Social Security Disability Benefits to be reduced by 20% in 2016

Why does Congress want to reduce Social Security Disability Insurance benefits for millions of Americans in 2016? The answer lies in the nature of the specific benefits, and where the funding for disability benefits originate.

Title II of the Social Security Act provides insurance benefits in three separate categories: Old-Age, Survivors, and Disability Insurance (OASDI), each of which maintains its own separate trust fund. In order to sustain these funds, Congress has set up a system where, based upon an actuarial formula, FICA contributions from employers and employees are distributed to the three separate trust funds.

Currently there is an imbalance in the disability fund. Unless Congress acts by mid-2016, Social Security will only be able to pay about 80% of disability benefits to which beneficiaries are entitled under the law.

A recent email from the National Organization of Social Security Claimants’ Representatives (NOSSCR) notes as follows:

Even though the disability fund shortfall largely occurred because of changes in America’s population and retirement age, a new House Of Representatives rule prevents “clean reallocation”, a solution Congress has used 11 times in the past to shift money from one trust fund to the other when shortfalls arise. The reallocations have occurred in both directions.

Why is this happening? Some in Congress have raised concerns that too many individuals are being approved for disability benefits by “liberal” judges. Interestingly, current Social Security statistics reflect that it is getting more difficult to obtain Social Security disability benefits, possibly because administrative law judges (ALJs) are feeling pressure to deny more cases.

As noted above, the “clean reallocation” solution has been used 11 times, with virtually no opposition between 1957 and 1994. In fact, the Reagan administration used “clean reallocation” 4 times during his presidency.