“The relationship between the SSDI and WC programs can be quite complex. We hope this article will shed some light on those interactions and help readers understand the various channels of cost shifting that may occur between the two programs.”
Jim Davis NCCI Director and Actuary
When US workers suffer an injury or illness that prevents them from returning to the job, there are both federal and state insurance programs they may turn to for assistance. Social Security Disability Insurance (SSDI), a federal program, provides benefits to people who become disabled and cannot work, regardless of whether their disability was job-related. Workers compensation (WC) insurance, which states regulate, provides benefits to workers whose disability is specifically job-related.
Disabled workers can file for both SSDI and WC benefits, and an estimated 10% of current SSDI beneficiaries have, at some point, qualified for WC benefits. Thus, evaluating how individual states treat SSDI within their workers compensation system regulatory framework is an important factor in understanding trends involving these “dual recipients.” In addition, it is critical to understand how federal and state insurance programs share the costs incurred in caring for these individuals.
In the majority of states — referred to as “Standard Offset” states — the SSDI benefit for dual recipients may be offset to ensure that the combined benefits do not exceed a cap established by the Social Security Administration (SSA). However, in 14 states — referred to as “Reverse Offset” states — the WC benefit may be offset for some or all benefit types to ensure that the combined benefits do not exceed a cap established by the state.
NCCI's research brief, “Social Security Disability Insurance and Workers Compensation,” examines the interplay between SSDI and WC benefits through detailed state examples. The study also looks at cost shifting between the two programs in individual states, how the programs impact states with relatively low- and high-benefit WC programs, and how significant state changes in WC benefits might impact SSDI spending.
Among the major findings in the report:
SSDI beneficiaries and spending rose dramatically over 15 years, but have remained fairly stable since 2010.
The number of SSDI beneficiaries rose 58% and SSDI expenditures grew 138% (from $60 billion to $143 billion) over the 15-year period between 2001 and 2015, peaking in 2010. Since then, the number of SSDI beneficiaries has been relatively stable, and spending growth has moderated.
About five out of every 1,000 insured workers are awarded SSDI benefits.
The benefits award rate increased during the Great Recession but leveled off to a rate of about five awards per every 1,000 workers by 2015.
WC programs shoulder a higher portion of total benefits for disabled workers than SSDI in Standard Offset states.
The WC share of total benefits paid for dual recipients of WC permanent total disability and SSDI ranged from 68% in a low-WC benefit state to 90% in a high-WC benefit state.
In Nebraska, a relatively low-benefit state for permanent total disability, WC pays 83% of total first-year benefits. By contrast, SSDI pays 17%, a full 72% less than it would pay absent the existence of WC.
In Illinois, a relatively high-benefit state for permanent total disability, WC pays 92% of total first-year benefits. By contrast, SSDI pays 8%, a full 85% less than it would pay absent the existence of WC.
Musculoskeletal conditions and mental disorders accounted for more than 60% of SSDI cases in 2015.
The study examined the top five SSDI conditions for the 8.9 million disabled workers in 2015. Diseases of the musculoskeletal system and mental disorders account for more than 60% of cases. The top five are: musculoskeletal system (31.7%); mental disorders (30.6%); diseases of the nervous system and sense organs (9.4%); diseases of the circulatory system (8.2%); injuries (3.9%); and all others (16.2%). Musculoskeletal conditions were the only category of the five to rise between 2000 and 2015; a rise in obesity rates and the aging population are among the contributing factors.
The suggestion that state legislatures inappropriately shift costs from WC to SSDI by lowering WC benefit levels is inaccurate.
Some observers have suggested that the long-term increase in SSDI claims and spending is a result of state legislatures lowering WC benefits to shift costs to SSDI. The study found that contention to be inaccurate. An analysis found that most states did not reduce WC benefits over the past 15 years, and in states where benefits changes did occur, those changes did not prompt more workers to file for SSDI. The biggest surge in SSDI applications occurred around the Great Recession. Additionally, most WC claimants don't qualify for SSDI, because their injuries are not permanent and total; this further erodes the argument that states lowering their WC benefits sparked the surge in SSDI applications.
So why is it important to understand the interplay between SSDI and WC?
The workers compensation regulatory structure for individual states — whether they are “Standard Offset” or “Reverse Offset” states — can have a significant impact on the percentage of total benefit costs that a state's workers compensation program is paying for a dual recipient of WC and SSDI.
Additionally, understanding this interplay can be an important factor for regulators, legislators, and other stakeholders to consider when contemplating changes to their state's WC system. Finally, understanding these study insights can provide context and help mitigate suggestions that a state's WC benefits changes are adversely impacting applications and costs in the federal SSDI program.