The Disability Scam: A Great Government Freebie

The Disability Scam: A Great Government Freebie

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When asked why he robbed banks, Slick Willie Sutton famously answered, “Because that’s where the money is.” Today, millions of Americans appear to have jumped onto our disability rolls for the very same reason. Today, 8.8 million Americans – nearly 6 percent of our workforce – claim they are physically incapable of working.

Add in dependents, and the figure swells to nearly 10.9 million. The number has grown every month since January 1997, when there was a small dip, and has grown faster than the number of added annually to the workforce.  For the United States, this is an expensive proposition. The Social Security Administration spent $137 billion on disability last year; Medicare costs for this group tack on another $80 billion, since folks on disability automatically qualify for Medicare. 

The recession has doubtless played a role, making jobs harder to find and government handouts more appealing. This is nothing new; claims have jumped in every recession since the 1970s. Between 1969 and 1975, payments skyrocketed from 1.4 percent to 2.2 percent of GDP, but then settled down as the economy resumed growing.

Looking to explain the phenomenon, Veterans Administration Scholar Jonathan Sunshine suggested that the “higher the benefits relative to earnings, and the higher the unemployment rate, the more people will make use of the programs.” He also noted, “Claims rates are almost one and one half times as high when replacement ratios are about 70 percent than when they are about 50 percent.”

This insight would seem intuitive, but apparently not to our legislators. Those on disability today receive $1,130 per month; on an annualized basis, these beneficiaries receive only about $2,000 less than someone working full-time for minimum wage.  That’s a replacement ratio of 90 percent; it doesn’t even take into account that people on disability can also collect unemployment benefits and other pensions.  No wonder there are so many people signing up.

It is also true that our aging workforce is contributing to the rise in disability claimants. Dick Hokenson of economic powerhouse ISI group reports, “The share of older workers has increased from 26 percent in the late 1990s to in excess of 33 percent today.” Older workers mean more people suffering from ailments and infirmities that might keep them home. Studies have shown, however, that the increase in beneficiaries tops what would be explained by demographics.

Instead, the scales have been tipped in favor of those applying for assistance, and against the taxpayer. In 1984 Congress changed the criteria for those applying for disability, allowing more input from the applicant and a broader variety of ailments. Critics claim that it became far easier to fabricate a case of severe back pain or depression, for instance, and in fact it has been such conditions that have fed the recent rise in claims. It became easier, in other words, to game the system.

Skepticism is surely fed by recent accounts of disability fraud. For months, New Yorkers have been treated to revelations of massive cheating perpetuated by hundreds of Long Island Rail Road employees. With the help of two doctors, workers managed to secure fraudulent disability benefits while at the same time retiring early.

According to the January press release issued by the FBI, “Between the late 1990s and 2008, [the doctor indicted] recommended that at least 734 retiring LIRR employees receive disability benefits, and he was responsible for treating nearly half of all LIRR employees who retired and received disability benefits in one four-year period….From 1995 through 2011, more than 75 percent of LIRR employees stopped working and began receiving RRB disability benefits, whereas during this same period, only 25 percent of retiring Metro-North employees stopped working and began receiving RRB disability benefits.”

Though technically this brazen corruption occurred under the nose of the Railroad Retirement Board, which manages benefits for railroad workers, as opposed to the Social Security Administration, it surely attests to the potential for scams. No one knows the extent of fraud in the system, but the sheer size of payments in tandem with rising budget concerns suggests that legislators will likely ramp up oversight.

In a report to Congress last month, the Inspector General of the Social Security Administration reported that its investigations program (CDI) had “resulted in almost $340 million in projected savings to SSA’s disability programs—the program’s greatest single-year savings total” in fiscal 2012, mainly from uncovering those who “purposely withhold, exaggerate, or fabricate work or medical information to collect benefits that they are not eligible to receive.” 

The report notes that the short-handed CDI  could have saved taxpayers more had it been able to tackle the extensive backlog of questionable claims. Further, “SSA estimates that every $1 spent on medical CDRs [continuing disability reviews] yields about $9 in SSA program savings and Medicare and Medicaid over 10 years.” Even Tea Partiers would likely vote for that spending increase. 

After more than two decades on Wall Street as a top-ranked research analyst, Liz Peek became a columnist and political analyst. Aside from The Fiscal Times, she writes for, The New York Sun and Women on the Web.