits, the government does not even put on a defense, no matter how poor the claimant's case:

Who is defending the government's decision to deny disability?  Nobody.  "You might imagine a courtroom where on one side there's the claimant and on the other side there's a government attorney who is saying, 'We need to protect the public interest and your client is not sufficiently deserving,'" the economist David Autor says. "Actually, it doesn't work like that. There is no government lawyer on the other side of the room."

So what are the things that qualify you as "disabled" and entitled to a monthly check for life?  Of course, they are largely subjective things that depend almost entirely on the claimant's word and cannot be objectively verified.  Number 1, at 33.8% of cases in 2011, is "back pain and other musculoskeletal problems."  Number 2 at 19.2% is "mental illness, developmental disability, etc."

The incentives of this program are as thoroughly perverse as it is possible to imagine.  Absolutely no one involved with the system has any incentive to keep costs under control; rather, everyone has every incentive to milk the program for every cent possible.  Once on disability, virtually no one leaves -- the departure rate is barely 1%. Everyone involved -- the consultants like PCG, the lawyers like Binder, the states, the administrative law judges, and most of all the beneficiaries -- make lots of free Federal money.  If you're curious, the annual cost of the program is currently running about $124 billion, according to Bloomberg here.  Real money.  Another 4 years of Obama are likely to add at least another 5 million to the rolls.

The answer to my question, unfortunately, is that it is not possible to have a government-run disability program without having it explode with an epidemic of fraud.