Require Social Security Disability Insurance Applicants to Have Worked More in Recent Years

Background

To be eligible for benefits under Social Security Disability Insurance (DI), disabled workers must generally have worked 5 of the past 10 years. Specifically, workers over age 30 must have earned at least 20 quarters of coverage in the past 10 years. (In this option, the 10-year time frame is referred to as the look-back period.) In calendar year 2018, a worker receives one quarter of coverage, the basic unit for determining coverage under Social Security, for each $1,320 earned during the year, up to four quarters; the amount of earnings required for a quarter of coverage generally increases annually with average wages in the economy.

Option

This option would raise the share of recent years that disabled workers must have worked while shortening the look-back period. It would require disabled workers older than 30 to have earned 16 quarters of coverage in the past 6 years—usually equivalent to working 4 of the past 6 years. That change in policy would apply to people seeking benefits in 2020 and later and would not affect blind applicants, who are exempt from the recency-of-work requirement.

Effects on the Budget

The Congressional Budget Office estimates that the option would lower federal outlays for Social Security by $50 billion from 2020 through 2028. Based on administrative data from the Social Security Administration, CBO estimates that about 13 percent of those who would receive new disability awards each year under current law would not meet the work requirement under this option. CBO estimates that a quarter of those affected by the option would be able to earn enough additional quarters of coverage to later qualify for DI benefits under the new standard. Incorporating that effect, this option would reduce the number of workers who received DI benefits by 6 percent, or about 600,000 people, in 2028, CBO estimates.

Most of the people affected by the option would eventually claim retirement benefits at age 62, but at a reduced rate, because they would be claiming benefits earlier than their full retirement age. (Benefits for retired workers who claim benefits before their full retirement age are reduced by up to 30 percent depending on their birth cohort and the age at which they claim benefits.) CBO's estimates of budgetary savings from the option over a 10-year period reflect the net result of a $57 billion reduction in DI outlays and a $7 billion increase in Social Security retirement benefits relative to amounts under current law.

Budgetary savings from this option would increase as a share of total Social Security benefits for several decades as fewer workers received DI benefits each year. However, the overall savings would remain small, and, in 2048, outlays for Social Security would be about 1 percent lower than under current law.

Several sources of uncertainty could affect the overall savings from this option. The share of affected workers who would be able to work longer and still qualify for DI benefits under the option could be higher or lower than anticipated, as could the difference between those workers' benefits and the average DI benefit. For example, if those affected workers had benefits that were higher than the average, the budgetary savings from this option would be lower.

In addition, it is uncertain how the option would affect spending for other federal programs—such as Medicare, Medicaid, and Supplemental Security Income (SSI)—or spending on subsidies for health insurance purchased through marketplaces. Through 2028, those effects would reduce the savings slightly. On one hand, disabled workers who would no longer qualify for DI under this option would lose their eligibility for Medicare until age 65, thus reducing spending for Medicare. On the other hand, some disabled workers who lose DI and Medicare benefits under this option would become eligible for SSI, Medicaid, or health insurance subsidies, increasing spending for those programs. Uncertainty about those effects grows over time, in part because of growing uncertainty about health care costs under different federal programs. The estimates presented here do not account for changes in spending for those other federal programs.

An alternative approach could raise the number of recent years that disabled workers must have worked while lengthening the look-back period by requiring workers to have worked 8 of the past 12 years. That approach would result in similar budgetary effects. Such an adjustment would help people who had worked consistently in the past but who had been unable to find work in the years immediately before they became disabled.

Other Effects

An argument in favor of this option is that it would better target benefits toward people who do not work because of a recent disability; however, whether that is actually the case is difficult to determine. Under current law, people who have not been in the labor force for five years can qualify for disability benefits. By comparison, this option would only allow people who were out of the labor force for two years or less to qualify for benefits.

A reason to keep the existing work provision is that the option could penalize some people who would have been working were they not disabled. For example, some people might leave the workforce for more than two years to care for children or pursue additional education and then become disabled while out of the workforce or shortly after returning to work. Those people could qualify for disability benefits under current law but would not qualify under this option. Similarly, some people who were in the labor force but unable to find work for over two years before becoming disabled would become ineligible for benefits under the option.