SSDI benefits exempt from many creditors, but funding hammered by high, chronic unemployment

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We’ve addressed this before, but with the debt-ceiling debate, US credit downgrade and endless political posturing, it’s probably a good time to once again discuss the financial health of Social Security overall and the SSDI and SSI programs in particular.

Experts warn of shortfalls in retirement and disability benefits

As we’ve written before, Social Security itself has been declared to be OK until about 2036; in other words, if nothing changes between now and then, the fund will be able to pay out only about 75 per cent of scheduled payments. Medicare is in slightly worse shape, but SSDI (Social Security Disability Insurance) will be busted sometime between 2015 to 2018.

SSDI could run dry as early as 2015

According to long Wall Street Journal piece on SSDI payments increasing in Puerto Rico (but also instructive for its good info on the SSDI national status), “The SSDI is set to soon become the first big federal benefit program to run out of cash—and one of the main reasons is U.S. states and territories have a large say in who qualifies for the federally funded program. Without changes, the Social Security retirement fund can survive intact through about 2040 and Medicare through 2029. The disability fund, however, will run dry in four to seven years without federal intervention, government auditors say.”

Applications have risen along with increased unemployment

According to an Aug. 22 account at Politico.com:

The Social Security disability fund is fast running out of money and may not be able to make payments starting in 2017, thanks in part to the bad economy driving claims up over the past decade, The Associated Press reported.

Applications for benefit claims have risen almost 50 percent in the past 10 years, as many people with disabilities are laid off and cannot find new jobs in the difficult job market. And, the AP added, the rush for benefits is causing a major backup for applicants currently waiting to get their cases decided.

The Congressional Budget Office estimates the disability trust fund will be exhausted by 2017 unless Congress acts. If the fund’s balance falls to zero, it cannot pay out full benefits unless the law is altered. And it’s not the only benefit fund that’s nearly insolvent: In 2040, the CBO projects, Social Security’s retirement fund will also be out of cash.

So, the exact years are in question, but the timeframes are roughly equivalent.

One concern: the ‘multiplier effect’

And it’s not only the SSDI direct benefits that add to the bill. From the NYT’s piece, which gives a dollar figure of benefits in Puerto Rico as averaging a “modest” $1,064 a month:

But the program opens up access for recipients to other government programs, multiplying the ultimate cost to taxpayers.

Anyone who spends two years on SSDI qualifies for the Medicare health program, which usually is available only for those 65 years old and older. SSDI recipients tend to remain tethered to the program for years, and the government’s lifetime financial commitment averages $300,000 per person, estimates David Autor, an SSDI expert who teaches at the Massachusetts Institute of Technology. “The system has profound problems,” Mr. Autor said.

SSDI’s financial woes pose a major test for the White House and Congress, which have been reluctant to tackle the budget-busting costs of entitlements.

Analysts who track the program say the only short-term way to save it without raising taxes would be to fold it into the fund that pays Social Security. That would likely force retirees to face benefit cuts two or three years sooner than they otherwise would have done, because SSDI costs would diminish retirement funds.

SS & SSDI fundings have been combined before

Various sources agree that Social Security (retirement) and SSDI (disability payments) were, in fact, temporarily combined in 1994, as a stopgap, emergency measure. What I’ve not understood, yet–although I do get it about the “multipliers–is how can payroll-funded benefits be such a problem?

In other words, if unemployment is the prime factor, i.e. joblessness strains the system via reduced payroll-tax contributions, then why doesn’t the system seem to care more about unemployment?

Weeding out beneficiaries who ‘sneak back to work’

SSI is not funded by payroll deductions but by the general revenue fund. In other words, a work history is not required to qualify. However, it is much more restrictive. According to the AP, a chronic problem–which we’ve reported about–is lack of review that would spot beneficiaries who have gotten work but kept taking benefits:

Today, about 13.6 million people receive disability benefits through Social Security or Supplemental Security Income. Social Security is for people with substantial work histories, and monthly disability payments average $927. Supplemental Security Income does not require a work history but it has strict limits on income and assets. Monthly SSI payments average $500.

As policymakers work to improve the disability system, they are faced with two major issues: Legitimate applicants often have to wait years to get benefits while many others get payments they don’t deserve.

Last year, Social Security detected $1.4 billion in overpayments to disability beneficiaries, mostly to people who got jobs and no longer qualified, according to a recent report by the Government Accountability Office, the investigative arm of Congress.

Delays can leave unpaid bills piled high

Another concern, according this piece at credit.com, is the delay and lag-time in receiving benefits. As mentioned, the influx of applicants from the unemployed adds to the delay. So what shape are beneficiaries in when they finally begin receiving payments?

For many recipients, Social Security Disability Income (SSDI) and/or Supplemental Security Income (SSI) are their financial lifeline. Their more immediate concern may not be what happens in Washington to save the program, but what happens today to the money they receive. I couldn’t find any statistics about how many SSDI and SSI recipients have past-due bills, but if our email is any indication, plenty of them are struggling and getting calls from creditors or debt collectors threatening to take the little income they do get each month. And because it takes so long to get approved for disability these days, applicants may find themselves already in the hole by the time they start receiving benefits.

Benefits not shielded from child support, taxes or student loans

However, there’s a bright spot in that few creditors can successfully come after these benefits. Again from credit.com: “For those who rely on these benefits, the good news is that they are generally protected from creditors and debt collectors. However there are exceptions in the case of past-due child support, past-due taxes, and federal student loans. “ ‘They can chase you (for student loans) to the grave,’ warns bankruptcy attorney Cathy Moran.”

Free evaluation available

Just remember, we can help connect you with a compatible, trained attorney who can help you with your case–if nothing else, it’s possible that an experienced attorney might be able to steer your case toward a more reasonable outcome.

Help is available whether you’re fighting denied or delayed benefits or whether creditors are threatening to attach benefits you’ve already received. Consider signing up for your free evaluation today.