People who rely on Social Security programs for support are facing changes in the year ahead. Being aware of those changes will be critical for budget planning for both the short-term and long-term.
The Social Security Disability Insurance (SSDI) Program, which faced running out of funds in mid-2016, faces cuts in the latest federal budget agreement. But the agreement, which was passed by the U.S. House and Senate in late October and sent to President Barak Obama, spares SSDI from a worse fate.
SSDI became one of many bargaining chips in the budget, as it was the final budget fight between President Barack Obama and Republican leaders in Congress. Had Congress not acted, trustees for the Social Security system had warned that benefits could be cut by as much as 19 to 20 percent.
In 2014 SSDI paid benefits to about nine million workers with disabilities and about two million of their dependents. That total annual cost in 2014 hit $141 billion. Growth in the number of beneficiaries has risen faster than the collection of payroll taxes in the Social Security trust fund dedicated to disability benefits.
How to address the SSDI shortfall has been debated for months, in the halls of Congress and across the nation. A paper released earlier this year by the federal Office of Management and Budget, recommending simply adjusting the share of payroll taxes that flows into Social Security’s two trust funds, with more to disability and less to the fund for elders and survivors. That was how Congress addressed the most recent and major SSDI funding crisis back in 1994.
The report calls for longer-term policy development, after another adjustment. Its recommendation reflects a sentiment that SSDI growth has slowed in the past couple of years. The report also notes that when the share of funds was adjusted in 1994, it was done with the same intent to develop long-term policy. But that didn’t happen.
SSDI critics noted that not all of the program’s costs are due to demographics and that some must be attributed to mid-1980s program rules that made it easier for those with mental health or musculoskeletal conditions to seek SSDI. Another oft-leveled criticism is that SSDI doesn’t provide enough resources to keep people with disabilities remain employed and that there aren’t enough accommodations and supports to help people become self-sufficient.
One concern over the past several months was that debate over SSDI had become very politically partisan.
SSDI is just a small piece of the larger federal budget. Generally, the overall federal budget agreement would provide modest spending increases over the next two years and raise the federal borrowing limit. It would cut some social service programs. The agreement was seen as avoiding a disastrous default on government debt.
The agreement would raise spending by $80 billion over two years. The increases would be offset by cuts in spending including Medicare and SSDI benefits, as well as savings or revenue from other programs. Medicare savings would come from cuts in payments to health care providers.
The annual federal budget is almost $4 trillion, so an $80 billion increase may seem small in the context of that very large amount. But it was seen as significant as it brought an end to wrangling over various spending caps. It was also the last major project by outgoing House Speaker John Boehner, who is stepping down after bitter spending fights within and beyond his own Republican party.
U.S. Treasury Department officials had stated that the government would have defaulted on its debt if the statutory borrowing limit wasn’t raised by November 3. The pact also averted a government shutdown in December.
One upcoming change is that SSDI will be amended. Part of the changes would tighten up the program and bring standardization to eligibility requirements that now vary by state. That change is projected to save $5 billion. Other cost-saving changes include allowing some recipients who can still work to receive partial payments while earning outside income. There would also be an expansion of a program requiring a second medical expert to weigh in on whether an applicant is truly disabled.
The budget agreement also prevents expected increases in out-of-pocket costs for millions of Medicare Part B beneficiaries. An increase of more than 50 percent was feared at one point. But some of the most complex and potentially financially harmful changes affect people who receive or plan to soon receive Social Security benefits. 2016 will be rare year with an absence of a cost-of-living increase in Social Security for retiree and survivor beneficiaries. That’s due to low inflation. It’s only the third time in 40 years that benefits won’t increase.
There are also several technical changes coming with deeming and loss of benefits, suspension of benefits and timing of when persons opt to take benefits. Social Security benefit-boosting strategies known as file-and-suspend and restricted application or “claim-some-now; claim-more-later” benefits, will become more complex. Changes are also being made that affect how spouses file for benefits.
File and suspend has been controversial, with some contending that more affluent recipients use it to “game” the Social Security system, to get a higher benefit down the road. But others noted that many people could potentially boost their benefits through such a strategy.
“One advantage of these strategies was that they provided an incentive for someone to delay the start of his or her own retirement benefits,” said Kurt Czarnowski of Czarnowski Consulting. “By eliminating them, Congress may well be driving people to start collecting earlier than they otherwise would have, a decision, which, given increasing life expectancy, may not be in their best interest.
Anyone who is able to work with a financial planner on Social Security or SSDI issues is urged to do so, to prepare for the many changes ahead.
One source of information is the Social Security Administration. Updates are posted frequently and staff can answer questions.
Another good source of updated information is the Social Security Administration blog, Look for a recently posted fact sheet that details all of the 2016 changes to Social Security.
On the main Social Security Administration web page is the link to SSDI information, which is useful to people with disabilities.