Social Security Disability Insurance’s incentive not to work

Social Security Disability Insurance, however, pays people who can show that they are too mentally or physically impaired to remain in the labor force. In short, for many workers, SSDI creates a quasi-right not to work.

This paradox is getting expensive. SSDI spending has doubled as a percentage of gross domestic product in the last 25 years, according to the Congressional Budget Office. The program paid $128.9 billion to 8.3 million beneficiaries in fiscal 2011, about one-fifth of all Social Security spending. The average monthly benefit is $1,100, slightly less than the average Social Security retirement check, but after two years on SSDI, beneficiaries also get Medicare. Indeed, SSDI added $80 billion to the cost of Medicare in fiscal 2011. …

It is nevertheless true that SSDI offers all the wrong incentives: Employers pay nothing when their workers go on SSDI. And for many workers, especially those with few skills, the alternative to a steady SSDI check (and, often, Medicare) would be a minimum-wage job, possibly one without insurance. Of course, the longer one stays out of work, the rustier one’s skills get. The program has no training or rehabilitation component.