Enabling Disability Fraud

We were inspired by Climateer Investing's summary of the econoblogosphere's ongoing analysis of the increasing level of disability fraud in the U.S., where hundreds of thousands of people would appear to be ending up after their extended unemployment insurance benefits expire, to ask two new questions: which Americans are benefiting from the fraud and how are they getting away with it?

To answer the first question, we started with the annual age distribution data that the Social Security Administration publishes on the number and age of that agency's disability benefit recipients. Starting with the pre-recession years of 2006 and 2007, the recession years of 2008 and 2009, as well as the post-recession years of 2010 and 2011, we created the following chart showing the number of people for each age recorded by Social Security for each year:

We see that nearly 90% of the increase in the number of people claiming disability benefits from Social Security has taken place for people Age 46 or older, with that increase outnumbering the increase in younger individuals by a factor of nearly 10 to 1.

Next, we compared a given year's number of disability benefit recipients to the previous year's number of disability benefit recipients who were one year younger. Doing this allows us to see the net number of people added to Social Security's disability rolls in each year:

Here, we see once again that it is mainly older Americans who have cashed in on Social Security's disability benefits. But this time, we see something we didn't expect - there is a very pronounced spike in the number of disability claims being awarded in each year, regardless of the condition of the U.S. economy, coinciding with Age 50.

That didn't make much sense - why would 50 year old people have such a surge in enrollment for Social Security disability benefits? Do people just suddenly break down at Age 50?

We found the answer in a blog post for a law firm that specializes in disability claims from 31 October 2005 - it's because the federal government gives people Age 50 or older a free pass for being able to claim disability benefits:

Why is age 50 so important in a SSDI case?

It goes without saying, the older you are, the better chance you have of being awarded disability. Age 50 is the “cut off” point for claimants filing for social security disability. If you had two claimants with nearly identical disabilities and backgrounds and only one of them is older than 50, the older claimant is more likely to receive benefits than the younger claimant. Claimants younger than 50 simply have a harder burden to overcome, although it is not impossible.

Why is it harder for younger claimants to receive disability benefits? If you are disabled it does not matter how old you are, right? Well not exactly. The social security administration has stated that even if a claimant cannot perform substantially all sedentary work, it does not mean that they are entitled to receive benefits. The reason being your background may dictate you working in another field. The SSA will look at your age, education, work experience, etc and determine if you have any transferable work skills that enable you to work despite your disability. This becomes important when you have a disability that prohibits you from doing substantially all sedentary work and you are below age 50. The SSA believes that claimants under age 50 have not yet reached an age that is old enough to limit their ability to adjust to other work. Is it fair, probably not especially if you are 47 and have the same disability as a claimant who is 51. But in defense of the SSA policy, there has to be some point where advanced age significantly becomes a factor.

Claimants under age 50 are put up against the task of having to rebut the testimony of a vocational expert at their hearing. This is a difficult task for many claimants. Vocational experts have often times heard several cases and have years of experience. Social security disability attorneys deal with vocational experts on a daily basis. If you find yourself in this situation, you are better off having counsel on your side to handle the cross examination of a vocational expert.

Before Age 50, the federal government puts obstacles in the way of those who might falsely claim disability benefits by actively challenging their claims. But once an individual reaches Age 50, it removes that barrier to preventing fraud.

We therefore find that the government's bureaucratic policies are enabling large scale disability fraud by not challenging all claims made by those applying to receive disability benefits. What's more, because individuals on disability status are no longer counted as being part of the U.S. labor force, the federal government is also guilty of falsifying employment situation reports, which are providing a false picture of the health of the U.S. job market.

That in turn is keeping resources that might otherwise improve that situation from being used for doing so. Because why would a policy maker take action to change the current policies of the federal government if the numbers say no action is needed?