Disability expenditures.

Disability Expenditures

Benefit payments under Social Security Disability Insurance (SSDI), perhaps our largest single government disability program, have exhibited trends that are not satisfactorily explained by changes in economic or demographic conditions. The number of monthly beneficiaries and the amount of the awards under SSDI increased dramatically from its inception in 1957, peaked in fiscal year 1975, and now shows signs of increasing again.

One aspect of disability expenditures that stands out is that so much is being expended in this area. Disability is an expensive phenomena - a fact that is not always appreciated when we look at one program or one area in isolation. What unites these expenditures for the more than 75 programs? What allows us to group these sums together?

In work done under an NIDRR financed project entitled, "Enhanced Understanding of the Economics of Disability," we have examined total disability expenditures for the population 18-64 years of age from 1970 to 1986.[1] We define disability expenditures as those sums that would be eliminated if, by some magic, disabilities were to disappear from the face of America. There is neither a universal definition of disability expenditures nor an agreement on how they should be calculated. Neither are these disability expenditure data represented in one place; what follows are necessarily estimates.

We recognize that our estimates of total disability expenditures are conservative due to missing and unavailable information. Most notable is the lack of complete coverage of data about expenditures made by private organizations (either through services or actual payments to disabled people), housing and transportation expenditures and out-of-pocket expenses paid by disabled people themselves. However, our estimates have been generated regularly using an estimation methodology that has remained consistent in each year.

Total Disability Expenditures - 1986

We estimate the value of disability expenditures in 1986 was over $169.4 billion (See Chart 1). This amount is made up of three types of expenditures. The first type is transfer payment expenditures, which totalled over $86.5 billion in 1986. Transfer payments are the actual funds that are allocated each year to people, because of disabilities. We have divided the transfers into four categories, which emphasize the major reasons why monies are transferred to disabled people. This division is only one of the many possible ways that transfer payment programs could be grouped.

Programs that pay money for a disability because their participants are insured against that contingency occurring fall under two categories: social insurance programs, such as Social Security Disability Insurance, under which there is compulsory coverage of the working population; and individual and employer provided insurance, which an individual buys or an employer provides to employees. A third category is the indemnity programs, in which disabled people receive funds if they are involved in accidents where some other person is at fault. The programs under income support, the fourth category, pay disabled people who can demonstrate that they are without sufficient resources. An example of this category is Supplemental Security Income (SSI) for disabled and blind recipients. Table 1 displays the four categories of transfer payments and the programs within each category.

  Table :         Table 1
        Transfer Payment Expenditures - 1986
                                             Amount in Thousands

Social Insurance

  Disability                                         $20,124,114
  Survivors                                            1,839,055
  Retirement                                             511,324
                                                      22,474,493

Individual and Employer-Provided Insurance

Whole Life                                               540,000
Health / Long-term Disability                          2,085,583
Accidental Death and Dismemberment                       391,160
Federal Life                                              88,274
Federal Civil Service                                  1,665,960
Railroad Retirement                                      358,974
Armed Forces Retirement                                  970,726
Other Federal Retirement                               1,479,870
State and Local Retirement                             1,386,844
Private Pensions                                       1,872,120
                                                      10,839,511

Indemnity Workers' Compensation:

Federal:

    FECA                                                 845,160
    Longshoremen and Harborworkers                        49,486
    Black Lung Benefits                                  768,887
  State Workers' Compensation                         10,706,440
Veterans' Compensation                                 5,727,276
Automotive Bodily Injury                               9,330,867
Miscellaneous Bodily Injury                           17,558,964
                                                      44,987,080

Income Support

Veterans' Pension                                      1,096,406
Supplemental Security Income                           5,394,009
AFDC                                                   1,751,776
Food Stamps                                              775,723
                                                       9,017,914
Total Transfer Payment Expenditures                   87,318,998

The second type of expenditures for disabled people are medical care expenditures, which amounted to over $79.3 billion in 1986. Medical care differs from transfer payments in at least two aspects. First, medical care expenditures involve using real resources, such as a hospital bed or a prescription drug. Transfers, however, are only movements of funds from one segment of the population to another. The other difference is that even if a disabled person becomes well enough to return to work and consequently transfer payments are stopped, medical care expenditures could still continue in order to maintain the ability to work. Despite the differences between medical care and transfer payments, the four categories used to describe transfers (social insurance, individual and employer provided insurance, indemnity, and income support) are also used to classify medical care expenditures. The breakdown of medical care expenditures into specific programs can be seen on Table 2.

Table : Table 2 Medical Care Expenditures - 1986

Amount in Thousands

Social Insurance Medicare 

  Hospital Insurance                                   $5,143,044
  Supplementary Medical Insurance                       3,685,365
                                                        8,828,409

Individual and Employer-Provided Insurance Department of Defense

  Military Medical Facilities                              50,698
  CHAMPUS                                                  57,056
  CHAMPUS - Handicapped                                         -

Private Health Insurance

  Blue Cross/Blue Shield                               15,536,504
  Insurance Companies                                  29,178,943
  Independent Plans                                     1,327,234
                                                       46,150,435

Indemnity Veterans' Medical Care

  Community Nursing                                       121,341
  Veterans' Nursing                                       147,029
  Veterans' State Nursing                                  10,723
  Veterans' State Hospital                                    877
  Hospital Based Home Care                                 16,616
  Veterans' Hospitalization                             2,004,509
  Veterans' Outpatient                                  1,304,681
  Veterans' Prescription Drugs                            126,222

Workers' Compensation

  FECA                                                    196,420
  Other Federal Employees                                  77,819
  State Workers' Compensation                           4,237,947
  Black Lung Benefits                                      27,801
                                                        8,271,985

Income Support

Medicaid                                               15,587,952
Medical Vocational Rehabilitation                         349,277
St. Elizabeth's Hospital                                  127,170
                                                       16,064,399
Total Medical Care Expenditures                        79,315,228

Direct service expenditures are the smallest of the disability expenditures. Of the $169.4 billion expended for disabled persons in 1986, only a little over $3.5 billion was spent on direct services. The nature of the programs included under direct services leads to difficulty in separating the programs into the four categories used for medical care and transfer payments. Therefore, direct service expenditures are classfied in the following five functional categories: rehabilitative services, veterans' services, services offered to persons with specific impairments, general federal programs, and employment assistance programs. Table 3 shows the direct service expenditures for 1986.

Table : Table 3 Direct Service Expenditures - 1986

Amount in Thousands

Rehabilitative Services

Rehab Services - Basic Support                         $1,430,818
Rehab Services - Special Projects                          51,311
Rehab Services - Innovation and Expansion                  18,779
Voc. Rehab for SSDI Beneficiaries                           4,252
Voc. Rehab for SSI Beneficiaries                              600
Voc. Education - Basic State Grants                       148,793
                                                        1,654,553

Veterans

Blind Veterans Rehab Centers                                8,783
Voc. Rehab for Disabled Veterans                          103,980
Specially Adapted Housing                                  14,498
Direct Loans for Disabled Vets. Housing                       119
Autos and Adaptive Equipment                               15,785
Veterans' Prosthetic Appliances                           104,917
Rehabilitative Research Prosthetics                        15,375
Dependent's Educational Assistance                         59,879
Veterans' Domiciliary Care                                 72,765
Veterans' State Domiciliary Care                            9,983
U.S. Soldiers Homes                                        16,587
                                                          422,671

Services Offered to Persons with Specific Impairments

Developmental Disabilities - Basic Support                 65,076
Developmental Disabilities - Spec. Project                  2,680
Gallaudet College                                          40,248
National Technical Inst. for the Deaf                      30,624
Handicapped Media Services                                 12,051
Books for the Blind & Phys. Handicapped                    32,309
Mental Health - Hosp. Improvement Grant                         -
                                                          182,988

General Federal Programs

Social Services (Title XX)                                355,042
                                                          355,042

Employment Assistance Programs

Federal Employment for the Handicapped                        209
Federal Employment Services                                30,325
Federal Job Training Programs                             127,045
                                                          157,579
Total Direct Service Expenditures                       2,772,833

Trends in Total Disability Expenditures

Our goal now is to place the seemingly large disability expenditures estimate in perspective. Heightened interest, awareness and concern about these expenditures stem not so much from the absolute amount of money involved, but from the sharp increase in these amounts over the years. These concerns persist, although the rate of increase (growth rate) in these sums has slowed considerably. We will examine the movement of the disability expenditures growth rate in three stages.

Fiscal Years 1970-1975

The first half of the 1970's was a period of new governmental programs and social experimentation. From 1970 to 1975, social welfare expenditures (the expenditures for income maintenance, health, education, housing, veterans' programs, and other welfare services) increased by 14.75 percent each year, rising from $145.9 billion to $290.1 billion. Spending on social programs was increasing at a faster rate than the economy was growing. During this period, the Gross National Product (GNP) was increasing at a rate of 9.5 percent per year. The growth rates of disability expenditures, social welfare expenditures and GNP are shown in Chart 2.

As fast as social welfare spending was increasing, disability expenditures were increasing at a faster rate. Indeed, the first half of the 1970's was the period of the most vigorous growth in disability expenditures. Between 1970 and 1975, disability expenditures increased by a total of 152 percent, or 20 percent annually, from $19.3 billion to $48.7 billion. In 1970, disability expenditures amounted to 13 percent of social welfare expenditures. By 1975, however, they had increased to 17 percent, reflecting the expanding awareness of and willingness to help disabled people (See Chart 3). The rising impact of disability expenditures can also be seen when disability expenditures as a percentage of GNP is examined. Although the transfer payment component of disability expenditures does not figure into the measurement of GNP, we expect a growing economy would tolerate increases in disability expenditures easier than a shrinking one. Chart 4 shows the percentage of GNP that disability expenditures represents.

Adjusting the date to reflect the rising price levels experienced during this period affects the dollar amount of the expenditures, but not the comparative trends. The yearly growth in real GNP and real social welfare expenditures remained positive at 3 percent and 7 percent, respectively. Real disability expenditures, however, continue to show the most growth, 13 percent annually. The large growth in real disability expenditures implies that, despite the effects of price increases, more and more assistance was being given to disabled people (See Chart 4).

The quick rise in disability expenditures has had a major impact on per capita measures as well. Between 1970 and 1975, the U.S. population aged 18-64 maintained a slow average rate of growth, 1.9 percent per year. The large increases in disability expenditures experienced during this period, however, caused disability expenditures per capita to increase from $167 per person in 1970 to $386 per person by 1975. This corresponds to an increase of 131 percent cumulatively.

Disability expenditures are made both in the private and the public sectors. In 1970, of the $19.2 billion spent on disabled people, $12.8 billion, or 67 percent, was provided by the public sector. These public sector expenditures include the social insurance programs, all federal insurance policy and retirement plan claims, all income support programs, all veterans' programs, workers' compensation (included because these payments are mandated by state law and are administered by state regulations) and all direct services. The remaining $6.4 billion (33 percent) was provided by private sources, such as automotive and miscellaneous bodily injury claims and all private medical and life insurance plans. Despite the large increase of disability expenditures, themselves, the public and private components remained relatively stable. In 1975, public sector expenditures were 65 percent and private expenditures 35 percent of the disability total. Chart 5 displays private and public sector disability expenditures.

Fiscal Years 1976-1979

The second half of the 1970's showed a slowing down of the rate of increase in disability expenditures, despite some substantial year-to-year fluctuations. During the period between 1975 and 1976, the growth of disability expenditures underwent a sharp transition. The 20 percent average yearly growth experienced in 1975 fell to 17 percent in 1976. The 17 percent rate of increase was maintained in 1977; however, in 1978 the growth rate plunged to 9 percent, the lowest rate so far. In 3 years, the growth rate had fallen to less than half of that experienced from 1970 to 1975.

This pattern was repeated in real disability expenditures as well. Between 1975 and 1976, growth in real expenditures fell to 11 percent. The fiscal year 1978 brought with it another plunge to a record low of 1 percent growth. The rate of increase recovered somewhat in 1979, but the 5 percent growth experienced did not balance out the rapid drop of the preceeding year.

The erratic growth in disability expenditures during this period, was not matched in total social welfare expenditures. The growth in social welfare expenditures fell slightly to 9 percent between 1976 and 1977, and remained at 9 percent until 1979. Similarly, GNP growth was stable. Between 1976 and 1979, GNP growth remained in the range between 11 and 13 percent.

Despite the fluctuations, the importance of disability expenditures relative to social welfare expenditures climbed even higher. In 1976, disability expenditures were 17 percent of social welfare expenditures. By 1979 this ratio had increased to 20 percent. Disability expenditures per capita also rose steadily from the 1976 amount to $444. In 1979, disability expenditures per capita had grown by 7 percent each year to $625.

The public and private percentages of total disability expenditures started this period at the same levels as in the 1970 to 1975 period, 65 percent and 35 percent, respectively. By the end of 1979, little had changed. Public disability expenditures had fallen to 63 percent, or $53.8 billion. This was paralleled by the increase in the private sector to 37 percent of the total, or $31 billion.

Fiscal Years 1980-1986

The 1980's have been a period of contraction in government spending, and disability expenditures have not excaped the downward pressure. In fiscal years 1980 and 1981, the growth in disability expenditures was at its highest level during the period: 16 percent. From 1982 onward, however, the rate of growth never exceeded 10 percent. By 1986, these expenditures were growing at their slowest rate to date, 7 percent.

The lower disability expenditures growth corresponds to the growth in social welfare expenditures. The 1980 to 1986 period showed an average rate of increase of 10.3 percent. The nation's economy was also growing at the comparatively same rate. GNP increased by an average of 8 percent a year from 1980 to 1986. Although disability expenditures were growing slightly faster than social welfare expenditures and GNP, the effect was very slight. This is evidenced by the fact that between 1980 and 1986 disability expenditures remained within 20 and 22 percent of social welfare expenditures. The average was 21 percent, only 2 percent higher than in the last period examined.

The patterns of decline set by nominal measures repeated themselves in real disability expenditures. The 1980's saw a minute drop in the average rate of real growth to 5 percent per year. This paralleled the small 3 and 4 percent yearly growth experienced in real GNP and real social welfare expenditures. The rate of increase in disability expenditures per capita also fell from 10 to 9 percent per year. Consequently, from 1980 to 1986, disability expenditures per capita rose from $712 to $1,136.

The most dramatic change to be noted in thie period is the rearrangement of the public sector and the private sector proportions of disability expenditures. In 1980, public sector expenditures amounted to 60.6 billion, or 62 billion public sector sum had fallen to only being 54 percent of total disability expenditures. Simultaneously, private sector expenditures were becoming a more important part of the disability total. Between 1980 and 1986, private sector expenditures went from $37.9 billion, or 38 percent of the total disability expenditures, to $77.8 billion, or 46 percent.

What Can We Learn From Our Look at

Disability Expenditures?

Cash benefits, medical care payments or services costs are made to, or for, people who have experienced long-term effects from physical or mental impairments because of injury or disease. For the most part, these are people who are limited or unable to engage in their usual activities because of some mental or physical condition. We have tried to exclude the costs of short-term illness and have included only people aged 18-14 where we have been able to make these age distinctions.

It is not only that we consider these expenditures to be large, it is that they are made for a variety of reasons in a huge assortment of programs. Like other industrialized countries of the world, we have not adopted a single uniform approach to disability. We have separate programs for veterans, civil servants, work injured people, employed people and their dependents, and those people who can prove they are sufficiently poor to qualify for benefits. Disability programs exist for many reasons, including providing incentives to optimal safety behavior.

In deciding what to pay to whom, we look not only at the results of an injury or a disease, but why it came about and to whom it happened. The person hit by a car driven by an insured motorist is treated differently than the person who falls off the roof of his own home, even if both are similarly impaired. This differentiation is not necessarily bad. Most countries treat work injuries differently than nonwork injuries. New Zealand and Holland are the two exceptions, and Holland is moving back to possibly making such distinction once again.

We have tried to indicate something of the overall trends in disability expenditures since 1970. These are puzzling trends and we have no satisfactory theory to explain them. We are sure of one thing: These fluctuations in disability expenditures are not matched by corresponding fluctuations in injuries or diseases. These changes then must be accounted for by demographic changes, changes in social and economic conditions, changes in the public perception of disability, and the way that the benefits laws are administered. Our look at disability expenditures emphasizes an old lesson that cannot be repeated too often. Disability is a socioeconomic phenomenon, not a medical one.

Although we accept the fact that in the real world there will be these many different programs which we have here put together, this does not mean that we have necessarily arrived at the best allocation of resources in this field. We are struck with how little we seem to spend comparatively on direct services such as rehabilitation. We would argue that part of the problem is that the methods we are using to evaluate rehabilitation programs have been deficient.

As with any other research endeavor, our look at disability expenditures raises as many questions as it answers. There is more work to be done here. We think that these measures could be improved. But the problems are more than inadequacies in the data. We have been working on these concepts for some time, but our measures are still crude, especially in the services area. We need a model which will better explain the trends that have been experienced and that will help us forecast what will happen in the future.

The relationships between private sector and public sector programs are not well understood. In the last several years for which we have data, the private sector programs have been growing at a more rapid rate than those in the public sector. In part, this is because of an increase in indemnity payments which arise from suits for payments for personal injury. Lawyers have long been interested in reforming the indemnity legislation, but those of us concerned with the social and economic consequences of disability have tended to ignore this area. Are increases in these indemnity programs to be encouraged, or would equity and adequacy considerations argue for a different allocation?

In some global sense, as Calabresi and others[2] have argued, society makes two kinds of decisions in this world of limited resources. The first order decision is to decide how much of our goods and services should be allocated to disabled people; the second order decision is to decide how to divide the sum which has been allocated among all qualified people. It goes without saying, that, to the true disability advocate, whatever is allocated will not be enough; but looking at aggregate disability expenditures forces us to examine whether we are making these second order allocation decisions in the best possible way.

References

[1] The research project (G008300151), funded by the National Institute on Disability and Rehabilitation Research, not only examined disability expenditures, but various methods to determine the impact of the state-federal vocational rehabilitation programs. In this articles we look only at the work done on disability expenditures. [2] Calabresi, Guido and Philip Bobbit, Tragic Choices, Norton Publishers, New York, NY, 1978.

Dr. Berkowitz is Professor of Economics, Rutgers University; Ms. Greene is Research Associate at the university.