Able Peter Orszag Opines

Hypatia of California: Able Peter Orszag Opines

by Deborah Lagutaris

Peter Orszag, I hope you never become disabled, without assets due to your disability, and unable to receive disability income. Your prescription for making disability “work” is completely wrongheaded from any approach that comports with the lives of the disabled.

First, millions of people with disabilities work in productive jobs. They are still able to work satisfactorily, so they do not try to submit a disability claim. When they are fired or laid off from their jobs, they often find that they cannot get another position. After years of trying to find employment, they finally sit down at the computer and file that fateful document. Or, their disability could cause them to leave it there to sit for 13 months, while trying to figure out what is wrong with them.

People with disabilities want to and are quite capable of making meaningful contributions to society. You don’t want me to make a list, do you? Well, let’s start with Albert Einstein…

Second, your “solution” is a bald move to shift the responsibility for providing the necessary services for disabled people from the government, where they belong, to employers, who have multiple conflicts of interest when considering whether an employee is disabled. It’s just another terrifying privatization scheme that will leave the disabled without protection against homelessness, disease, and death.

When government services are privatized, the first thing that happens is that taxpayer assets are sold off at a low price to the already-rich. Then, those services deteriorate. Customers complain, but nobody does anything until the company who privatized the services goes bankrupt or steals billions from the public (Enron, Bank of America, Countrywide Mortgage, Bear Stearns, the savings and loan scandals of the 80s, junk bond fever, dot-com fever, Fannie Mae*, airline companies). Then the government will bail out the already-rich people who pillaged the taxpayer assets in the first place, but everyone else loses. The taxpayer then gets to pay the bill for the privatization forever because the government just borrows more money in their name to pay for the bailout. A win-win situation, eh?

And third, perhaps you should leave your ivory tower before you fly over to Citigroup and find out how the world really works for people with physical and mental handicaps. And, if you call yourself a Democrat, then I am a monkey’s uncle. Real Democrats don’t destroy helpful government services that allow all kinds of people to be productive.

*Fannie Mae was a government agency until the mid-1970s, when its privatization began.

December 9, 2010
Making Disability Work
I will begin a new job for Citigroup in January, so this is my last article as a contributing columnist for The Times. I hope to see you again from time to time on the Op-Ed page.

One of the gravest dangers posed by the weak economy is that the unemployed will become discouraged and give up looking for work, perhaps permanently as their skills atrophy. This would be harmful not only to the workers and their families, but also to the economy as a whole, as those people would no longer contribute to economic growth. The longer the labor market remains sluggish, the more pronounced this risk becomes.

Unfortunately, at this point more than six million people have been unemployed for six months or longer. More than one million have already given up looking for work because they believe no job is available. And a drastic rise in applications for disability insurance suggests we may be headed for more long-lasting trouble. The number of disability applications has reached more than 750,000 a quarter, according to the Social Security Administration, an increase of more than 50 percent from four years ago.

The disability insurance program provides crucial support for people who can no longer work because of a disability. But once someone begins receiving benefits, the likelihood that he will re-enter the work force is almost nonexistent; recipients become permanently dependent on the program.

The result is not only lost economic productivity, but also a fiscal burden for the federal government: disability benefits now cost more than $120 billion a year, and Medicare benefits for those on disability add $70 billion.

The spike in disability insurance applications (and awards) does not reflect a less healthy population. The fraction of working-age adults who report a disability, about one in 10, has remained roughly constant for the past 20 years. (Indeed, it would be surprising if the number of workers with disabilities had risen by 50 percent over the past four years.) Rather, the weak labor market has driven more people to apply for disability benefits that they qualify for but wouldn’t need if they could find work.

When Congress created the disability insurance program in 1956, it required that recipients be unable to “engage in substantial gainful activity in the U.S. economy.” In other words, they had to be unable to work. That was sensible at the time, when more jobs involved physical labor and technologies to assist people with disabilities were not widely available.

Today, however, many people with disabilities are able to engage in some form of work — even if they can’t admit that and still keep their insurance benefits. Cutting off access to the workplace in this way is both unfortunate and unnecessary — and reinforces the threat that the current downturn could cause a long-term reduction in the share of people who work.

So what should be done?

First, macroeconomic policy. We need more stimulus immediately, and more deficit reduction enacted now to take effect in two or three years. The plan just proposed by the White House in a compromise with Congressional Republicans is encouraging in that it includes a new payroll tax holiday, a helpful stimulus. It does not reduce future deficits, but at least it avoids making the Bush tax cuts permanent, reserving the flexibility to address medium-term deficits down the road.

Even if this plan goes ahead, however, the unemployment rate is likely to remain high for some time. For it to fall by even one percentage point (from 9.5 percent to 8.5 percent) the economy needs to grow by about 4.5 percent a year.

Second, unemployment insurance should be extended, as President Obama’s compromise plan also would do. Unemployment benefits are a form of stimulus: they spur spending and thereby help keep the economy afloat. Just as important, unemployment benefits keep many people from falling back on disability insurance — and unlike disability insurance, which effectively prohibits beneficiaries from seeking work, unemployment insurance requires recipients to keep looking for a job and thus remain connected to the work force.

Finally, the disability insurance program itself must be reformed. Program administrators understand the need to encourage beneficiaries to return to work, and they have experimented with various incentives. Such initiatives have generally been ineffective, though, because they reach beneficiaries too late, after they have already become dependent on the program and lost their attachment to the work force.

A better approach has been suggested by David Autor of M.I.T. and Mark Duggan of the University of Maryland. In a paper released last week from the Center for American Progress and the Hamilton Project, these economists argue that employers should be required to offer their workers private disability insurance. Such coverage would provide people who have a work-limiting disability with vocational assistance, workplace accommodation and limited wage replacement. All of these benefits would kick in within 90 days of the onset of disability, to avoid the problems with delayed assistance that have plagued efforts to reform public disability insurance. Private employers would have an incentive to prevent their workers from having to file disability applications, because their insurance premiums would rise in response to higher disability rates.

Disabled workers could remain on this privately financed insurance for two years, and then be eligible for the existing public program. The goal would be to minimize long-term dependency, and re-orient the federal disability insurance program toward assisting those who are truly unable to work.

One concern is that this approach would burden firms with additional human resource costs when we need to encourage hiring. But the costs are projected to be modest — roughly $250 per worker per year. And if they help to reduce the future payroll tax increases that would be needed to finance rapid growth in disability benefits, the pressure on overall labor costs would be even smaller.

Another concern is that private insurance firms would need to be given substantially expanded responsibility for evaluating workers’ disabilities. Mr. Autor and Mr. Duggan propose to mitigate this potential problem by suggesting that workers be allowed to appeal any such evaluations to state government agencies.

The Netherlands has adopted a program like this, and the results so far are promising. In 1994, the Dutch government required all firms to finance the first six weeks of disability benefits. That period was later extended to one year and then to two years. In 2002, the program was broadened to require back-to-work plans, developed cooperatively by the disabled worker, his employer and a consulting doctor. The number of disability recipients in the Netherlands has since declined significantly.

None of these policy changes would be easy. But failing to act would result in millions of Americans needlessly dropping out of the work force. In our precarious economy, neither progressives nor conservatives should be willing to watch passively as the disability insurance rolls grow, and beneficiaries are locked out of the labor market.

Peter Orszag, the director of the White House Office of Management and Budget from 2009 to July 2010, is a distinguished visiting fellow at the Council on Foreign Relations.