Disabled By The Economy?

A lot of people are sick of bad economic news, but can a bad economy make people so sick they are actually unable to work?

Like many politicians and executives, I tend to be cynical when I search for a link between rising unemployment rates and rising disability claims. Yet there certainly is some sort of connection. The Social Security Administration received 1.8 million more new claims in 2009 than it did in 2004. At a congressional hearing last September, the Deputy Commissioner for Retirement and Disability Policy, David A. Rust, said that the “surge in disability claims” was “due to the economic downturn and the aging of the baby boomers.”

We are likely to hear a lot more about Social Security disability benefits over the next few years, because it is the financially weakest link in the entire Social Security system. The program’s disability fund is projected to run out of assets by 2018, well before Medicare and retirement benefit funds are expected to be exhausted. Something is going to have to change. Either other money must be redirected to support the disability program, or taxes will have to go up, or benefits will have to go down, or eligibility standards will have to be tightened – or, of course, we may need some combination of these possibilities.

Being laid off does not cause physical injury, so why does it appear to cause an increase in disability claims? The easy explanation is that unemployed workers who either do not qualify for unemployment or have already exhausted their benefits then decide to apply for disability payments as an alternative, taking advantage of the system while they wait for employment prospects to improve.

Disability attorneys, however, deny that a significant number of claims filed during the recession were illegitimate. It is difficult to fake disabilities for the sake of benefits, they say, since the approval process is often lengthy and requires extensive documentation. The standard for eligibility is difficult to satisfy, requiring the “inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.”

The correlation between unemployment and disability claims, attorneys say, is not a sign of fraud but is instead the result of employers’ declining willingness to make accommodations in a bad economy. Impaired workers who, in good times, can work with employers to resolve issues related to their handicaps may find that, once the economic situation deteriorates, their limitations make it impossible for them to keep or get work.

The scarcity of work itself can also cause certain people to qualify as disabled. According to the law, “An individual shall be determined to be under a disability only if…he is not only unable to do his previous work but cannot, considering his age, education, and work experience, engage in any other kind of substantial gainful work which exists in the national economy.” The high unemployment rate may have caused certain types of non-strenuous work to disappear, especially for people with limited education and work experience. Since there is no longer any available work that they can do, these people are deemed disabled. It is impossible to know just how many claims involve previously employable people who became unemployable as a result of such economic changes.

Even so, the recent case of a Social Security administrative law judge in West Virginia who has been put on leave has cast doubt on the system. A Wall Street Journal article revealed that the judge, David B. Daugherty, denied benefits in only four of his last 2,013 cases. This is particularly startling since each of the claims heard by the judge had already been reviewed and been denied twice by the state’s disability determination service. On average, judges award benefits only 60 percent of the time, according to government statistics cited by The Journal.

With a backlog of around 730,000 cases, the Social Security Administration presses judges to meet high monthly quotas. In 2008, the agency also instituted a policy allowing judges to award benefits without actually holding hearings. Since denying benefits requires a hearing and opens up the possibility of further appeals, the fastest way for judges to get through their cases is to rule in claimants’ favor. One former administrative law judge, Dan Kempner, who worked in the same office as Dougherty, told The Journal that he retired because he thought the system was unfair. “The only way you could really get that many cases out was to grant them all, because it was so much easier,” he said.

Yet, despite the streamlined process and the high case load for administrative law judges, the average appeal last year still took 390 days to decide, meaning that people out of work because of their disabilities had to wait more than a year for checks to start.

The situation is further complicated by the subjective nature of many disabilities. Chronic pain is often a significant disabling factor, preventing people from focusing or handling workplace stresses, but it is difficult to assess pain objectively. Neurological testing is frequently used in an attempt to quantify pain, but certain people, such as multiple sclerosis patients, can have normal or near-normal neurological examination results while suffering intense pain.

The effects of pain also vary from person to person. Some of us are able to cope with pain that would be intolerable for others. A system that tries to establish universal standards, therefore, risks setting the bar so high that only those with the highest pain thresholds can continue to work up until the point at which benefits are awarded, or so low that many who are not truly disabled can qualify for benefits.

As the unemployment rate goes down, the number of disability claims may follow. But while a stronger job market might bring a temporary reprieve, it will not fix an obviously broken system. To provide useful and affordable benefits for those who are truly disabled, we need to screen out unjustified claims without vastly increasing bureaucracy and wait times. If this were easy it would already have been done. But if we don’t get the right balance, we risk disabling the disability insurance system itself.

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About Larry M. Elkin 564 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

Visit: Palisades Hudson

1 Comment on Disabled By The Economy?

  1. While it is clear at this point that the Social Security system is in need of reform, I think that the government must be careful not to overreact to individual controversies or media hype regarding individual people or areas associated with the programs. As this author points out, rulings on disability claims are often require a high level of discretion, and it is therefore hard to make generalized comparisons in this regard.

    Thanks for this well-balanced article,

    Social Security Disability Help

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