2). Unless accompanied by offsets or protections, these reforms  might reduce the income of disabled workers and dependents. Certain Benefit- Reducing Reform Elements Could Have a Substantial Impact on Disabled Workers and Dependents

Many reform elements could have a substantial impact on the benefits of  Social Security recipients, including those of disabled workers and  dependents. We considered six such elements that have been included in  reform proposals to improve trust fund solvency. Though it would not generally affect initial benefit amounts, a change  to Social Security’s cost-of-living adjustment (COLA) could also control  costs and improve solvency by limiting the growth of an individual’s  benefits over time. Most of the Social Security Reform Elements We Considered Would Reduce Benefits for Virtually All Beneficiaries

According to our projections for the 1985 cohort, four of the five reform  elements that we analyzed would reduce total lifetime benefits for more  than three-quarters of disabled workers and dependents, relative to  currently scheduled benefits. Reform Elements Reduce Median Lifetime Benefits for Disabled Workers and Dependents to Varying Degrees

According to our simulations each of the reform elements we selected  would reduce median lifetime benefits for both disabled workers and  dependents relative to currently scheduled benefits (figs. In  addition, we found that specific options to protect dependent benefits  could be targeted to certain vulnerable beneficiaries, such as widows and  dependent children. For example,  while two protection options focus specifically on disabled adult children  (DAC), others, such as partial exemptions could apply to any vulnerable  population. Our projections showed that a partial exemption as  described above would raise median lifetime benefits from their reduced  levels by 7 percent (up to 96 percent of scheduled levels under current  law). Protections for Dependent Benefits Could Be Targeted to Certain Vulnerable Beneficiaries, Including Survivors

While protections for disabled workers would generally cover all such  beneficiaries, the options for protecting dependent benefits could be more  targeted to specific dependents and not necessarily applied to the full  range of dependents, which includes spouses, divorcees, widow(er)s, and  child survivors. As such, it may be desirable to protect  older widow(er)s—along with other individuals who receive benefits for a  prolonged period of time—from the effect of a COLA reduction. Some Protection Options May Create New Costs and Unintended Incentives for the Social Security Program

The options for protecting the benefits of disabled workers and those of  dependents come at a cost to the Social Security program in terms of its  solvency. For example, protecting benefits of dependents by increasing the family  maximum could affect an individual’s work decisions. Options Modeled to Protect Benefits of Disabled Workers

		Full Exemption

To simulate the effects of fully exempting disabled workers from the  various reform elements, we modified the simulation to exclude the  benefits of disabled workers from the reform elements. Like other benefits, dependents’ benefits receive annual COLAs. Social Security Reform: Potential Effects on SSA’s Disability Programs  and Beneficiaries.
Why GAO Did This Study

Many recent Social Security reform proposals to improve program solvency include elements that would reduce benefits currently scheduled for future recipients. To date, debate has focused primarily on the potential impact on retirees, with less attention to the effects on other Social Security recipients, such as disabled workers and dependents. As these beneficiaries may have fewer alternative sources of income than traditional retirees, there has been interest in considering various options to protect the benefits of disabled workers and certain dependents. This report examines (1) how certain elements of Social Security reform proposals could affect disability and dependent benefits, (2) options for protecting these benefits and how they might affect disabled workers and dependents, and (3) how protecting benefits could affect the Social Security program. To conduct this study, GAO used a microsimulation model to simulate benefits under various reform scenarios. GAO also interviewed experts and reviewed various reform plans, current literature, and GAO's past work.

What GAO Found

We considered several reform elements that could improve Social Security Trust Fund solvency by reducing the initial benefits received or the growth of individual benefits over time. According to our simulations, these reform elements would reduce median lifetime benefits for disabled workers by up to 27 percent and dependents by up to 30 percent of currently scheduled levels. While the size of the benefit reduction could vary across individuals, it could be substantial for the vast majority of these beneficiaries, depending upon the reform element. Options for protecting the benefits of disabled workers and dependents from the impact of reform elements include, among others, a partial exemption, whereby currently scheduled benefits are maintained until retirement age. For example, while simulations showed that one reform element could decrease median lifetime benefits of disabled workers to about 89 percent of currently scheduled levels, a partial exemption could restore them to about 96 percent. Further, these protections could be more targeted. For example, a larger cost of living adjustment would result in more rapid benefit growth for those disabled workers who receive benefits for a prolonged period of time. Some protections for dependent benefits could be targeted to a single group of dependents, such as widows, while others could affect multiple groups. For example, increasing the maximum benefit a family can receive could protect a wider group of beneficiaries, including children and spouses of disabled workers, and disabled adult children. While it may be desirable to protect the benefits of disabled workers and certain dependents, such protections would come at a cost to Social Security. Protecting benefits could lessen the impact that a reform element would have on solvency. In addition, such protections could create incentives to apply for Disability Insurance, if disability benefits remained stable while retirement benefits were reduced.