The disability trust fund is now expected to be depleted in 2032 instead of 2028. This is primarily due to the assumption of lower disability applications and other underlying assumption changes since last year.
According to projections, assuming no legislative changes, only 83% of disability income benefits would be payable after the trust fund is depleted. The projection also shows that the trust fund balance begins to fall in 2019. That means that starting next year, the total cost of the disability income program exceeds the total income on the program, including interest.
Cutting benefits could have substantial impacts to group insurers that would likely need to increase claim reserves for future benefit payments on their policies. Lower Social Security Disability Insurance (SSDI) benefits would mean lower benefit offsets and thus higher long-term disability benefit payments.
It is important that actuaries working with group disability insurance pay attention to changes in the SSDI program which could affect their financial results. Milliman consultant Jennifer Fleck provides some perspective in her article “Social Security disability actuarial status, 2018.”
President Donald Trump’s 2018 budget proposal includes potential changes to several Social Security Disability Insurance (SSDI) programs. If approved, these changes could affect claimants, state agencies, insurance companies, and/or employers. The Milliman Insight article “President Trump’s budget proposal calls for disability changes” by Jennifer Fleck explores the financial and administrative implications related to the proposed changes for each of these groups.
Here is an excerpt:
It is not yet clear which of the proposed changes are likely to proceed nor which can be considered benefit cuts as opposed to administrative changes intended to manage the existing program more closely. However, the potential impact is significant for many different constituencies.
• Current claimants or applicants now waiting for their claim decisions could be affected through reduced retroactive payments, increased opportunities for rehabilitation, or potential shifting of the payer of their benefits.
• State agencies should pay close attention to the proposed changes as they could require additional services be performed at the state level.
• Insurance carriers could be required to pay additional benefits to private insurance claimants as costs are shifted. Currently, group insurers offset their payments for SSDI benefits, so reduced SSDI benefits will result in higher payments from insurance companies. This has the additional impact of raising premium rates for everyone who has group disability insurance.
• Employers could be affected by cost shifting of workers’ compensation benefit offsets or by being required to accommodate more employees returning to work from disability. Employers could also face the higher premium payments mentioned above or could have higher benefit costs directly if they self-insure. This could discourage employers from offering coverage, cause a shifting of the cost to the employees, or encourage them to offer lower benefit amounts. A benefit to employers could be a larger potential workforce to draw from.