Insolvency Looming – Social Security Disability Fund

There’s plenty of discussion, hand-wringing about the Social Security retirement fund.  You’ve likely watched news reports, read articles or listened to reporting about the impending bankruptcy of Social Security.  Occasionally there’s discussion about the looming crisis with Medicare. 

What NO ONE is talking about is the Social Security Disability Fund.

Luckily, the WSJ is shining a light on this topic.

In the Tuesday,22 March 2011 issue, on the front page of the newspaper, was an article entitled Insolvency Looms as States Drain U.S. Disability Fund by Damian Paletta.  The first three paragraphs of the article state,

CAGUAS, Puerto Rico-This mountainside town is home to a picturesque cathedral, a tobacco museum and a Wal-Mart Supercenter.  Another defining feature: Caguas’s 00725 zip code has more people who receive a disability check than any other in the U.S.

Puerto Rico has emerged in recent years as one of the easiest places in the U.S. to get payments from the Social Security Disability Insurance program, created during the Eisenhower administration to help people who can’t work because of a health problem.  In 2010, 63% of applicants there won approval, four percentage points higher than New Jersey and Wyoming, the  most-generous U.S. states.  In fact, nine of the top 10 U.S. zip codes for disabled workers receiving benefits can be found in Puerto Rico.

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.

Yikes!  The American taxpayer HAS BAILED OUT“the too-big-to-fail banks,” AIG, two of the “Big Three” car companies in Detroit, Fannie Mae & Freddie Mac.  How are we going to pay for the Social Security Disability Insurance Fund too?

So why does Puerto Rico have such a high rate of disability claims?  In the article Damian Paletta suggest the following:

Puerto Rico has long had an outsize reliance on disability benefits.  The island has had a double-digit jobless rate for most of the past 30 years, settling at 15.7% at the end of December.  Doctors here say as people find it harder to get a job, they apply for disability benefits.

Now, that ticks me off.  As “abortion” should not be a substitute for “contraception,”  “applying for disability” should not be a substitute for “being unemployed.”  But this trend is not evident just in Puerto Rico.

The [SSDI] program has been a feature in agricultural, manufacturing and urban communities across the U.S., particularly where unemployment rates are high.  As a percentage of total population, more SSDI money flows to West Virginia than anywhere else, according to government data.  Experts attribute high concentrations there to unemployment and health problems related to manual labor.

Still, West Virginia has one of the highest rejection rates of applicants anywhere in the country, with just 36.7% of applicants making it into the programs on their initial applications last year, compared to a national average of 46.9%.

So, back to Puerto Rico.  Why such a high approval rate?

Administrative law judges in Puerto Rico, who make decisions in cases that are initially rejected or need further review, approved full or partial benefits in 80% of the cases they reviewed in fiscal 2010, according to data reviewed by The Wall Street Journal.  One judge in San Juan, Manuel del Valle, approved 98% of the cases brought to him during that span, according to data reviewed by The Wall Street Journal.  Mr. del Valle, through a Social Security spokesperson, declined to comment.

Obviously the Social Security Disability Income Fund is a ticking time bomb.  And, you’ve likely heard statistics such as you are 5 or 6 times more likely to be disabled before 65 years of age than dying before 65 years of age.  So the prospect of being disabled during one’s working life time is not a joke.

So, what should you do?  BUY disability insurance.  If you can, check with your HR department and ask if there is a group policy through your job.  The policy is much cheaper.  If you have to get an individual policy, the premiums are much higher. 

If you want a lower premium, select a waiting period of at least 90 days (meaning you won’t begin receiving a disability check until 90 days after you apply.  And what’s your source of income during those 90 days as you wait for your disability check?  Well, of course, your emergency fund!).  Because the shorter the waiting period (30 days versus 90 days), the higher the premium.

Yes, here’s something else you must fund.  Presumably you have car insurance (if you own a vehicle), homeowner’s or renter’s insurance, health insurance.  Well, add disability insurance to the list.  It is TRULY VITAL. 

You want your own disability insurance policy because you don’t want to depend on receiving benefits from the government  (the average SSDI payment in 2009 was $1,064/month), especially if you live in West Virginia.  Hey, but if you live in Puerto Rico, well, why bother 🙂


1 Comment

  1. March 31, 2011 at 8:24 pm

    […] unemployment and health problems related to manual labor. … … See the article here: Insolvency Looming – Social Security Disability Fund ← Moonbattery: Guardian's Leah Borromeo Weighs in on London […]

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