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Economics of Means-Tested Transfer Programs in the United States, Volume II
By Robert Moffitt The University of Chicago Press
Copyright © 2016 National Bureau of Economic Research
All rights reserved.
ISBN: 978-0-226-39249-3
CHAPTER 1
The Supplemental Security Income Program
Mark Duggan, Melissa S. Kearney, and Stephanie Rennane
1.1 Introduction
Supplemental Security Income (SSI) is a federally administered, means-tested program that provides cash — and typically Medicaid — benefits to low-income individuals who meet a categorical eligibility requirement of age or disability status. The SSI essentially operates three programs for distinct populations: blind or disabled children, blind or disabled nonelderly adults, and individuals age sixty-five and older (without regard for disability status). The program has a federally determined set of income, asset, and medical eligibility criteria and maximum benefit levels that do not vary across states. Nearly one-third of states supplement the federal benefit with state SSI benefits (paid for entirely by the individual states), though these payments account for just 6 percent of total SSI benefits paid.
In 2013 the federal government paid $54 billion in SSI cash benefits and in December 2013 there were 8.4 million SSI recipients. An additional $133 billion was paid for SSI recipients' Medicaid benefits in 2011. More than half of SSI recipients in December 2013 received the maximum federal benefit of $710 per month (or more if supplemented by the state) with the rest having their benefits partially phased out due to relatively higher income. Approximately one in six current SSI recipients are under the age of eighteen, one in four are sixty-five or older, and the remaining 60 percent are between the ages of eighteen and sixty-four. The corresponding shares twenty-five years ago were 6, 44, and 50 percent, respectively, reflecting the substantial increase in SSI enrollment among children and nonelderly adults during this period. Total federal benefits paid for SSI disabled children and nonelderly adults nearly tripled over a twenty-five-year period, rising from $14.6 billion in 1988 to $44.4 billion dollars in 2013 (SSA [2014c], all figures in real 2014$).
The SSI program has become an increasingly important part of the social safety net, especially for nonelderly adults and children. For the elderly, the SSI program typically supplements social security (OASDI) benefits for low-income individuals and households, providing a transfer of income intended to assist individuals with very low levels of income. The fraction of elderly individuals receiving SSI benefits has fallen steadily since the early 1980s, with this trend primarily driven by a corresponding increase in Social Security benefits. In 2013, approximately one in twenty-two elderly individuals received SSI benefits versus one in fifteen thirty years earlier.
For nonelderly adults, the SSI program provides cash income to disabled individuals with limited earnings history. The rationale for these income transfers is to provide an income floor to individuals with disabilities who are unable to engage in substantial gainful activity (SGA). Nearly one in four SSI disabled adults also qualify for benefits through the Social Security Disability Insurance (SSDI) program, which requires ten or more years of earnings history, while the rest do not have sufficient work history to qualify for SSDI. Both programs are administered by the US Social Security Administration (SSA) and have an identical set of medical eligibility criteria. The fraction of nonelderly adults receiving SSI benefits has increased substantially over time, from 1.5 percent in 1988 to 2.5 percent by 2013. In the 2003 means-tested programs volume, Daly and Burkhauser (2003) make the important observations that (a) "disability" is neither a precise nor a static concept and (b) societal expectations about work for those with disabilities have changed over time as, for example, reflected in the 1990 Americans with Disabilities Act. These observations raise the issue of labor supply disincentives inherent in the SSI program, a point to which we return below.
Supplemental Security Income also provides benefits to low-income children with disabilities. The fraction of children receiving SSI has increased by a factor of four since the late 1980s, from 0.4 percent in 1988 to 1.8 percent in 2013. This enrollment growth was primarily driven by two 1990 policy changes that expanded the program's medical eligibility criteria (Duggan and Kearney 2007; GAO 1994). There is considerable overlap between the households with children served by this program and those served by the Temporary Assistance to Needy Families (TANF) program.
But unlike TANF, SSI is a federal program and is not explicitly "temporary." The motivation for why families with a disabled child should get additional income, as compared to a family with a healthy child and the same level of income, is not explicit in the program. One could rationalize that such families might have additional child care needs to support parental employment or additional health care costs for the child. Or, one could argue that families with a disabled child have a need for occupational services, designed to help a child improve and excel in school. But in practice, the program taxes parental earnings and it does not explicitly tie benefits to child care or health care costs. Furthermore, if a child's condition improves, the family risks losing their SSI benefits. All of these observations raise questions about the incentives of the program and whether it is optimally designed to serve families with disabled children. We return to these points below.
When considering SSI alongside the panoply of means-tested cash transfer programs, we note four defining features of the program. These are features that stand in contrast to typical features of other means-tested income support programs in the United States, including the Earned Income Tax Credit (EITC), TANF, the Supplemental Nutritional Assistance Program (SNAP), and Medicaid. First, as we have noted above, for the nonelderly the SSI program includes a categorical requirement of demonstrated disability, specifically, a disability that hinders labor market or educational performance. Second, the program's benefit levels are relatively generous, especially compared to TANF cash benefit awards in low-benefit states, and are indexed to inflation. Third, SSI benefits are paid for with federal dollars, which can amount to large net transfers to states with a disproportionate share of low-income Americans. Fourth, the program is not intended to be temporary, so any distortions in behavior resulting from the program can potentially be long lasting.
These four features raise a particular set of theoretical issues. First, the categorical disability requirement is a form of "tagging," so named in the seminal work of Akerlof (1978), in which the government imposes certain eligibility requirements to target funds to groups with especially high needs. The existence of a tag allows the government to redistribute more than if all individuals were potentially eligible for the benefit. It also may provide an incentive for some individuals to overstate the severity of their medical conditions in order to qualify for the program. Second, there exists the standard trade-off between income protection and distortions to the labor supply and savings decisions of benefit recipients. Third, the federal nature of this program raises the possibility of spillover effects to state and local programs such as TANF. In the pages that follow, we review these issues in more depth and describe the relevant empirical evidence.
We review recent empirical evidence on the determinants of caseloads and the effects of program participation as it exists for the working-age adult, elderly, and child SSI programs. In general, existing studies suggest that the growth in the working-age adult caseload is driven by three main factors: relaxed eligibility requirements, the aging of the baby boom generation, and increased stringency of other assistance programs. There is some evidence suggesting that the SSI program reduces labor force participation and savings among older adults in the years leading up to their eligibility for elderly SSI benefits.
Studies that have focused on the SSI children's program document the important role SSI plays as an antipoverty safety net program for families. These studies also highlight spillovers and interactions between SSI and other government programs, such as Aid to Families with Dependent Children (AFDC) and special education programs, although more evidence about the size and nature of spillovers across programs is needed. While there is a now an informative body of evidence about the effects of child SSI benefits on child and parent outcomes, this is one of the most promising areas for future research. For example, more research is needed to understand how child SSI income is used in the household and how program rules affect the therapeutic and educational trajectory of child beneficiaries. Little is known about the effects of child SSI on later program participation, educational outcomes, or the consequences of labeling children as disabled. All of these questions are open and fruitful areas for future research. There are also a number of important remaining questions about optimal policy design.
The outline of the chapter is as follows: In section 1.2 we provide a brief summary of the history of the SSI program and discuss the most important features of the program today. Section 1.3 presents information about the caseload and caseload trends. Section 1.4 describes economic issues particular to the design and practical application of this program as well as a discussion of relevant empirical evidence. A final section concludes.
1.2 Origins and Structure of the SSI Program
The federal Supplemental Security Income program began paying out benefits in January 1974 and replaced a combination of approximately 1,350 different state and local programs that provided benefits to low-income aged, blind, and disabled individuals (Berkowitz and DeWitt 2013). Many of these programs had been partially funded by the federal government, and the size of benefits varied across states (Wiseman 2011). In some cases, the uniform federal SSI benefit amount was lower than what had been paid by the previous programs. Because of this, a system of state supplements was introduced during the transition to SSI to ensure that no individual would receive lower benefits from the SSI program than they were already receiving from their state or local welfare program. Relatedly, because there was variation across geographic areas in the medical and income eligibility criteria, recipients already enrolled in state programs by early 1973 were grandfathered in to SSI, though anyone who enrolled in a state program after July 1973 would have their SSI eligibility determined according to the uniform medical eligibility standards in effect throughout the United States.
Since its inception, the SSI program has been administered by SSA, perhaps partly because of the overlap in the populations served by the OASDI and SSI programs. Supporters of the program also argued that there would be less stigma from receiving SSI benefits if it were administered by SSA instead of local welfare offices. And because SSA already had a set of medical eligibility criteria defined for the SSDI program, it was well positioned to apply these same criteria to SSI applicants. The two programs have used the same medical eligibility criteria for disabled adults during the last forty years. By December of 1974, there were 4.0 million US residents receiving SSI benefits and more than 60 percent of SSI recipients were age sixty-five or older. Most of these elderly SSI recipients qualified solely due to low income and assets after reaching sixty-five, though a substantial number also qualified initially due to a disability and remained on SSI after reaching age sixty-five. Legislation that took effect in the summer of 1974 required that SSI benefits be indexed to the Consumer Price Index (CPI).
In contrast to SSDI, SSI has always paid benefits to disabled children. In the first full year of the program, 71,000 children received SSI benefits, and over the next ten years this number tripled to 212,000. During the debate that took place in both houses of Congress in the early 1970s as SSI legislation was considered, there was little discussion of whether children should receive benefits from the SSI program and what the medical eligibility criteria for them should be. Evidence from the historical record suggests that a congressional staffer inserted a phrase about benefits for disabled children into the 1971 version of the House bill. This phrase remained in the final version that passed both houses of Congress and that was sent to President Nixon for his signature (Berkowitz and DeWitt 2013).
The shifting age distribution of SSI recipients over the last four decades is striking. As incomes among the elderly have risen during that time period, a smaller share has been eligible for the program. The fraction of US residents age sixty-five and older receiving SSI stood at 11 percent in 1974 and has trended steadily downward to 4.7 percent by 2013. In contrast, the fraction of children and of nonelderly adults receiving SSI benefits has grown substantially during that same period. Perhaps the most important factor causing this growth has been an expansion in the program's medical eligibility criteria, a subject to which we now turn.
1.2.1 Disability Determination
We begin our review of the structure of the SSI program with a discussion of the program's disability determination process, considering first the process as it applies to adult applicants and subsequently to applicants under age eighteen. Income-eligible applicants over the age of sixty-five do not need to demonstrate the existence of a work-limiting disability. If they satisfy the income and asset tests, they are eligible for SSI. This discussion about disability determination therefore only applies to those under the age of sixty-five. In addition, individuals can meet the categorical requirement for SSI through blindness if they have 20/200 vision or less with the use of a correcting lens in their better eye, or if they have tunnel vision of 20 degrees or less (SSA 2014a). These objective standards stand in contrast to the more subjective criteria employed to determine eligibility under the disabled criteria, as described below.
Disability Determination for Adults
Nonelderly adults typically apply for SSI benefits through an SSA field office. Employees there determine whether the applicant meets nonmedical requirements, including sufficiently low income and assets. If monthly earnings exceed SSA's definition of SGA, the applicant is deemed categorically ineligible. Applications that pass this initial screen are then forwarded on to a state agency, where the disability determination process is usually carried out by a two-person team. The first person is a state disability examiner, who assembles both medical and nonmedical evidence and requests a consultative exam when the medical evidence is not sufficient to make a disability determination. The examiner also prepares (or assists in preparation for more complicated cases) an assessment of the applicant's residual functional capacity. The second person on the team is a medical consultant who reviews the available medical evidence provided by the applicant and acquired through one or more additional consultative exams. The examiner prepares the final determination, which is then signed by the medical consultant.
A nonelderly adult applying for SSI benefits must demonstrate that he or she has a medically determined physical or mental disability that limits his or her ability to engage in SGA and further demonstrate that this disability will last at least twelve months or result in death. The federal guidelines are the same across states and are identical to those used by the SSDI program. In practice there is variation in award rates, as the determination of disability status is made by individual examiners and often inevitably involves subjective judgments. Indeed, recent research (Maestas, Mullen, and Strand 2013; French and Song 2014) has shown that there is considerable variation across examiners in the disability determination, even after controlling for the characteristics of applicants.
The SSA's disability determination process considers whether a medical impairment is severe and is expected to last for at least twelve months or to result in death. If the impairment passes this threshold and is on SSA's list of medical impairments, then the applicant passes the disability determination. If the impairment is not on this list, then SSA considers whether the applicant can perform labor market tasks that he/she previously performed. If this is possible, then the applicant is found to be categorically ineligible. If the applicant is unable to do past work, then SSA considers whether there are other occupations in the economy that he/she could perform. In this case, the examining team considers not only the applicant's medical condition but also his/her age, education, and work experience.
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Excerpted from Economics of Means-Tested Transfer Programs in the United States, Volume II by Robert Moffitt. Copyright © 2016 National Bureau of Economic Research. Excerpted by permission of The University of Chicago Press.
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