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Disability System Sorely in Need of Reform
Date:9/27/2007

U.S. Could Use Serving of Chile-Style Reform, Says NCPA Study

DALLAS, Sept. 27 /PRNewswire-USNewswire/ -- The number of workers receiving disability in the U.S. is growing so rapidly that these benefits are now the fastest rising component of Social Security spending -- growing at nearly twice the rate of retirement benefits, according to a new analysis from the National Center for Policy Analysis (NCPA). In a separate study also released today, the NCPA says Chile's disability system costs less than half of the U.S. system -- 1.8% of payroll in the U.S. versus 0.7% of payroll in Chile -- and provides more generous benefits.

"Older workers often have an incentive to use disability as a form of early retirement," said NCPA President John Goodman. "In Chile, the incentive is to keep working."

The NCPA concluded that the disability system has been growing so fast in part because of perverse incentives. For example:

-- According to the Social Security Trustees, the number of disabled

beneficiaries more than doubled, from 3.9 million in 1985 to 8.4

million in 2006, whereas people receiving retirement benefits grew

less than 25 percent over the same period. Annual disability

expenditures grew five fold, while retirement benefits grew less

than three-fold.

-- If workers claim early retirement benefits from Social Security, the

amount they receive for retirement is reduced. By contrast, a 62-

year-old worker can claim disability and receive monthly benefits that

are about 30 percent higher than early retirement benefits. This

creates an incentive to claim disability. And, disability benefits

stop if the beneficiary returns to work, therefore discouraging

productive labor.

-- Although less than 40 percent of disability applicants are initially

approved, about 60 percent are approved after appeals. Since appeals


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SOURCE National Center for Policy Analysis
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